To have a business, either as a startup or an established company, means you wear many hats. You would have to juggle different things like product development, marketing, and even invoicing and customer service. But, what keeps all of these together, is to ensure there’s a steady flow of cash. This is where efficient invoice payment methods become crucial.
Invoice payment is one of the ways you can receive payments from your client with an organized system. In this article, we will look into what invoice payment methods are and the various types available.
What is an Invoice Payment?
Invoice payment is a planned transaction where funds are sent by a customer (the company/client) to a vendor (the seller). The transaction is to make payment for goods or services received from a seller. This helps in keeping the business operations healthy. Properly managing this process aids in resolving difficulties such as late payments and avoiding uncomfortable interactions with your customers.
Invoices are formal documents that contain the details of products or services sold. It also contains the date, an invoice number, the amount payable, and the payment terms. With the advent of technology, there are now several online invoicing software that you can use in creating invoices. This ensures that you are more efficient and timely which in turn fosters good customer relationships and increases. As a freelancer or business tycoon, using these won’t just give you a professional image, but they have payment processors integrated into them which helps ease your cash flow.
What are the Terms of Invoice Payment?
Invoice payment terms are the condition(s) of the payment that are set by the seller. This part of an invoice is where you will see how and when the payments should be made. It also includes all the instructions/conditions the customer must fulfill to pay for the product or services.
The invoice payment terms can vary because the seller has the control to determine the terms. The seller can give a discount for early payment and also set a fine for late payment. When the due date isn’t set, the customer has up to 30 days, after receiving the invoice, to make payment.
Note that, clearly stating your payment terms on your invoices allows your clients to create a budget and allocate funds accordingly.
What are the different types of Payment Methods to Pay an Invoice?
When a client receives the invoice, the next thing is to make payment and that will be based on the options you provided your payment terms. There are different types of payment methods available and each has different benefits and transaction charges. Some of the payment types you can come across include are:
1. Cash Payment
Cash payment is the oldest tried and trusted mode of payment. Once your client makes cash payments, there’s no need to worry about the processing time, charges, or deposit bouncing. However, this is only a good option for in-person payments for small businesses.
The limitations of cash payment also include theft and mismanagement. It’s also difficult to use for international business, which makes it unideal for freelancers.
2. Pay by Check
Paying by check is another option you can use to receive payment. But just like cash payment, paying invoices in check is gradually fading away. When compared to other digital payment options, making invoice payments in check takes time, and can easily be canceled or even intercepted by fraudsters. However, some small service-based firms may choose to pay via check. In such instances, paying by check may be the most appropriate alternative.
3. Paying with Credit or Debit Card
When compared with either cash or check, allowing your clients to make invoice payments with credit or debit cards is more convenient and secure. Usually, you add a link to a secure payment gateway in your invoice payment terms where the client can click to pay.
The only downside of making payments with a card is that they can incur transaction fees from payment providers, especially when it’s international. You can read about contactless cards.
4. Bank Transfer
Mostly, when most of your transactions are local, you can include bank transfers in your invoice payment terms. You will just have to add your bank account details through which your clients can transfer the payment. The client will make a direct transfer from their account directly into yours.
Bank transfers are one of the most secure, cheapest, and quickest modes of payment. It can also be very convenient for your customers.
5. Online Payment/Mobile app
When it comes to online payment, there are several options available. An example is one of the world’s most widely used payment platforms, Paypal. This platform makes it possible for both small and large businesses, even techies and business folks. They make provision for digital cards and mobile wallets.
You can use online payment platforms to create professional invoices. You can also use them to set up an auto-reminder that will allow you to keep up with late payments. Other forms of online payment are contactless payment such as Gpay, Apple Pay, etc.
Other payment methods that can be used with invoice payment are Automatic bill payments and ACH payments.
How To Choose The Right Invoice Payment Method
Choosing the right method involves balancing several needs such as speed, fees, security, and client preferences.
You must consider how long it will take the funds to be settled in your account after the payment has been initiated. This helps in cash flow management. Most often, invoice payment methods that are faster and more secure, like PayPaland Payoneer, incur high fees. Although these platforms cost more to use, not using them could be detrimental. This is because they are often widely used which means your clients will most likely love to use them.
Security is also a primary concern, both for you and your customer. Regardless of how it affects other factors, choosing a secure platform must be a top priority. Fortunately, most online payment methods available use strong security firewalls to protect.
You must also consider the time it takes to set up the payment you choose on your invoice payment terms. One of the fastest is bank transfer or credit/debit payment.
Bottom Line
Now that you’ve learned what invoice payment methods are and the various methods available, you can choose the ones that best suit your business needs. Remember to consider factors like security, convenience, cost, and your client preferences.
For instance, if security is a top priority for the kind of business you run, using digital wallets or credit cards would be ideal. For lower fees, bank transfers might be your best option. Regardless, the goal is that you find a method that best suits your business and fits into your budget.
Frequently Asked Questions
Is a Paid Invoice Considered a Receipt?
A receipt is not a paid invoice. Vendors generate a receipt when an invoice is paid, but they are two distinct documents. The invoice is used to request payment, whereas the receipt is used by sellers to acknowledge receipt of payment.
How much time should you give someone to pay an invoice?
The invoice date and due date must be stated on all invoices. Setting a due date encourages the customer to pay you within a specific timeframe. Usually, payment is due 30 days following the invoice date. You can, however, inform your customer about changing the period.
When is it Appropriate to Send the Invoice?
When the work is finished, give an invoice. You should send the invoice as soon as your service is finished, but you might also invoice after two weeks or at the end of each month. Because there is no set legal standard for when to issue bills, make sure you and your client agree on the conditions ahead of time.
How can invoices be sent?
Of course, you can mail a paper invoice. However, invoicing via email is the quickest way to get paid because your client or customer can immediately check the information and complete the payment. You can also use the free online invoicing tool to send invoices straight to your customers and track when they open them.
Can you cancel an invoice?
How Can I Cancel an Invoice with a Credit Memo Given that invoices are legally binding documents, cancellation must be done properly by issuing a credit memo. A credit memo, also known as a credit note, is a document issued by a business to a customer to cancel all or a portion of a sale. It is also used to document refunds.
