Glossary

What is Invoice Processing and How Does It Work

When it comes to running a business, keeping up with invoices will allow you to maintain good relationships with vendors, avoid late fees, and keep away from damaging your business credit score. Here’s what you need to know about invoice processing and what forms of payment you can use to pay off a bill.

What is invoice processing?

Invoice processing is an integral part of your business’s accounting process as well as your cash flow. This refers to the process in which a company handles an invoice from a supplier from the day it receives it to the day it is paid. When an invoice is received, it will be handled by the business’s accounts payable staff. Accounts payable refers to the money that a business owes. It is referred to as a liability on a balance sheet. On the other hand, accounts receivable is the money that a business is owed for offering goods and services. On a business’s balance sheet, it is referred to as an asset.

For example, if an accounting team for Company A receives an invoice from Company B for a product or service that Company B provided to Company A, the accounts payable staff will record it in their accounting software system. From there, staff will track the invoice and make sure it gets paid on time; however, it may take several steps as there is typically an entire workflow involved in getting an invoice approved for payment. Using automation accounting software can help to streamline invoice processing.

What is the invoice processing process? How it works

A business having to pay an invoice from a vendor or partner is quite a different process than how a consumer might pay a company for goods or services. Consumers typically have to pay on the spot using cash or a credit or debit card. While a business can also use these payment methods to pay an invoice, there are typically several steps in between.

  1. Once a business receives a product or service from another company, they’ll typically be sent a purchase order, verifying the details of what the company bought such as quantity and price.

  2. Next, the company that sold that item or service will follow up with an invoice that typically includes the purchase order number, information on the product bought, and when the bill is due. The invoice is given to the accounts payable team and and will require some data entry to be stored for future use.

  3. The invoices must then be presented to those in the company who are responsible for approving or rejecting invoices. If the invoices are approved for payment, they must go through the company’s accounts payable system. Oftentimes, they must be matched to other documentation such as a purchase order for the payment to be processed.

  4. The payment is the next item sent out to the business that provided the invoice. Invoices can be paid through a variety of means such as paper checks, cash, ACH, or credit card.

  5. Lastly, both the invoice and payment are documented in the company’s general ledger for record-keeping purposes. These documents can later be used in case of an audit as well as for internal financial reports done by the company.

What are the benefits of paying an invoice with a credit card?

If you manage accounts payable, one way to pay off an invoice is through a credit card. Besides being convenient, paying an invoice or bills with a credit card can be advantageous to businesses for a variety of reasons. For instance, depending on which type of credit card you use, you can be rewarded for using that method of payment.

For example, with a cash-back credit card, you can earn between 1% and 6% back in cash whenever you use it to pay for something. Some credit cards only offer cash-back rewards on certain types of purchases such as at gas stations or certain websites, like Amazon. However, some credit cards will offer you cash-back rewards no matter what you use your payment toward. Say, for instance, you spend $500 on office supplies for your business. If your credit card offers 5% cash back on purchases, you'll be compensated $25 as a reward.

Another popular type of credit card rewards program is to stack up points when you make purchases that can go toward travel. Some credit card companies partner with airlines and will reward you points after making purchases. Eventually, those points can eventually be redeemed to pay for any travel expenses you might have.

Paying invoices with a credit card can offer users benefits other than rewards systems. Using a digital means to pay your bills can also help you track your payments more easily as well as your cash flow.

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