What's the number one financial rule of business? Keep track of your cash flow. Proper invoice tracking can help you keep better tabs on your incoming and outgoing payments, so you always know where you stand.
Unfortunately, it's easy for small business owners to become overwhelmed by administrative tasks. But when you develop an effective invoice tracking process, you'll save time, reduce errors, and maintain a solid relationship with your customers and suppliers. Use the following guide to learn how to keep track of invoices and payments with precision and ease.
What is invoice tracking?
Invoice tracking refers to the process by which you monitor the status of an invoice from the moment it's sent and received to the moment the invoice is paid. Your invoice tracking system can monitor both incoming and outgoing invoices, giving you greater visibility of how you pay your suppliers and how your customers pay you.
What does it mean to keep track of your invoices?
When tracking invoices, your primary focus will likely be whether the invoice has been paid. But there is other information that your invoice management system should track. Business owners should also seek to track invoice data such as:
- Invoice number
- Transaction details
- Customer/supplier ID
- Invoice due date
You can use invoice-tracking software to determine whether an invoice has been paid and how many days a particular invoice might be outstanding. Tracking these types of details makes it easier to prioritize unpaid invoices to maintain strong relationships with your suppliers and clients.
Tracking invoices in AP and AR
Business leaders can track invoices in one of two directions. First, you can track supplier invoices to make consistent, on-time payments to your vendors. For example, suppose you submit a purchase order for new inventory. In that case, your accounts payable (AP) system can track the supplier's incoming invoice, match it to the original purchase order, and ensure you submit an accurate and on-time payment.
Second, you can track invoices sent to your customers. Accounts receivable (AR) software can track invoice numbers, monitor the number of days outstanding, and even send payment reminders to encourage timely payments.
Therefore, both AP and AR systems play a role in keeping track of the money flowing into and out of your business. But a thorough payment tracking system will also keep track of deadlines and due dates to maintain on-time payments.
The importance of tracking invoices for a business
Why is it so vital to keep track of your invoice payments? Adopting a consistent process for tracking invoices can yield measurable benefits to your business. Even your vendors and clients will notice the difference when your company operates as a well-oiled machine.
Avoid delayed payments
No matter how much time you invest in creating invoices, they can still be overlooked. According to LinkedIn, 1 out of 5 invoices is two weeks overdue, which can create challenges for companies waiting on payment. But if your business uses invoicing software or other tracking tools, you can keep track of the dates of your outstanding invoices so you can follow up after you bill clients. The best invoice-tracking software can even automate payment reminders to nudge clients to pay their invoices promptly.
Avoid late fees
Many companies assess fees for late payments, starting around 10%. That may not sound like much, but excess business expenses can quickly cut into your profit margin. The right AP software can track the dates of your vendor invoices, which means you pay your bills on time every time.
Nurture better relationships
Failing to pay your vendor invoices on time can result in more than just late fees. You'll need an invoice management system that keeps your payment history up-to-date to maintain a strong relationship with your suppliers. Likewise, using payment tracking software to send automated reminders can help you maintain strong customer relationships and avoid the hassle of chasing down missed payments.
Better expense management
By tracking your invoices, you'll better understand your spending. You can use invoice data to categorize expenses and monitor where your money is going. As a result, you'll have a clearer picture of your company's financial health. You can also use this data to identify patterns and trends that influence your future business decisions.
Assist in tax prep
Like any of your financial processes, keeping records of all your invoices will make tax season easier to handle. Your invoice management system forms a natural audit trail and helps you avoid mistakes that could lead to penalties or even audits.
Better business efficiency
Perhaps the most significant advantage of an invoice tracking system is that it streamlines the administrative side of your business. A centralized, standardized process helps you and your team members create invoices, track dates, and match invoice and purchase numbers quickly and accurately. This means that your accounting department can process a higher volume of invoices without the headache of sifting through a disorganized set of paper records.
How to keep track of invoices: Invoice tracking best practices
Small businesses can improve their operations with an efficient invoice tracking system. Learn how to keep track of invoices with some of today's best practices. For clarity, the following list is divided between the best practices for the AP and AR sides of your accounting processes.
Invoice tracking: Best practices for accounts payable (AP)
The following are common strategies for staying on top of your supplier invoices. These methods can streamline your payment processes and improve relationships with your suppliers.
1. Automate your invoice payments
Some of the best invoice-tracking software can automate your entire payment process. AP software can automatically pull essential data from your incoming invoices and then initiate the approval process so you can make faster payments.
In addition, users will get real-time updates and end-to-end visibility of their financial activities to maintain total control over their cash flow. You can also use your accounting software to pay recurring invoices for certain subscription-based businesses.
