Invoice Management: Definition, Importance, Best Tools, & More!

Invoice management is a process that involves monitoring, organizing, and processing invoices from vendors and suppliers to ensure a business’s expenses and revenue are well-regulated. It is an integral process in operating and maintaining a business’s revenue and sales.

Invoices are an integral part of any business transaction because they contain all the needed information about a purchase, from the prices of the goods or services to applicable taxes and payment terms.

Let’s delve into the specifics of what you need to know when establishing an efficient invoice management system.

Key Takeaways

• Invoice management is the process of recording, verifying, and tracking invoices received from vendors and suppliers.
• Efficient invoice processing enables you to make timely payments consistently. Also, you get to pinpoint and clarify discrepancies in the payment terms ahead of time.
• Manual invoice management is prone to errors and payment delays. It is also very time consuming and tends to disrupt cash flow in the business.
• Automated invoice processing is cost-efficient, time-saving, and reduces human errors. It also improves data accuracy on all your invoices and streamlines your invoice management process.

What is Invoice Management?

Invoice management, or invoice processing, is a process in accounting that includes acquiring, receiving, as well as recording and tracking invoices made for each transaction between a business and a vendor or a supplier.

An invoice records all the key details of a transaction. Without it, it will be difficult for vendors and suppliers to track payments from clients and ensure a continuous cash flow. A typical invoice management process involves the following steps:

• Receiving the invoice
• Verifying all the information on the invoice
• Sending the payment to the supplier or vendor
• Recording the invoice in your accounting book

By following all the steps described above to process and oversee all invoices your business receives, you can easily pinpoint which purchases have already been settled and those that are yet to be paid.

Some businesses manage their invoices manually, while others use an automated system because it saves time and resources. It is also crucial for invoices to be reviewed by more than one person in a business’s accounting department.

Doing so reduces errors and helps identify any discrepancies in the prices, quantity of the items, and payment terms. Otherwise, a business’s finances and budget may be negatively affected by any gaps or duplicate payments recorded in the accounting books.

The Importance of Invoice Management

The importance of invoice management lies in ensuring timely payments and regulating potential errors in recording a business’s expenses and budget.

By managing invoices and payments, you also monitor your inventory and accurately pinpoint whether you need to restock your supplies or not. Backtracking your expenses and following up on unpaid invoices, late payments, duplicate payments, and unfulfilled purchases only adds to your workload.

On the other hand, it is important to choose an invoice management system that suits your business type. After all, if your chosen invoice management process does not coincide with your operations and client demands, it will only lead to more wasteful or unnecessary expenditures.

If you run a startup or a small business, you can hire a reliable accounting team to process all invoices sent and received by your company. Or, if you cater to multiple clients on a daily basis, then you can combine manual invoice management with an automated invoice processing system.

9+ Common Types of Invoices

There are also different types of invoices that you should know about, and these invoices vary depending on who issues them and for what purpose they are created.

Let’s go over some of the most commonly used types of invoices.

Invoices Used for Regular Transactions:

• Advance invoice. It is issued by a seller or vendor to their clients who make bulk orders. The invoice is sent before the goods and items are delivered, and it also uses a payment-first policy to help cover manufacturing and manpower expenses.

• Contractor invoice. A contractor invoice is sent by independent contractors to bill their clients for the services they’ve rendered or goods they’ve provided.

• Digital invoice. Digital invoices are the electronic or paperless counterpart of a standard invoice. Businesses use digital invoices alongside automated invoice management systems.

Invoices for Refunds and Specific Types of Purchases:

• Consolidated invoice. This type of invoice combines different purchases or charges made by a single customer from one business or establishment. It helps keep payment tracking more organized and easier to follow-up.

• Recurring invoice. This type of invoice is a regular or standard invoice that businesses issue periodically to the same customer, charging the same amount for the service and goods they’ve purchased.

• Credit invoice. A credit invoice is used when a customer requests a refund. The invoice confirms that the amount initially paid by the customer is credited back to them.

Invoices for International Transactions:

• Commercial invoice. A commercial invoice is an export document issued to request payment for goods and items sold internationally.

• FOB invoice. Also called Freight on Board, the document specifies who must pay the shipping costs, including who is responsible for overseeing that the products don’t get lost or damaged during shipping.

Invoices for Customer’s Buying Behavior:

• Pro forma invoice. A pro forma invoice is sent to customers to inform them of the tentative details of their order or purchase, such as the estimated costs to a customer who has committed their end of the bargain. Usually, vendors issue pro forma invoices to customers with whom they have already established trust.

• Sundry invoice. A sundry invoice is issued to customers who have not made any significant purchases from a business in terms of the prices of the items they bought. These customers also rarely make purchases using their credit.

4 Common Challenges in Manual Invoice Management

The four common challenges in manual invoice management include a time-consuming process, the possibility of disrupted cash flow, payment delays, and constant human error.

Let’s take a closer look at each of these invoice management hurdles:

#1. It’s Time-Consuming

Manually processing and managing your invoices can be time-consuming. The workload alone is intensive and requires the coordination of your finance and HR departments, from the creation of the purchase order or invoice to reviewing all the details in the financial document and verifying that all information and payment terms are true and correct.

Not to mention, if you cater to different clients or suppliers and have different invoicing schedules for each of them, then you have to ensure that you follow each invoicing due date accordingly. This adds to the many things you have to take note of when processing your invoices.

