Key takeaways
An invoice payment is a payment that customers make to a business once the goods or services are fulfilled.
Some common invoice payment methods include paying by cash or cheque, credit or debit card, bank or wire transfer, online payment, and automated bill payment.
Your business can avoid payment delays by following best practices such as invoice review and scheduling, or using software to automate the process.
Believe it or not, even with the advancements in online payments technology and the uptake of invoice automation software use, delayed invoice payments are still an issue affecting many businesses globally.
Although invoice payments are considered a simple task for anyone acquainted with accounting processes, for new small businesses, this can be a major learning curve.
If you've just started a new business, this article will guide you through all there is to know about invoice payments.
What is an invoice payment?
An invoice payment is a payment made by a customer for any goods or services provided by a business.
An invoice payment is made after receiving an invoice that includes:
- Details of the purchase
- Information about the entities in the transaction
- The costs of the goods or services
- The payment terms
What information needs to be on an invoice?
Before you can move on to the next steps in preparing an invoice, it is important to consider every piece of information that will be required for the receiving party (customers) to process your invoice.
Here are some basic components that should be included in an invoice:
- Name of your company
- Trading address
- Methods or channels of contact
- Description of purchased goods or services
- An invoice number
- Payment methods (to receive payment)
- Payment terms (i.e., agreement for the due date)
- The amount for customers to pay
- Bank details to receive payment
These are some of the basic components that you should include in an invoice.
However, there can also be other components, which will depend entirely on the agreement you make with your customer such as discounts for goods or services you provide.
Invoice example
Now that you understand the requirements on how to make an invoice payment. Let's take a look at an example of an invoice.
In this example, you can see that there are basic components we mentioned within an invoice.
Remember to make sure that you review your invoice each time before you send it to your customer.
What is a paid invoice?
If you're a freelancer or a small business owner, it is advisable to keep a paid invoice as it is an important document that records your business transactions.
After the buyer fulfilled the payment, the invoice will be marked as "settled".
Paid invoices often include similar details as that of an invoice. Some paid invoices may also include payment terms, a due date, and other remarks such as late fees or discounts.
What are some common invoice payment methods?
Another important set of payment terms is the type of payment method to use to make a payment. The method is chosen by the business sending the invoice.
Each payment method requires more effort than others to set up or can incur extra fees from either side of the transaction. It's important to take these factors into consideration to pick the right payment method for your business.
Here are some common payment types you may come across.
Traditional payment types
Traditional payment methods are those that were most common prior to the advancements in digital payment methods.
Cash payments
A cash request for payment involves action by both parties involved in the transaction. Cash can be handed over by an organized in-person meeting or sent via mail.
In some countries, small businesses outside the major urban areas still may prefer to use this payment method.
However, this method is quickly becoming outdated and less used due to the pitfalls in handling cash, such as the cash being lost or stolen.
Pay by cheque
Paying by cheque can also involve a physical meeting or sending a cheque by mail to the recipient.
Just like paying by cash, this method is also becoming less used. This method is more time-consuming than using new digital methods of payment.
Cheques can also easily be canceled, blocked, or forged by the paying party before the receiver gets a chance to cash them in.
Digital payment types
Digital payment methods have arguably pushed out the use of traditional payment methods.
This is because digital methods appease many of the disadvantages that are associated with cash and cheque payments.
Digital payment methods are faster, more secure, and more easily traceable. Let’s go through them below.
Credit or Debit card
You may be able to pay your bill with a credit or debit card. Usually, when this method is requested, the payee will provide the details on where and how you can do this.
A common way is through a link that is sent that directs you to a secure payment gateway that keeps your personal data secure.
One key disadvantage of requesting credit card payments is the extra fees incurred by the card provider.
Bank transfers or wire transfer
It may be requested to make a payment directly to a bank account. These types of requests are easy to detect as the business will provide specific bank account details.
Wire transfer is commonly used for domestic payments. Usually, there is a local banking system that facilitates local bank payments quickly and cheaply.
This method is also common for cross-border payments, but higher fees can be incurred due to currency conversions and international transfer handling costs.
Online payments
Online payments are a relatively new way to request payments. Payments are facilitated by a third-party provider online.
