Keeping track of your business's financial data is a critical element of the accounting strategy. Tracking the financial data provides you with insights on your revenue stream as well as future cash flow. An organization that doesn't track its financial data is at risk of lagging on payment deadlines. This could lead to damaged relationships with vendors and creditors.
Integrating billing software in your business allows you to track your payments effortlessly. Through such a platform, you can view which invoices are due and past due on the dashboard.
Why is invoice tracking important?
Some of the reasons why invoice and payment tracking include:
It helps you avoid getting into bad debts
Healthy cash flow enables you to offset recurring operational costs such as rent, utilities, hiring of equipment, and wages and salaries. Without a proper payment tracking system, an unpaid invoice could easily be forgotten, thus becoming a bad debt.
A payment tracking software helps you predict what times of the year, your organization is likely to experience the most financial strain, and when there'll be excess funds. This enables you to plan for the future and avoid getting into bad debts.
It helps you know the amount of money owed to you
If you receive bulk payments and you do not allocate each, it becomes difficult to differentiate between the invoices that have been settled from those tan have not.
This makes it impossible for the accounts department to follow up on the outstanding amounts, meaning that you may be forced to write off some debts.
It helps your business keep on budget
For any business to be successful, it has to maintain an operational budget. This ensures that it has enough resources to offset operational expenses and recurring bills.
You should also be able to adjust your spending in case larger accounts demand more capital.
To decide on the most appropriate financial budget, the accounts department has to use as current financial data as possible.
Without a clear idea of when your invoices are due for payment, you can easily increase your debt obligations due to overspending.
It creates a clear and concise audit trail
A good payment tracking software makes it easy for your business to maintain a detailed trail of your invoices and payments. This makes it easy for you to track any transaction if a client or even the government has questions.
It provides you with a clear picture of your business's performance
By keeping clear records of the due invoices and payments, you can gauge the business's performance and productivity. This is because you can measure the invoice amounts against the time it takes to complete the projects.
How to ensure that your invoices are paid the right way
In most businesses, collections are made only when there's a need to offset a pending bill. This is because collection calls are not only tedious but could also create tension with customers, thus jeopardizing the business's future. Here's how to ensure that your invoices are paid in the right way and on time:
Follow the contract when submitting invoices
When getting into a contract, most companies clearly outline the invoicing process and terms of payment on the contract document. Make sure you read this section carefully and raise any issues before signing the contract.
For instance, a company may request that you submit a copy of the invoice to the project manager and the other one to the accounts payable. By not following such instructions, you risk unnecessary delays while getting paid.
Offer credit limits only to deserving customers
This is the most effective way of taking care of your business's collections. You should only offer credit to clients who have a record of paying their dues on time.
The most common credit term is Net 30, where 30 refers to the number of days the client has to clear an outstanding invoice.
However, you can shorten or lengthen the credit terms depending on the size of your business. Keep in mind that in extremely competitive markets, having short credit terms may impact your business negatively.
Clients who tend to take too long to settle should either pay in advance or on delivery.
Include an acceptance letter in your invoicing process
Having your client sign an acceptance letter after delivering your product or service is an effective way of minimizing payment disputes or misunderstandings.
The acceptance is usually submitted before invoicing, and it states that the products or services have been supplied according to the terms and conditions spelled out on the contract.
An acceptance prompts your clients to voice their issues or concerns earlier on, thus giving you time to solve them before you issue them with an invoice.
Track your invoices and payments
The easiest way of tracking your invoices and payments is by using invoicing software. This software enables you to generate invoices, set the payment terms, accept payments, and keep track of the paid and unpaid invoices from a single interface. Most invoices and payment tracking solutions can generate automatic reports depending on your needs.
Manage late payments and any other disputes professionally
Even when you've issued an acceptance letter, disputes may still come up.
First, establish whether the dispute is valid or not. If it is, you need to handle it immediately to keep the client happy and your reputation unharmed. If the dispute is out of your scope, redirect your client to the acceptance letter they signed.
In the case of late payments, be respectful and professional. Try to find out why the client is not paying and negotiate an extension of the payment terms. If this does not work, consider the last step.
In some instances, the client may be uncooperative or unwilling to negotiate new credit or payment terms. Consider involving a collections agency or get legal help. While this might not get you paid immediately, it will save you from spending too much time and money chasing unpaid invoices.
Invoice tracking can make or break your company. Make things easy by using online tools such as invoice tracking software. Contact us today and let's discuss an invoice tracking solution ideal for your business.