Every time you purchase a product or service for your business, you’ll receive an invoice that must be processed and paid on time to avoid late fees and stay in the black. This is where effective invoice management comes in.

Invoice management is receiving, validating, paying, and recording vendor invoices. (It’s also known as invoice processing.) Manual invoice processes can be time-consuming, error-prone, and costly for small businesses. Thankfully, there are automated solutions that can make the process easier.

What is invoice management?

Effective invoice management is critical for maintaining accurate financial records and promptly paying vendors.

The invoice management process typically begins when a vendor sends an invoice to the business for payment. The business should review the invoice to ensure the charges are accurate and that the goods or services were delivered as expected. Bring up discrepancies or issues with the vendor before remitting payment.

Once the invoice has been reviewed and approved, the business can enter the payment information into its accounting system and schedule payment. Some companies may use automated payment systems to streamline the process and ensure payments go out on time.

Benefits of invoice management

Effective invoice management can help businesses:

  • Maintain accurate financial records: By tracking invoices and payments in a central system, companies can ensure that their financial records are up to date and accurate.
  • Manage cash flow: By monitoring invoice due dates and payment schedules, businesses can better manage their cash flow and ensure they have the funds to pay vendors when payments are due.
  • Improve vendor relationships: Businesses can build stronger relationships with their vendors by paying them on time and communicating effectively about invoice issues or delays.
  • Streamline processes: By automating invoice management processes, businesses can save time and reduce the risk of errors or oversights.

By implementing effective processes and systems for invoice management, businesses can save time and resources, increase productivity, and improve vendor connections with digital tools like invoicing and payment processing. These tools can help small businesses remain competitive and improve their bottom line, empowering employees to focus on what they do best while resting easy knowing the invoice management process is in good hands.

How to manage invoices at your business

Here are the steps involved in invoice management so you can follow an invoice’s journey from capture through payment and reconciliation.

1. Capturing vendor invoices

The first step in invoice management is to capture the invoice from the vendor. Invoices can arrive in various formats, including paper documents, electronic files, or email attachments. To ensure accuracy, it’s essential to capture complete information from the invoice, including the vendor name, invoice number, date, and payment terms. This information will be used to verify, approve, and pay the invoice in subsequent steps.

2. Verifying accuracy

Once the invoice has been captured and entered into your accounting system, AP must verify its accuracy. Verification involves checking that the details on the invoice match the purchase order or contract, ensuring that the prices and quantities are correct, and applying for discounts or credits. Verification is critical to prevent errors or discrepancies that could delay payment or cause issues with vendor relationships.

3. Approving invoices for payment

After the invoice is verified, it needs approval for payment. Acceptance typically involves a workflow process where the appropriate parties, such as department managers or executives, review and approve the invoice. The approval process may be manual or automated, depending on the size and complexity of the organization. Automated approval workflows can save time and reduce the risk of errors or delays, while manual workflows provide greater control and oversight.

4. Processing invoice payments

Following approval, it is time to process the invoice. This involves recording the amount in your accounts payable ledger, generating a check or electronic payment, and sending it to the vendor. Payment processing should be timely and accurate to maintain positive vendor relationships and avoid late fees or penalties.

5. Reconciling invoices for accurate financial records

Finally, it’s important to reconcile your accounts payable ledger to ensure that payment records are correct and there are no outstanding invoices or discrepancies. Reconciliation involves comparing your accounts payable ledger to vendor statements and other documents to identify differences or errors. Reconcile your books regularly to ensure the accuracy of your financial records and to prevent issues with vendors or auditors.

Best invoice management software

Before you sign up for invoice management software, pay for a subscription, and upload your banking information, only to discover that the platform doesn’t meet half your needs, it’s best to see which software programs will serve your business best.

Here are some of the top-rated platforms you should consider checking out. All of these offer invoice management functions, along with other useful capabilities.

QuickBooks

QuickBooks is the grandfather of accounting software and a great option for paying and managing invoices. It’s user-friendly and provides a range of accounting features in addition to invoicing. QuickBooks caters primarily to large businesses because of its steep price tag.

FreshBooks

FreshBooks is a cloud-based platform known for being easy to use, making it an excellent option for businesses with limited accounting expertise. Unfortunately, it can be expensive, as pricing plans increase based on the number of billable clients. This may not be the best choice for businesses that primarily need a platform for managing invoice payment.

Xero

Xero is a cloud-based accounting software that offers invoicing, billing, and payment capabilities. It makes it easy for businesses to generate detailed financial reports and track key performance indicators (KPIs). Xero also integrates with many third-party apps, but its pricing plans can be expensive for small businesses.

Wave

Wave is a free accounting software with invoicing and billing functions, making it an attractive option for startups. It’s easy to navigate, making it a good choice for companies with limited accounting expertise. It offers little in the way of customer support—you can request support via email only. Wave’s invoicing and accounting features are relatively basic compared to other invoicing solutions, which may not be sufficient for businesses with more complex accounting needs.

Bill.com

This popular tool has advanced payment processing capabilities, including ACH, wire transfers, and virtual credit card payments. On the downside, it can be expensive compared to other invoice management solutions, especially for smaller businesses with limited budgets. It’s also a large, bulky platform that may be too cumbersome for startups.

North One Business Banking

North One offers a comprehensive small business financial management solution, including invoicing and payment processing features. With its easy accessibility, fast payments, digital banking tools, and hassle-free experience, North One is an ideal invoice management software for small businesses.