Providers such as PayPal, Apple Pay, Google Pay, Samsung Pay, Venmo (USA), WeChat pay (China, Hong Kong), and Payoneer are just a few examples.
These methods can request payment from a credit or debit card, or you will receive and hold the funds in an account until you withdraw the money. There are usually third-party fees involved in transactions of this type.
Automatic bill payment
Another way of requesting payment is in the form of setting up an automated payment.
This could be to break up a large transaction amount into more manageable payments for the customer, or you may have repeat customers that make timely orders.
This type of payment request requires both the customer and seller to agree on the amount due and the interval of each payment.
An automatic bill payment can be set up as a direct debit or a recurring payment arrangement to pay invoices.
Recurring payments can be set as a fixed or a variable amount. A payment receipt should be sent to the customer after each payment has been cleared.
What are invoice payment terms?
Invoice payment terms are a set of instructions that customers must follow. This can vary depending on the service provider. Oftentimes, it comes down to the financial obligations set towards a customer.
The payment terms section of an invoice is where you will find all the instructions you are requested to follow to make payment to the goods or service provider.
What happens if the payment terms instructions are not followed?
If the invoice payment terms are not followed, the payment can be lost or delayed. As we’ve briefly mentioned above, digital payment methods are outperforming traditional methods due to things like convenience and security.
But even for digital payment methods, you can still experience a common issue, which is a payment delay.
When the payment terms are not followed or clear on an invoice. Delays in invoice payments can be really frustrating for everyone involved in a transaction.
Here are some reasons why an invoice payment can be delayed on both sides - the business and the customer - after an invoice has been received.
Payment delays that come from the customer when making the payment include:
- Issues with organization or accounting processes
- Lack of funds to pay the invoice
- Not understanding or not following the payment terms
On the other hand, payment delays can also be the fault of the business providing the invoice itself, which are:
- Missing or lack of important information
- Unclear payment terms and instructions
- Incorrect/inaccurate information
Sometimes it can be out of the control of the business and customer when digital payment methods fail or delay payment.
When does an invoice payment need to be made?
Generally, an invoice payment due by date will be listed under the payment terms on an invoice.
Timeframes can range anywhere from 1 week up to 30 days from the moment an invoice is issued and received by the customer.
📑Facts: If you don't find any due date specified on an invoice, the payments will usually be made within 30 days, as businesses can claim overdue compensation
Tips to pay invoices on time
No one likes to be the reason a payment is delayed.
Here are our top 5 tips for you to apply when making invoice payments so that you can avoid delay and be on time – every time.
1. Review each invoice the moment you receive them
Reviewing an invoice, understanding what the terms are, and either paying it there or then is the best way to make sure no invoice gets delayed.
2. Always set tangible reminders for you and your team
If you have competing priorities when you open an invoice requesting payment, don’t only take a mental note to come back to it later.
Write down a quick reminder or plan to pay the invoice that you’ve quickly reviewed. If you have an accounting team available, forward the invoice straight away.
3. Make a dedicated schedule for invoicing purposes
Make a consistent schedule that is dedicated to opening and paying invoices. This can also include creating a payment schedule if you find you have multiple invoices coming in at the same time.
4. Tackle invoicing issues head-on
This tip can be for businesses receiving payments or sending payments.
For businesses finding that their invoice payments are consistently being delayed, it may be time to review your invoice template. You can check out our article on how to create an invoice to see if you may be missing any important details.
For businesses finding they consistently miss payment dates due, make it a priority to investigate the root cause for why there are delays in making payments.
5. Implement an automated invoicing software
Automated invoicing software in the long run can save your business time and money. Utilizing this software makes creating invoices, sorting invoices, paying invoices, and storing invoices more effective.
Set-up costs and training can be high, so always make sure any new software implementations fit within your business’s budget.
📌Recommendation: You can prevent payment delays by double-checking invoices before sending, encouraging advance payments, and giving incentives or automating payment reminders.
Make sure to pay close attention to your invoices
Create an invoice that looks professional, with all the necessary information. This will give you the best chance of getting paid on time and reduce the chances of being paid late or having to chase an unpaid invoice.
Try our invoice generator to generate unique invoices for your business.
FAQs
What is an invoice payment?
An invoice payment is a payment made by a customer for any goods or services provided by a business.
What should you include in an invoice payment?
When should invoices be paid?