#2. It Can Disrupt Cash Flow

When there are delays in receiving payments for your invoice, it can also lead to a disrupted cash flow. Indeed, hiring an experienced invoice management accountant can significantly boost the efficiency of your invoice processing.

However, if not everyone on your accounting team has sufficient training, then it may take time to train them and familiarize them with the process.

If you are the supplier and you have to wait for multiple clients to fulfill their payments, then you may experience disruptions in your cash flow, thereby affecting your budget and expenses.

#3. It May Cause Delays in Payments

Whether there are mistakes or an extensive process in managing your invoices, it potentially prolongs the time it takes for the payment to reach your supplier or manufacturer.

If your payment is not ready by the specified due date, then you may even pay late fees on top of the net amount that you have yet to pay.

In turn, your suppliers may begin to lose trust in you if you fail to secure the payment in a timely manner.

#4. It is Prone to Human Error

Human error is quite common when manually managing invoices. These invoice management mistakes include missing or misplaced invoices, duplicated payments, and the failure to detect falsified invoices.

When these errors are not resolved immediately, you could potentially lose the trust of your suppliers and clients. If you’re unable to pay your dues on time, you may receive an overdue invoice letter from your supplier.

Duplicated payments also mean you have to review and update your accounting books accordingly, thereby adding to your accounting and HR team’s existing workload.

17 Perks of Automated Invoice Management

The perks of automated invoice management lie in minimizing the common errors and setbacks brought by processing invoices manually.

Generally, automated invoice management works by using invoice management software to automate all the manual steps in invoice management. These steps include recording invoices, processing payments, regulating all invoices from suppliers, and preparing purchase orders.

Once an invoice is approved or received, the invoice is scanned, and the information is extracted into the software’s database. Next, each of the details in the invoice is populated into specific fields or categories.

In most cases, the invoice processing software also has a centralized system, making it easier for your accounting team to process the invoice.

Not only that, automated invoice management also yields the following benefits:

• Cost-efficient
• Minimizes human error and reduces invoice processing time
• Lowers labor expenses
• Enables and maintains smooth and continuous cash flow
• Speeds up the invoice approval process
• Generates better and more precise insights
• Enables payment transparency
• Fosters trust between suppliers and businesses
• Secures invoice and accounting data
• Easily detects falsified invoices
• Easily verifies all information on the invoice
• Streamlines your business’s accounts payable
• Prevents late payments and the need to incur late fees or penalties

Now that you know the benefits of using automated invoice management, it’s time to learn about the five highest-rated invoice management software tools on the market.

Top 4 Best Invoice Management Software & Tools

The five best invoice management software and tools listed below offer practical solutions for startups, mid-sized enterprises, and large corporations.

#1. FreshBooks

FreshBooks offers a seamless invoice management solution for small businesses. Its cloud-based accounting also suits independent contractors.

The payment processor used by FreshBooks is also compatible with most types of credit cards and supports online, ACH, and PayPal payments.

Among the additional pros of using FreshBooks to manage your invoicing is that it makes consolidating invoices more seamless and effortless. The monthly costs range from $19 to $60, with a free trial available for new subscribers.

#2. Airbase

Airbase is a globally renowned procure-to-pay invoice management software.

Some of the impressive features that Airbase offers include automatic bill coding, seamless onboarding, structured approval flow, automated coding for credit cards and a receipt management tool.

Existing clients are also happy with the affable and personable quality of customer service offered by Airbase. Airbase also offers different subscription packages depending on your company size.

The Enterprise package is for companies with over 10,000 employees, while the Premium package is for businesses with over 500 staff. The Standard package best suits business owners employing over 200 personnel.

#3. Xero

Xero also suits small businesses and startups, with affordable monthly costs ranging from $15 to $78. It supports online payments and ACH transactions and enables invoice customization. If you choose the $15 monthly plan, you can generate up to 20 invoices each month.

You can opt for the more expensive monthly plan if you want to maximize the software’s features and create several invoices and quotes. Other noteworthy features include inventory tracking and bank reconciliation.

#4. Zoho Invoice

Zoho Invoice’s pricing packages range from $19 to $60, with unlimited and customizable invoices. New users can also take advantage of the free trial option to test Zoho Invoice’sinvoice management features.

Zoho Invoice enables you to accept payments online and utilize a client portal for your transactions. Not only that, Zoho Invoice makes it easy to monitor billable hours, projects, and pricing estimates.

Experience Hassle-Free Invoicing with Paystubs.org

Paystub.org is an online generator tool for invoices, pay stubs, and tax documents such as Form W-2 and 1099 forms.

While technically not software designed for processing or managing invoices at large, Paystub.org’s invoice generator makes it easier for you to create and track invoices for every transaction.

It takes three simple steps to use the generator:

• First, choose a template.

• Then fill out the form with all the essential information, and preview your invoice to verify that all details are correct.

• And finally, you can print a physical copy or download a digital invoice.

Our invoice generator is a cost-effective tool that can help you monitor your unpaid balances more closely.

Final Thoughts

Perfecting your invoice management process helps secure cash flow for your business and maintain the trust of the suppliers and vendors you work with. More importantly, it prevents you from incurring late payments, late fees, and potential penalties.

When in doubt, you can always use this article as your guide to processing your invoices efficiently and consistently. Better yet, take advantage of our easy-to-use invoice generator so you don’t miss a payment deadline and regulate your dues effortlessly.