× FreshBooks App Logo
FreshBooks
Official App
Free - Google Play
Get it
You're currently on our US site. Select your regional site here:
11 Min. Read

How to Pay an Invoice in 5 Easy Steps

How to Pay an Invoice | Accounts Payable Guide for Small Businesses

Small businesses need to pay their invoices on time by establishing a consistent and streamlined approach to accounts payable. A proper system for accounts payable will help you pay your incoming invoices on time and only pay invoices that are fully accurate. It’s crucial that small businesses pay their invoices on time to avoid being charged additional late fees and harming their relationships with vendors. Some invoices may also be paid earlier when an early payment discount is available.

Key Takeaways

Paying your invoices promptly and properly ensures good business relationships, keeps plans on schedule, and ensures your operations run smoothly. Here’s what you need to know about paying invoices efficiently:

  • To pay invoices on time, you’ll need to note and review the goods/services listed, the payment due date, and available payment methods
  • The best system for efficient invoice payments is to add the invoices you receive and approve to your payment schedule, then file payment confirmation details afterward
  • Your accounts payable team member should be primarily in charge of making payments on all approved invoices
  • Some tools are there to help make invoicing easier for all involved

Here’s what you’ll need to know about paying invoices on behalf of your business:

What Is an Invoice Payment?

How to Pay an Invoice

Invoice Payment Methods

Tips to Pay an Invoice on Time

What Are Accounts Payable?

How Does the Accounts Payable Process Help With Paying An Invoice?

Conclusion

Frequently Asked Questions

What Is an Invoice Payment?

An invoice payment refers to when the balance of an invoice (or a portion of the balance) is paid. Typically, these payments are scheduled ahead of time by the client side’s accounts receivable team.

An invoice payment occurs when your business pays for your vendor’s goods or services, which they bill you for on an invoice. Most companies have a system in place to ensure that all received invoices are reviewed, approved, and paid in a timely manner. While the specifics of these payment systems may vary slightly, the basics remain the same across most organizations. 

How to Pay an Invoice

Small businesses can ensure they pay their invoices on time by following these bill payment steps:

Save Time Invoicing big time

1. Review the invoice for the received Goods and Services

It’s important that you review all the invoices your company receives to ensure they are accurate and that the goods and services you’re being billed for accurately reflect the goods and services you received from the vendor. To ensure the accuracy of the invoice, you’ll need to:

  • Review what your company ordered
  • Review what you received to make sure that it aligns with your order
  • Review that the cost included on the invoice aligns with your initial agreement with the vendor

2. Note the Payment Due Date

All invoices you receive from vendors should clearly list the date your payment is due. They will also outline any late charges you may incur if you don’t pay your bill on time. The vendor may also include a discount for paying an invoice by an earlier due date. Make note of the payment due date in your digital calendar or any other software you use to track your expenses.

3. Choose Your Payment Method

The invoices you receive will outline the various payment methods each company accepts. For example, the payment methods can be cash, check, or credit card. Make a note of the payment method that works best for your business, so you know how to pay the invoice when the time comes.

4. Add the Invoice to Your Payment Schedule

You’ll need to track the due dates of all the invoices you receive to ensure you’re properly managing your cash flow. You can create a payment schedule in a spreadsheet or use cloud-based accounting software to help you track and schedule all your upcoming payments. You may process your invoices and payments weekly or monthly, depending on the volume of invoices you receive and the timelines given for your payments.

5. File Payment Confirmation Details

Once the payment for the invoice is processed, make sure to file away any payment confirmation details you receive, such as a confirmation number for an online payment. You’ll want to store this information in case you ever have a dispute with a vendor over the payment of an invoice.

Depending on the operations of your business, you may receive a variety of different types of invoices. The following article will familiarize you with the different types of invoices your business may encounter.

Invoice Payment Methods

There are various ways that businesses often process payments for their invoices. How to pay an invoice may vary slightly depending on the available methods, but all are fairly straightforward. They include:

Pay an Invoice with a Credit Card

One of the most common payment methods for invoices is via credit card. Paying with a credit card is a convenient way to pay an invoice and offers a fairly high standard of security for both parties. In order to do so, the vendor will need to have a merchant account set up and will be liable to pay a small fee for every transaction.

 Invoice card payment

Pay an Invoice with Bank Transfer (ACH)

Bank transfers (also called ACH credit transfers) are another convenient way to handle invoice payments. This method allows merchants to request direct money transfers from their client’s bank accounts. Although this process requires more information upfront (e.g., routing and account number), ACH credit transfers are quick, easy, and free to send. They’re also subject to high-security standards, making them an even more popular option. 

Pay an Invoice with Paypal

PayPal (and other online payment gateways, such as Stripe) is yet another popular method of online payment for invoices. It’s a quick, secure process that allows clients to use their debit or credit card to pay bills efficiently. The merchant will first have to sign up for the service before they can use it to receive payment methods. Online payments are usually quick to come through and offer high security. Plus, PayPal integrates seamlessly with cloud-based accounting software

Though these are the most commonplace ways to pay invoices today, some businesses may also accept other methods, including:

  • Check
  • Cash
  • Automatic billing agreements

Tips to Pay an Invoice on Time

Looking to ensure your invoice payment system stays on track? It’s essential to follow a few key best practices.

