Whether you’re a sole trader or growing e-commerce retailer, one of the first orders of business should be determining how to keep track of invoices and payments. Here are a few tips to help you stay organized.
The importance of bookkeeping
Keeping track of payments has a direct impact on your business’s cash flow, so it’s important to streamline this process with an organized bookkeeping system. If you don’t receive customer payments in a timely manner, you won’t have the funds necessary to pay your own expenses. In addition, credit can suffer as a result of a diminished cash flow.
The best bookkeeping system will depend on several factors:
Type of business
Short and long-term goals
How to keep track of payments received
It seems simple in theory – you send an invoice to a client and receive a payment in return.
So, why is it so difficult to keep track of payments at times? It often boils down to timing. If you use the traditional accounting method of sending out invoices and waiting for a response, tracking all payments manually, there can be long lags in between each stage. You not only have to wait for the customer to receive the invoice, but then you must wait for the payment. It takes time for the payment to clear into your bank account, and by this time, it might be an entirely new accounting period.
When determining how to keep track of payments received, you must work this time lag into the equation. Ideally, if you have an online business, you can simply receive payments electronically through your website. For those businesses that must submit invoice, however, here are a few easy steps to simplify the process:
Use a uniform template for invoices and verify all payment information to avoid processing delays.
Put a follow-up system in place for late invoices. Don’t wait until invoices are 60 days past due. To avoid further delay, place a courtesy phone call with your client as soon as the payment is delayed.
Keep on track of your financial reports. Track payments received in a spreadsheet, updating your profit and loss statement regularly to show any changes.
Use accounting software to automate the process. A good software program can automatically issue invoices, track payments, and alert you to any discrepancies between the two.
How to keep track of bills and payments owed
Once you’ve figured out accounts receivable or how to keep track of customer payments, you’ll then need to think about tracking your outgoings and expenses. Putting a strong system in place ensures you don’t miss any bills, but it also assists with budgeting because you can analyze and anticipate regular costs.
The first step in determining how to keep track of bills and payments owed is to place all your monthly payments into categories. These should be divided by payment type. For example, you might pay some bills with your checking account, and others with your business credit card.
Make a spreadsheet detailing all of your outgoing payments each month, highlighting different payment types by color to set them apart. You can also organize them by due date, factoring in bank processing times.
Use payment tracking software to ensure that your payments are sent out automatically. The best accounting programs give you a clear visual of all checking and credit accounts from a central dashboard.
Update your spreadsheet as payments leave your accounts and bills are paid.
Consider going digital
Are you still using paper invoices? Consider going paperless in the office to keep track of payments more efficiently. Digitize all of your invoices, bills, bank statements, employee files, and any other financial statements.
By digitizing your financials, you’ll have quick access to everything you need at a glance. Scanned documents are easier to send to the IRS or your personal accountant, and you can verify whether or not customer invoices have been paid.
What to look for in accounting software
An accounting software system is a must-have for businesses today. However, not all software is created alike. Look for the following features to keep track of bills and payments more effectively:
Compatible with multiple users: Ideally, each employee should be able to enter their own expenses and record invoices.
Cloud-based system: You should be able to use the accounting program from anywhere.
Cost-effective pricing structure: Larger businesses will need a more comprehensive plan, but small-scale traders might have minimal accounting needs for a handful of clients.
Security: If you’re storing sensitive financial data, make sure it’s protected with proper levels of encryption.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with whene chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.