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How Does Invoice Payment Work?

As a small business owner or entrepreneur, you might be tempted to accept any type of payment from your customers. While payments come in many forms, some are more valuable and trustworthy than others. In other words, we suggest holding off on bitcoin exchanges and crypto payments for now. 

 

A better, more suitable option is invoice payments. This form of payment is common among service-based businesses and wholesalers, but also quickly growing among all types of industries.

In fact, many studies predict that in the post-COVID era, the e-invoicing market will become more dynamic, stable, growth-driven, and open new windows of opportunities. For this reason, it is a great time to learn about what invoice payments are, as well as the advantages and disadvantages of using them.

Keep reading as we discuss these details at length below.

 

What is an Invoice Payment?

First things first, let’s define invoice payments. An invoice is a written document that indicates the sale between a business and a consumer or a business and another business. The physical or online bill includes important information about the transaction.

 

While each invoice differs, common information found on the document includes:

  • Company logo
  • Buyer details
  • Date of purchase
  • Quantity
  • Value + tax
  • Payment terms + due date

 

Invoice payments are wildly popular across many different business types such as construction, finance, publishing, professional services, distribution, and many others.

 

How Does Invoice Payment Work

Invoice payments are how organizations are paid for their goods and services. Therefore, they have a significant bearing on the working capital available to the business. The ability of the company to meet its marketing, payroll, and operational costs depends on the time it takes to recover the invoices due

For this reason, when an invoice is paid is subjective with each business. Some establishments ask customers for payment on receipt, while others ask for a percentage of the bill to be paid in advance. 

Additionally, some small businesses offer a discount on the total amount of the invoice when customers pay early. This is likely due to the fact that newer organizations need those funds to improve cash flow compared to larger corporations that have more money to play with.

 

Advantages of Invoice Payments

Operating and managing a small business comes with a lot of responsibilities. In many cases, the laundry list of tasks includes accounts payables. It’s why most service-based organizations choose to issue invoice payments because it alleviates a lot of the hassle around tracking down customer payments. 

 

Here are more reasons why companies choose to process invoices:

  • Flexible payment schedules for customers. Invoice payments are excellent for offering stellar customer service. It gives people the option to pay you when it is best for them (within predetermined payment terms such as 30 or 60 days).
  • Legal reasons. Sure, invoices are great for tracking and receiving payments, but they also protect your business in the event of a dispute. An invoice acts as legal proof that two parties made a financial agreement and you deserve the money you are owed.
  • Keep your business organized. As I said, managing your own business means having many irons in the fire. Therefore, having a record of all invoices helps keep track of your finances and any pending payments. 

 

To really reap the benefits of invoice payments, I recommend utilizing an invoice software platform such as Freshbooks or Intuit QuickBooks Online. They can help streamline the entire accounts payables process so you remain focused on making money, not chasing it.

 

Disadvantages of Invoice Payments

Perhaps the biggest drawback of invoice payments for small businesses is varying payment due dates. For instance, payment due dates can be within 30, 60, or 90+ days.

 

While these flexible payment terms are beneficial to customers, they can be hard for businesses that are just getting off the ground. Waiting Net 90 for $3,000 can seem like an eternity for a new business that needs that capital to fund growth, pay employees, purchase more inventory, etc. 

 

Luckily, there is a solution that allows companies to offer flexible payment terms, while also getting paid instantly for the products and services they’ve already delivered. That solution is invoice factoring.

 

Tell me more, tell me more.

Invoice factoring is a type of asset-based financing where entrepreneurs can earn an advance on the payment customers owe in exchange for their unpaid invoices. The invoices act as collateral on the money borrowed. It resolves many cash flow challenges associated with invoice payments and therefore is an excellent funding option for new or small businesses.

 

To learn more, read our blog post How Does Invoice Financing Work?

 

Final Thoughts

When running a small business, one of the first components to figure out is how you will collect payments from customers for the products or services you provide. A great option to consider is invoice payments. They help make your business look professional and organized, while also remaining flexible for customers who can’t pay right away. 

 

Looking for more small business financing tips and tricks? Check out more resources by Crowdz:

 

By Sarah Wyman

March 1, 2022

Share this article

Blog

How Does Invoice Payment Work?