Invoice Faster 2X faster that is

Verify Invoices You Receive

Always double-check the invoices you receive for accuracy. Pay attention to the descriptions and quantities of goods or services to ensure they accurately reflect your purchase, and quickly check all math to ensure it’s free of errors. You should also ensure the information for both companies is present and correct. Establishing an invoice review system will be a crucial step in your process of paying an invoice on time. 

Pay Attention to Payment Terms and Due Dates

In almost all cases, vendors and merchants will include copies of their payment policy, terms, and due date(s) along with your final invoice. Naturally, you’ll have agreed to these terms beforehand, so take the opportunity to review them when you first receive the invoice. This will help you keep these policies in mind and ensure you don’t let them pass you by.

Keep a Payment Schedule

When the invoice has been reviewed and approved, it’s time to add it to your payment schedule. You can do this manually with a real calendar and paper invoices, but it’s a much more efficient option to leverage existing software tools to help you keep the payment deadlines organized and running efficiently. This will also help you manage your bank account as you make payments, ensuring your finances are solid throughout. 

Keep an Eye Out for Payment Reminders

Often, companies send courtesy reminders as their clients approach payment due dates. These are simply ways for vendors and merchants to politely remind clients of upcoming due dates and ensure they receive payment promptly. You shouldn’t rely on payment reminders to pay invoices on time, but they can be useful to look out for on the off-chance you’ve made a mistake with your schedule. 

Use Software Tools to Stay on Track

Last but not least, it’s important that you use all the tools at your disposal to ensure a smooth, efficient system for invoice payments. This helps take the burden of administrative work off of you and your team and will ensure your bills are always paid on time. 

If you’re looking for a tool to help you manage your payment schedule and pay bills automatically, FreshBooks payment feature can help. Click here to get started.

FreshBooks accept online payments

What Are Accounts Payable?

Accounts Payable involves all the payments a company must make to their vendors for goods or services purchased. Payroll is often not included as part of Accounts Payable (A/P). The accounts payable process ensures that a company pays all its bills on time and only pays those accurate and legitimate invoices.

How Does the Accounts Payable Process Help With Paying An Invoice?

Paying for invoices is one of the components of the accounts payable process. As a part of your overall accounting, the accounts payable process a business follows is important in understanding and making sure that you stay in good standing with your vendors. A good A/P process will also support your team, so they know how to check if an invoice is correct, how to get it approved, and the best way to get it paid. It can also help with your cash management when more invoices need to be paid than there is cash in the bank.   

Conclusion

Paying invoices on time is an essential part of doing business, but creating (and maintaining) an efficient invoice payment system can take a bit more time and consideration. 

By establishing a process for reviewing invoices, approving them, scheduling payments, and sending the funds to ensure bills are paid, you’ll streamline a key business procedure for the future. 

If you’re looking for a handy tool to help make the entire process of invoice payment simpler, FreshBooks is here to help. Our cloud-based payment and accounting software is easy to use, has useful features, and syncs seamlessly with other services like PayPal and Stripe. 

FAQs on How to Pay an Invoice

More any questions about ensuring your invoices are paid on time? Here are answers to some of the most frequently asked questions. 

Do you pay an invoice before or after goods/services are delivered?

Whether you pay your invoice before or after goods/services are rendered is dependent on the agreement you enter into in the first place. Some industries will require full or partial payment upfront, while others won’t require payment until everything is delivered and the final invoice is received. Review the contracts and payment policies carefully to see when payment is due. 

How do you pay an invoice by email?

Although you can certainly receive invoices from merchants and vendors via email, you’ll need to use one of the methods described above to actually send your payment. Most companies offer options like credit card payment, debit card payment, direct bank transfer, or the use of a payment platform like PayPal or Stripe. All of the payment options can be easily used on your phone or computer. Your specific situation will dictate the right payment method.

How does an invoice work?

An invoice is a bill stating the amount of money owed in exchange for services or goods, typically after they have been rendered/delivered. The invoice will have a payment date, payment terms, invoice number, information for both parties, a description of the goods or services, subtotals and totals, and an indication of any applicable taxes. It’s then up to the client to pay the balance of the invoice via the merchant’s available online payment methods. 

How long should you give a client to pay an invoice?

Although payment terms regarding due dates can fluctuate between companies and industries, the typical timeline is 30 days for a client to pay before late payment fees apply. Invoice due dates can be adjusted to be longer or shorter depending on the original contract or work agreement, so pay attention to the vendor’s payment policy to see how long you’ll have to pay. 

Does an invoice mean you owe money?

If you signed a contract or otherwise entered into a work agreement with a vendor or service provider, provided that you received the goods/services as agreed upon, an invoice you have received means you owe money. However, if you believe part or all of an invoice contains an error, you can attempt to negotiate with the other party. If this fails, you may be forced to pay the bill or seek legal action.


Sandra Habinger headshot
Sandra Habiger, CPA

About the author

Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Alongside her accounting practice, Sandra is a Money and Life Coach for women in business.

RELATED ARTICLES