How to Process Invoices as a Small Business

For all kinds of businesses, learning how to process invoices is an essential part of your everyday functions. Whether you’re dealing with suppliers or managing vendor requests, ensuring you pay for services and products on time is important to maintaining your reputation and relationships with other businesses.

Invoice processing refers to the complete process of receiving an invoice through to payment and recording in your accounts. This also includes stages such as approving the invoice and establishing a remittance date (the date by which the invoice will be paid). Keep reading to find out how to process invoices in accounts payable and answers to questions such as ‘how are invoices processed?’

What is an invoice?

Before answering the question ‘how are invoices processed?’, it’s helpful to first explain ‘what is an invoice?’. In simple terms, an invoice is just a request for payment that is issued to a customer following the sale of goods or services. While there are many different ways to go about this, the fundamental idea is always the same.

Invoices will generally detail the goods or services that have been provided, as well as a breakdown of costs. They will also include a due date for payment, as well as information about how you can make this payment, such as bank details or perhaps an alternative payment method such as PayPal. There is plenty more information that you should include in an invoice, which you can read about here.

What to do when you receive an invoice

For a small business, invoice processing begins with receiving the invoice, which is generally transmitted electronically. However, some more traditional businesses may prefer to still send physical copies.

It’s important that you find an efficient way to keep a record of these invoices that come in and ensure that they are effectively processed. Recording an invoice includes storing certain information about it, such as the amount owed, who to make payment to, the payment terms, identification numbers such as the PO or invoice number, and any category codes you may use in your own accounting system.

After recording these important details, accounts payable should approve the invoice. This is an important step that ensures that all invoices are in fact valid, and that you are not paying for goods or services that you didn’t receive. You can also automate these approval processes as part of your invoice processing system. So, now you know how to process invoices in accounts payable.

Making payments for an invoice

For those asking “what is invoice processing?”, you might also be wondering whether payment forms part of this process. Indeed, for both a large or small business, invoice payment is part of the invoice processing cycle. Once the invoice has been approved, it can be put in line for payment. With invoice processing software, this process can be automated.

After payment has been made, then the invoice data and payment data should be recorded in your accounting system. Again, this process can be streamlined through the use of invoice processing software that keeps these records automatically.

Benefits of invoice processing software

There are a number of different advantages associated with using invoice processing software, including:

• Reduced labour time and costs, since you won’t have to manually enter data when you receive or make payments for invoices. Collecting invoice payments through Direct Debit via GoCardless, for instance, allows companies to cut back on the amount of time spent chasing up late payments, allowing you to direct business resources to other, more important tasks. 

• More reliable verification of invoices, ensuring that they are all valid.

• With cloud-based systems, you can easily access your invoicing data wherever you are.

• Improved relationships with your vendors and suppliers, since you will be able to quickly and reliably make payments for invoices as they come in.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.