Business owners in all industries share a few headaches. Take invoice tracking. If you fail to track payments, money can slip through the cracks and cause financial struggles for your company.
Tracking professional invoices can become daunting as your business grows, but it doesn’t have to. You can avoid future headaches by understanding the role invoice tracking plays in your company’s growth and taking advantage of the most effective tools for the job.
How Does Invoice Tracking Work?
Your accounts receivable department isn’t just in charge of making professional-looking invoices. Invoice tracking is one of the department’s primary functions. Here’s how the process works:
- Send the Invoice: Start by tracking the dates you send invoices. Be sure to send invoices with adequate time between the date sent and the due date.
- Track Invoice Payments: It’s important to find the corresponding invoice and mark it as paid any time a payment comes into one of your company’s bank accounts.
- Find Missed Payments: A good system for processing invoices also means you have a system that helps you find and address missed payments. Although you’ll want to contact your customer as soon as payments are missed, you may also want to cancel services, impose a late fee, or take another action associated with the missed payment.
- Reconcile Accounts: Reconcile your accounts and invoice payments to keep your books in good working order.
Invoice tracking is also important on the accounts payable side of the coin. You’ll need to track when your bills come in and when you pay them. And don't forget to reconcile your accounts payable with your bank accounts.
The Importance of Keeping Track of Invoices
Invoice management plays an integral role in any business’s growth. It helps you manage your cash flow efficiently and maintain a downline of loyal customers.
Helps Manage Your Cash Flow Efficiently
You’ve heard the old adage, “It costs money to make money.” That’s no secret. If you plan on building and growing a business, you’ll need to feed that business cash continually. That’s why business owners pay such close attention to cash flow.
If you don’t carefully keep track of bills and payments, it can be easy to spend more money than your business has, putting your company in a financial bind. The simple fact is that accounts payable and accounts receivable need to be in sync for cash flow efficiency.
When you track your invoices, you know exactly how much money is coming into your company at any given time. You’ll also be privy to data points like the percentage of your invoices that are paid on time. This information better equips you to make sound financial decisions.
Prevents Late Payment Fees
Nobody likes to pay late payment fees. Late payment fees to vendors can be quite expensive, tapping into your bottom line. Keep close track of the invoices coming into and leaving your company, and you’ll likely avoid all late fees. You’ll have everything you need to properly manage your money and ensure your vendors are paid on time.
Late fees also affect your customers. Late invoice payment fees could be the reason some of your customers decide to cancel your services. Quality invoice tracking can often alleviate this hassle.
People are forgetful. However, when you keep track of the outstanding invoices, you can remind your customers that their payments will be due soon. A simple email reminder could be all they need to go from a potential cancellation to a loyal member of your subscriber base.
Keeps Track of Overdue Invoices
No business can expect 100% of its invoices to be paid on time. Life happens, and unforeseen circumstances will occasionally lead to missed payments. As a business owner, it’s your job to track those overdue invoices and do what you can to take action.
Your invoice processing system should be able to reveal past-due invoices. Once you find these invoices, you can reach out to your customers to find out why they’ve missed the due date.
In some cases, customers will miss due dates simply because they want to cancel, and not paying for your service is an option for doing so. When you track overdue invoices, you can contact these customers and find out why they canceled. You may even have the opportunity to win their business back.
Fosters a Professional Brand Image
It’s important that your brand image screams professionalism to your customers and your employees. If you fail to track your invoices, it will show a lack of professionalism that could cause customers and potential talent to turn away. Keeping tabs on your invoices shows that your company takes a professional approach to doing business.
Facilitates Budget Monitoring
Small to medium businesses and even enterprise-level businesses operate on a budget. Budgets help ensure you’re using your assets wisely across your organization. However, sticking to your budget is impossible if you don’t track your invoices.
How can you stick to a budget if you don’t know when money is coming into your company and when you’ll need to pay bills?
When you track incoming and outgoing invoices, you’re always in the know regarding your company’s cash flow. This makes it possible for you to create an effective data-driven budget that will be easy to follow and likely lead to your company’s growth.
4 Expert Invoice Tracking Tips
The invoice management process may seem daunting. That’s especially true if you have several vendors and hundreds of customers or more. However, it doesn’t have to be as difficult as it sounds. Follow the tips below to simplify the invoice tracking process.
