Understanding how to pay an invoice is a critical skill to possess if you own or operate a business of any size. Businesses small and large need to pay their invoices on time, and establishing a consistent, streamlined approach helps them do just that.

Creating a clear and straightforward approach and proper system for accounts payable not only helps you pay invoices on time, but also ensures you pay them accurately every time. Here’s a brief guide on how to pay an invoice the right way, so you can avoid late fees and foster good relationships with vendors.

Verify the accuracy of the invoice

Invoices need to be accurate, otherwise your business risks overpaying or underpaying for the products or services you order from vendors. As soon as you receive an invoice for a vendor order, review it for accuracy to ensure you’re being billed for the exact items you received, and that you’re being charged the right amount. Does the invoice match exactly what your company ordered? Do the costs listed on the invoice line up with the pricing you agreed to pay?

Understand the terms of payment

While it’s important to review every invoice you receive in its entirety, you should pay especially close attention to the payment terms set out by your vendor. Payment terms are one of the most critical details of an invoice, because you need to know how much money will be leaving your accounts and when. This improves your own cash flow practices while also helping ensure that your vendor can continue to provide the products or services you need—in short, everyone wins.

Vendors will typically use shorthand to outline their payment terms, so it helps to become familiar with some of the most common payment terms and abbreviations you’ll come across in an invoice, including:

  • 1MD/2MD: Monthly credit payment of one full month (or two-month) supply
  • CBS: Cash before next shipment
  • CIA: Cash in advance
  • CND: Cash next delivery
  • COD: Cash on delivery
  • CWO: Cash with order
  • Net 7/10/15/30/60/90: Payment expected within 7/10/15/30/60/90 days after the invoice date
  • Partial payment discount: Occurs when a vendor offers a partial discount due to low cash flow
  • PIA: Payment in advance

Record the payment deadline

Every invoice you receive from a vendor should clearly state the date on which payment is due. You should make a note of the payment due date, as well as record any information that details any late fees or charges you may incur if you don’t pay on time.

Determine your payment method

Most companies outline the various payment methods they accept on their invoices. You should choose a payment option that aligns with their requirements, but also the one that’s most favorable for your company. For example, if your business is currently facing cash flow challenges, paying an invoice with a virtual card may be the best option, rather than tying up liquid funds. There are advantages and disadvantages associated with each possible payment type, including:

  • Check: A low-cost yet outdated and time-consuming payment method, physical checks take time to send, diverting your attention away from everyday tasks. They can also easily be lost or delayed in the mail, putting you at risk of incurring late fees.
  • Cash: Unless you’re making an invoice payment in person, paying by cash isn’t recommended. Not only can the payment be lost or stolen, but there’s also no method of recourse.
  • Online credit or debit payment: Because it’s fast and secure, this method of payment is often ideal. There are numerous reputable vendors, such as PayPal, that provide multiple layers of security to keep your data safe and process payments in an instant.
  • Bank transfers: Simple, quick, and affordable, bank transfers are an easy way to pay your suppliers. You simply need a few details from the vendor to pay an invoice and complete the transfer.
  • Direct debit: If you make recurring payments to vendors, direct debit is an easy way for suppliers to collect payment directly from your bank account. It’s a flexible method of payment, since the amount and payment schedule can be fixed or variable depending on your needs.

Schedule the payment

One of the most important steps in learning how to pay an invoice is keeping track of due dates. You need to stay on top of deadlines to ensure you’re managing your expenses. You or your accounts payable team can create a payment schedule in a spreadsheet or in cloud-based accounting software to track and schedule upcoming payments. You can choose to pay weekly, monthly, quarterly, or in any other time frame that meets your vendors’ requirements.

Keep track of confirmed payments

The final step in how to pay an invoice is to make sure you file all relevant payment information for your records. When it’s time to send funds to pay an invoice, document any payment confirmation details you receive, including confirmation numbers for online transfers or payments. You need to keep this information on hand should a payment dispute arise between your business and a vendor.

How paying late affects your business

As a business owner, you understand that all businesses want to be paid fairly and on time, and your vendors are no different. Unfortunately, businesses are often forced to wait at least a month or more beyond their agreed-upon contract to be paid for the products or services they provide. Paying invoices late can have a ripple effect on entire supply chains, causing business owners to make tough decisions in order to stay afloat.

Whether you pay invoices yourself or rely on an accounts payable team to handle it for you, you need to reinforce a culture where invoices are paid on time, every time. Failure to pay on time can lead to any of the following:

  • Damaged reputation with suppliers: The best way to lose a friend in the business world is by failing to hold up your end of a bargain. If you fail to pay invoices—even just one time—your vendors could place a hold on your account, preventing you from securing critical supplies when you need them most.
  • Damaged profit margins: Late payments often come with late fees, so businesses are harming themselves when they fail to pay invoices on time. It can also keep you from taking advantage of any pre-payment discounts that may be available.
  • Damaged credit rating: Vendors will only wait so long to receive payment before they take action. If you fail to make an invoice payment, it could adversely affect your company’s credit rating, making it harder to open credit accounts in the future.
  • Legal action: Businesses are protected under the law when it comes to non-payment of invoices. Your business could be held liable for non-payment of invoices. If your business is on the brink of bankruptcy, your vendors could sell the debt to a collection agency who will tirelessly pursue payment.

Building smart invoicing habits and following an organized approach to invoice payments is a great way for businesses of all sizes to streamline their accounts payable process and ensure invoices are paid on time. By creating reminders, maintaining up-to-date information on your vendors, and using a digital, automated system rather than processing invoices manually, you can protect your business and ensure your vendors are always paid on time.

Pay vendors effortlessly with North One Invoice Payments

With North One Invoice Payments, you can make effortless invoice submissions by uploading or forwarding unpaid invoices to North One via email and we’ll take care of the rest.

You’ll save hours a week and hundreds of dollars in bookkeeping fees with precise payments paid on the invoice’s due date. Plus, you can see all of your upcoming and completed invoice payments in one place, making it easy to stay organized and on top of your finances.

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