As a small business owner or entrepreneur, you might be tempted to accept any type of payment from your customers. While payments come in many forms, some are more valuable and trustworthy than others. In other words, we suggest holding off on bitcoin exchanges and crypto payments for now. 

 

A better, more suitable option is invoice payments. This form of payment is common among service-based businesses and wholesalers, but also quickly growing among all types of industries.

In fact, many studies predict that in the post-COVID era, the e-invoicing market will become more dynamic, stable, growth-driven, and open new windows of opportunities. For this reason, it is a great time to learn about what invoice payments are, as well as the advantages and disadvantages of using them.

Keep reading as we discuss these details at length below.

 

What is an Invoice Payment?

First things first, let’s define invoice payments. An invoice is a written document that indicates the sale between a business and a consumer or a business and another business. The physical or online bill includes important information about the transaction.

 

While each invoice differs, common information found on the document includes:

  • Company logo
  • Buyer details
  • Date of purchase
  • Quantity
  • Value + tax
  • Payment terms + due date

 

Invoice payments are wildly popular across many different business types such as construction, finance, publishing, professional services, distribution, and many others.

 

How Does Invoice Payment Work

Invoice payments are how organizations are paid for their goods and services. Therefore, they have a significant bearing on the working capital available to the business. The ability of the company to meet its marketing, payroll, and operational costs depends on the time it takes to recover the invoices due

For this reason, when an invoice is paid is subjective with each business. Some establishments ask customers for payment on receipt, while others ask for a percentage of the bill to be paid in advance. 

Additionally, some small businesses offer a discount on the total amount of the invoice when customers pay early. This is likely due to the fact that newer organizations need those funds to improve cash flow compared to larger corporations that have more money to play with.

 

Advantages of Invoice Payments

Operating and managing a small business comes with a lot of responsibilities. In many cases, the laundry list of tasks includes accounts payables. It’s why most service-based organizations choose to issue invoice payments because it alleviates a lot of the hassle around tracking down customer payments. 

 

Here are more reasons why companies choose to process invoices:

  • Flexible payment schedules for customers. Invoice payments are excellent for offering stellar customer service. It gives people the option to pay you when it is best for them (within predetermined payment terms such as 30 or 60 days).
  • Legal reasons. Sure, invoices are great for tracking and receiving payments, but they also protect your business in the event of a dispute. An invoice acts as legal proof that two parties made a financial agreement and you deserve the money you are owed.
  • Keep your business organized. As I said, managing your own business means having many irons in the fire. Therefore, having a record of all invoices helps keep track of your finances and any pending payments. 

 

To really reap the benefits of invoice payments, I recommend utilizing an invoice software platform such as Freshbooks or Intuit QuickBooks Online. They can help streamline the entire accounts payables process so you remain focused on making money, not chasing it.

 

Disadvantages of Invoice Payments

Perhaps the biggest drawback of invoice payments for small businesses is varying payment due dates. For instance, payment due dates can be within 30, 60, or 90+ days.

 

While these flexible payment terms are beneficial to customers, they can be hard for businesses that are just getting off the ground. Waiting Net 90 for $3,000 can seem like an eternity for a new business that needs that capital to fund growth, pay employees, purchase more inventory, etc. 

 

Luckily, there is a solution that allows companies to offer flexible payment terms, while also getting paid instantly for the products and services they’ve already delivered. That solution is invoice factoring.

 

Tell me more, tell me more.

Invoice factoring is a type of asset-based financing where entrepreneurs can earn an advance on the payment customers owe in exchange for their unpaid invoices. The invoices act as collateral on the money borrowed. It resolves many cash flow challenges associated with invoice payments and therefore is an excellent funding option for new or small businesses.

 

To learn more, read our blog post How Does Invoice Financing Work?

 

Final Thoughts

When running a small business, one of the first components to figure out is how you will collect payments from customers for the products or services you provide. A great option to consider is invoice payments. They help make your business look professional and organized, while also remaining flexible for customers who can’t pay right away. 

 

Looking for more small business financing tips and tricks? Check out more resources by Crowdz:

 

By Sarah Wyman

March 1, 2022

Share this article