2. Create an AP aging report
One way to track your invoice dates is by generating an aging report. This document will summarize the bills and invoices your business owes, organized by date. That way, you'll have a clear picture of what bills are coming due or which ones you may need to catch up on. You can use this report to prioritize invoices that are already late and focus on invoices that are approaching the due date.
3. Prioritize vendor payments
Your invoice tracking strategy can also help you optimize your company's cash flow. As invoice due dates allow, try to stagger your vendor payments to avoid paying all your bills at the end of the month. This way, you'll maintain a steady supply of cash that you can use for your daily operations or take advantage of new opportunities.
4. Implement clear controls
Don't let your AP processes expose you to fraud. Your invoice tracking system should provide transparency and accountability to prevent fraudulent invoicing procedures. Most accounting software platforms offer user controls that give access only to authorized users, which can minimize the potential for fraud.
5. Delegate to a team member
Most small business owners are too busy to handle their own accounting processes. Instead, you can outsource your invoice tracking procedures to another employee.
Doing so will allow you to focus on the revenue-generating activities of your business while remaining confident that your finances are properly handled. That's another reason invoice-tracking software can be so helpful; it allows you to monitor your AP processes even while delegating these tasks to a dedicated team member.
Invoice tracking: Best practices for accounts receivable (AR)
The above practices are designed to ensure that you pay your invoices on time. The following are the best practices for tracking the invoices you send your clients.
1. Use invoicing best practices
Start by focusing on the content of the invoices you send. Professional invoices should clearly communicate data such as:
- Your company name
- The invoice number
- Description of goods and services
- Payment options and terms
- Invoice due date
Using invoice templates allows you to create invoices your clients will notice. That said, invoicing software can also streamline the process and allow you to collect electronic payments.
2. Automate your billing process
The best payment tracking software can do more than keep track of information. Your software platform should also automate your billing process by sending an initial invoice, distributing automatic payment reminders, and providing the means to collect payments online through multiple payment options. These features will help you get paid faster and avoid late payments.
3. Create an aging report
In AR, an aging report will reveal which invoices are coming due and highlight any overdue payments that you need to follow up on. The right software system can also automate this process and even send payment reminders to clients to encourage them to respond promptly to avoid additional late penalties or fees.
4. Integrate with your accounting systems
Some small businesses use invoice tracking templates to monitor their payment collection process manually. However, there are more efficient methods. Opting for invoice-tracking software will allow you to conduct business more quickly, and the best software providers will integrate with your other accounting systems for seamless operations. In addition, cloud-based technology will enable you to access data and perform essential tasks straight from your phone or mobile device.
5. Review your data regularly
The best business leaders use payment data to improve their core business processes. Is your current invoicing process enhancing your business performance? Could things be improved if you send invoices regularly or in a different format? Invoice-tracking software can provide this and other data to help you stay in the sweet spot regarding your financial performance.
Case study 1: Quicken
Quicken is a household name when it comes to financial software solutions. Once a mere spinoff of Intuit, Quicken forged its own identity by using BILL to manage its massive volume of invoices and streamline its internal processes. BILL has helped Quicken pay bills faster, boost productivity, and integrate seamlessly with their accounting software.
Case study 2: Merchant e-Solutions
Before BILL, Merchant e-Solutions was processing over 400 invoices each month. With no automated process in place, invoices frequently went overlooked and unpaid. BILL brought order to their invoicing process. Because the company accomplished this with automated software, it avoided the cost of increasing its corporate headcount.
Invoice tracking with BILL
Now that you know how to track invoices, it's time to invest in a strategy that can keep your business moving forward. The most efficient companies rely on invoicing software that tracks dates and payments and automates core accounting processes.
BILL offers a streamlined software solution for your AR and AP processes. The platform's advanced features help you capture invoice data, approve the invoice, and submit payment in a smooth, hassle-free process. Learn more about BILL's accounts payable features and discover how BILL can transform your business.
Invoice tracking FAQs
What is an invoice tracker?
An invoice tracker is a system that lets you monitor your incoming and outgoing invoices. This can be a form of software or an invoice tracker template that keeps tabs on invoice amounts, dates, and other critical information.
What's the most effective way to keep records of invoices?
While tracking invoices in Excel is possible, invoice-tracking software is more effective. Electronic tools will streamline your tracking process, providing a centralized, standardized approach to handling your company's invoices.
Why should you use invoice-tracking software?
Invoice-tracking software will provide a host of advanced tools and features. It will offer automated reminders for payment, advanced integrations with your existing accounting software, and cloud-based functionality so you can monitor your business from anywhere in the world.