1. Set Clear Terms and Conditions With Customers
The first thing that will help you through your invoice tracking process is to set clear terms with your customers. When you do, you won’t have to worry as much about late and missed payments because your customers will know everything they need to know prior to receiving their invoices. During the sales process, you should set the following terms and conditions.
- Due Date: Your customers should know and agree to the due date before you execute any contract. This is also a good time to discuss any grace period if you offer one.
- Amount Due: Your customers also need to know how much money you expect in exchange for your products or services. Be upfront about any and all fees associated with the agreement.
- Payment Method: It can be frustrating to be ready and willing to pay a bill only to find you brought the wrong payment method to the table. Make sure your customers know what payment methods you accept at the beginning of the conversation.
- Late Fee Policy: If you charge a late fee, you should clarify your late fee policy to your customers. This includes the amount of the late fee and when it is imposed. For example, you may charge a 5% late fee on payments made after a five-day grace period.
Also, be sure to collect all the information you’ll need to contact your customer during this process. This includes their name and a mix of their address, phone number, and email address.
2. Develop a System To Keep Track of Invoices
As you start tracking invoices, you’ll realize that it’s best to have a system. Many business owners that follow the manual invoice management path use an invoice tracking spreadsheet. You can set one up using Google Drive, Microsoft Office, or a number of other programs.
Your system should include methods for tracking:
- When you send invoices out
- Payment due dates on each invoice
- When you receive payments
- Overdue invoices (and a method for taking action in the event of overdue invoices)
3. Follow Up Regularly With Payment Reminders
Humans can be forgetful. You’ve likely been a victim of this fact in the past, missing a payment from time to time. However, you can avoid the majority of missed and late payments for your business by simply sending out payment reminders. A text or email could be the nudge your customer needs to pay on time.
For example, let’s say John Smith has a payment of $59.95 that’s due in a week. You can send an email or text message reminder that’s as simple as:
We’re just touching base to remind you that your payment of $59.95 for (service) is due on (date). Feel free to reach out if you have any questions or feel you received this email in error.
The MyCompany Team”
Most of your customers intend to pay your invoices on time, but life happens. Simple reminders like the one above can greatly improve your on-time payment rate.
4. Automate Your Invoice Tracking Process
Pen and paper invoice tracking may work for a small business, but it can quickly become a headache. Writing down invoice data or even using a spreadsheet to track it manually is a time-consuming task.
The good news is that there are software solutions for these challenges.
Invoice tracker apps make it easy for you to automate the entire process. With the right software solution, all you need to do is create your invoice in the app. Once you create and send your invoice, the software will automatically track send dates, due dates, payment dates, and overdue invoices. The best solutions will even make it easy to reconcile your invoice payments with your bank accounts to keep your books in order.
What To Consider When Choosing an Invoice Tracking Software
Although using a software solution for your invoice tracking needs is wise, it’s also important to remember that not all software solutions are equal. Some will offer more than others. When you compare invoice tracking systems, consider the following:
- Recurring Payments: Can the invoice system you’re considering track recurring payments? This is crucial for subscription businesses, as you don’t want to have to send one-time invoices out every pay period.
- Your Invoice Volume: Some solutions charge significantly more money for their services if you have a high invoice volume. So, if you send several invoices, look for unlimited solutions.
- Reports: The process of invoice tracking produces data you can use to improve the efficiency of your business. So, it’s important that the system you use offers detailed reports. These reports should make the data easy to understand, allowing you to find optimization opportunities within your processes.
- Automation: Different solutions will have varying levels of automation. It’s best to find a solution that offers end-to-end automation for the entire process.
Build Up Your Business With a Robust and Scalable Billing Suite
If you’re in the market for invoice tracking tools, take the time to dive into Revolv3. Invoice tracking is just one of the features that comes with this all-inclusive payment optimization platform.
With Revolv3, you can create and track detailed invoices while you take advantage of features like:
- No Fees for Failed Payments: You only pay a transaction fee when the transaction ends in an approval.
- Dynamic Routing: Dynamic routing helps improve your approval rate while reducing your customer churn.
- Scalability: All services are quickly and easily scaled as necessary.
Find out how Revolv3 can help your business today.