Invoice processing – the basics: How it works and best practices for businesses


Stripe Invoicing is a global invoicing software platform built to save you time and get you paid faster. Create an invoice and send it to your customers in minutes – no code required.

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  1. Introduction
  2. What is an invoice?
  3. What is invoice processing?
  4. How does invoice processing work?
  5. Benefits of automated invoice processing
  6. Invoice processing best practices
  7. How Stripe Invoicing works

A well-functioning invoicing process can mean the difference between maintaining a healthy cash flow and dealing with the frustrations of late payments. Implementing a streamlined, automated invoice processing system mitigates the risks of manual errors and late payments, and it can also offer valuable insights into your business's financial health. When the difference between success and failure often rests on data-driven decision-making, these insights offer more than a view into your business's past performance – they equip you with the tools to make informed forecasts, plan for growth and keep your finger on the pulse of your financial stability.

So, how can businesses transform their invoice processing to bring these benefits to fruition? Below, we'll break down the key steps for establishing an optimal invoice processing system and examine how technology can make this easier than ever before.

What's in this article?

  • What is an invoice?
  • What is invoice processing?
  • How does invoice processing work?
  • Benefits of automated invoice processing
  • Invoice processing best practices
  • How Stripe Invoicing works

What is an invoice?

An invoice is a business document that a seller issues to a buyer. In this document, the seller will provide detailed information about a transaction or sale. The key purpose of an invoice is to request payment for the goods or services that the seller provided, which effectively makes it a bill for the transaction.

Invoices typically include several pieces of information:

  • Seller information: the name, address and contact information of the seller or service provider. This often includes a unique identification number if the jurisdiction requires it (such as a tax ID in the US or a VAT number in the EU).

  • Buyer information: the name, address and contact information of the buyer or client.

  • Invoice number: a unique identifier for the invoice that helps both parties track payments and correlate them with respective sales.

  • Date of issue: the date when the invoice is issued.

  • Due date: the date by which the buyer must make the payment.

  • Description of goods or services: detailed information about the products or services that the seller provided, including quantities, rates and totals.

  • Total amount due: the total amount that the buyer needs to pay the seller. This usually includes any taxes, delivery fees or other additional charges.

  • Payment terms: the terms and conditions that the buyer and seller agreed upon for payment, such as the method of payment, any early payment discounts or penalties for late payment.

Invoices facilitate the billing process and also serve as a legal record of a sale, which is necessary for managing accounts, calculating taxes, tracking inventory and assessing business performance. Invoices are essential for the financial health of businesses, because timely issuance and follow-up of invoice payment ensure a smooth cash flow.

What is invoice processing?

Invoice processing refers to the series of steps that a business takes to handle the invoices it receives from vendors or suppliers. It involves receiving the invoice, validating it, recording it and paying it. Invoice processing is an important aspect of accounts payable within a business's overall financial management.

How does invoice processing work?

Here are the typical steps involved in invoice processing:

  • Invoice receipt: the process begins when the business receives an invoice from a vendor or supplier. The invoice could arrive in one of many different formats, such as paper, email or PDF format, or through an electronic invoicing system.

  • Invoice capture: in this step, the business captures the details of the invoice for processing. This could involve manual data entry, scanning paper invoices or automatic data extraction in the case of electronic invoices.

  • Invoice validation: the business validates the captured data for accuracy. This often includes checking the invoice against purchase orders and delivery notes to ensure that the goods or services were ordered and received. The invoice must also meet other compliance requirements, such as including a valid invoice number, the supplier's information and the correct amount to be paid.

  • Invoice approval: once the business has validated the invoice, the next step is approving it for payment. Depending on the organisation's size and the invoice amount, this might require one or several approvals.

  • Payment: Following approval, the invoice is scheduled for payment based on its terms (due upon receipt, net 30 etc.).

  • Recording and archiving: the business records the paid invoice in the accounting system for financial tracking, reporting and audit purposes. The invoice is then archived according to the business's document retention policy.

Many organisations are automating invoice processing to mitigate manual work, increase efficiency and reduce errors. This involves using software that can capture, validate, route, approve and pay invoices automatically – which speeds up the process and also frees up valuable time for staff to focus on more strategic tasks.

Benefits of automated invoice processing

Automation offers several advantages in invoice processing, and also has the potential to transform business operations. Here are several benefits:

  • Increased efficiency
    Automation speeds up the invoice processing cycle by eliminating manual data entry, which reduces the time between receipt and payment. This enhances overall productivity and allows the finance team to direct work towards other major tasks.

  • Cost savings
    By reducing the need for manual input, automated systems can reduce the cost per invoice processed. Over time, these savings can be substantial.

  • Reduced errors
    Manual data entry is prone to human error. Automation reduces the chance of mistakes, leading to more accurate financial and compliance reporting.

  • Improved compliance
    Businesses can configure automated systems to enforce specific rules and regulations, ensuring that every invoice adheres to the appropriate policies and statutory requirements.

  • Better vendor relationships
    Paying invoices promptly and accurately helps businesses to maintain good relationships with vendors, which can be beneficial for negotiation and collaboration.

  • Greater visibility
    Automated systems offer better visibility into the invoicing process. This visibility can help businesses identify bottlenecks, make more accurate cash flow forecasts and provide useful insights for strategic decision-making.

  • Scalability
    As the business grows, so too does the number of invoices. An automated invoice processing system can accommodate this growth easily, unlike manual systems which may become overwhelmed.

  • Eco-friendly
    By transitioning from paper-based to digital processes, businesses can reduce their environmental impact.

Overall, automated invoice processing can help transform a business's accounts payable department into a more efficient and strategic business unit. It's an investment that can deliver substantial returns in the long run.

Invoice processing best practices

As organisations navigate an evolving digital marketplace, the traditional, manual approach to handling invoices can pose significant challenges. This may include challenges such as bottlenecks in the approval process, inaccuracies from manual data entry, issues surrounding compliance and scalability as businesses grow, among others. To transform these obstacles into opportunities, organisations are reassessing their approach to invoice processing. By using strategic insights and incorporating best practices into their operations, businesses can enhance their financial health, improve vendor relationships and find opportunities for growth. Here are some best practices that you can follow:

  • Centralise invoice receipt
    Centralise the receipt of invoices to ensure that no invoices are lost or overlooked. Whether invoices arrive via post, email or fax, this step can simplify tracking and management.

  • Establish clear approval hierarchies
    Set up a clearly defined approval process to ensure that invoices are reviewed and approved by the right people at the right time. This prevents bottlenecks and keeps the process moving smoothly.

  • Implement three-way matching
    For invoices related to purchase orders, use a three-way match between the purchase order, the receipt and the invoice. This process confirms that what was ordered was received – and that the invoice accurately reflects the transaction.

  • Use automation tools
    Employing invoice-processing software can drastically reduce the time and effort it takes to process invoices. Automation can capture and extract data, validate and match invoices, route invoices for approval and schedule invoices for payment.

  • Review payment terms routinely
    Review the payment terms of your vendors on a regular basis and negotiate when possible. You might be able to negotiate discounts for early payment or better terms for longer payment cycles – both of which are important for managing cash flow.

  • Maintain good vendor relationships
    Maintain open communication with your vendors. Promptly address any invoicing-related issues or discrepancies as they crop up, and make payments on time.

  • Keep accurate records
    Maintain a well-organised system for archiving paid invoices. You should be able to retrieve an invoice quickly when needed. This is good for business management, but it's also necessary for audits and financial inspections.

  • Review audits and reviews regularly
    Review your invoice-processing procedures on a regular basis. Look for bottlenecks, inefficiencies and areas where errors occur frequently. In addition, conduct regular audits to make sure that your business is complying with internal policies and external regulations.

  • Train your staff
    Make sure that everyone involved in the invoicing process – from new recruits to seasoned staff – has received adequate training and is aware of the business's policies and procedures. Offer regular refreshers as needed.

  • Plan for scalability
    As your business grows, so will the volume of your invoices. Plan for this by implementing scalable solutions and reassessing your needs on a routine basis.

Ultimately, effective invoice processing practices not only affect the bottom line, but they also play an instrumental role in shaping the strategic direction of a business. The resulting improved cash flows, reduced costs and enhanced vendor relationships come together to benefit all aspects of an organisation, positioning it for sustained success in an ever-evolving marketplace.

How Stripe Invoicing works

Stripe Invoicing offers a comprehensive solution for businesses that want to optimise their invoice processing – whether that's through creating customised invoices, collecting payments or automating accounts receivable. Here's a quick overview of Invoicing's intuitive interface, scalability and commitment to expediting payments:

  • Easy invoice creation and customisation
    Generate and send invoices to your customers in minutes with no coding required. Tailor your invoices to match your brand identity and cater to customer needs with custom line items, discounts, tax rates and product details.

  • Advanced automation
    Stripe's advanced features and Invoicing API automate tedious tasks, such as accounts receivable, payment collection and transaction reconciliation, saving time and improving efficiency.

  • Optimised customer experience
    Stripe Invoicing provides a responsive, user-friendly interface that is optimised across mobile, tablet and desktop platforms. It can ensure a seamless experience for your customers.

  • Swift global payments
    With support for a multitude of payment methods, such as credit card, ACH Direct Debit, bank transfers and regional options, Stripe facilitates speedy transactions. Most invoices are paid within 24 hours, enhancing your cash flow.

  • International support
    Stripe's robust support for 34 languages in more than 135 currencies, plus a location-based payment-method display, extend your business's reach globally – helping you to cater to an international clientele.

  • Detailed reporting and operations management
    Manage your invoices, track payments and view detailed reports directly from a user-friendly Dashboard. This simplifies your operations and helps you to make informed business decisions.

  • Secure B2B payment methods
    Stripe Invoicing streamlines the process of accepting bank transfers and ACH payments, which businesses usually prefer to use for large invoices. This automation reduces the manual effort required, as well as the chance of errors, boosting customer satisfaction.

  • Automated communication and payment retries
    Enhance revenue recovery with automated email reminders for due or past-due invoices. The Smart Retries feature optimises attempts to collect failed payments, helping to eliminate unpaid invoices.

  • Seamless integration
    Stripe Invoicing integrates with popular accounting systems, enterprise resource planning (ERP) solutions and finance automation tools, ensuring that data is synced in real-time and providing efficient workflow management. This makes Stripe an excellent choice for businesses that want to optimise their invoicing process.

The business world's ongoing digital transformation compels organisations to adopt an innovative approach to traditional processes such as invoice processing. As businesses look towards a future that embraces automation and operational excellence, they must rethink invoice-processing strategies and employ best practices. Keeping pace with technological advancements is not enough: businesses must pave the way for smarter, more efficient and sustainable financial operations.

Learn more about Invoicing and how it works in collaboration with other Stripe solutions.

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