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8 Min. Read

How to Keep Track of Invoices and Payments. a How-To Guide

Keeping track of invoices and payments are crucial to the success of a small business, as the amounts paid affect the cash flow a company has on hand to pay its expenses. A company should use a professional accounting software program for this tracking. A good program will be accessible from the cloud and come with a dashboard that shows a company’s total amount of paid and unpaid invoices, expenses, and profit.

Follow these 5 steps to keep track of invoices and payments:

  1. Research and Choose an Accounting Software
  2. Follow Best Practices for Invoicing
  3. Follow up on Invoices the Software Flags as Late
  4. Run Reports Regularly
  5. Use the Software to Help Determine Future Financial Strategy

1. Research and Choose an Accounting Software

A good accounting software system should really be a solution for your small business accounting needs. The features it offers should reflect that.

When looking online at the various accounting software programs available, ask yourself these questions:

Is the Accounting Software Cloud-Based?

You don’t want a software program you download to your desktop. That means only you can access it, and only when you’re at your computer. You want convenience through cloud access, with a program that will allow you to enter or access information from your home computer, an app on your mobile device, or anywhere.

Does It Allow for Multiple Users?

If you’re running your own small business, consider letting all members of your staff enter their own expenses. This will save you time, or it will save time for the staff member normally delegated to do this task. So, make sure the software allows for multiple users, and that it can restrict access to certain features (you don’t want to share the financials of your business with everybody who has a login).

Is It User-Friendly?

Do you understand how to navigate the site? Also, is the terminology used on the website’s pages understandable only to accounting experts, or will anyone get it? The program should be very, very simple to use.

What Exactly Is the Software Offering?

It’s great if the software allows you to generate invoices and check off payments, but what else can it do? Will it allow you to categorize your expenses? Can you take all the information you’ve enter and do something instantly with it, like generate a profit and loss report? What are the other extras? For instance, does the software allow you to do up estimates? Will it accept credit card payments from clients? Or automatically generate recurring invoices?

Consider all the features, and see if they match your company’s needs.

How Secure Is My Data?

Your company’s financial information cannot be trusted to just anyone. What kind of encryption and firewalls does the software employ? This security information should be readily available on the company’s site. If you’re not up on the terminology, ask someone on your team who is, to have a look at the available information, so you can make an informed decision.

Is the Accounting Software Cost-Effective?

Notice we didn’t ask “is it cheap?”. Consider the amount of time you’ll spend manually recording transactions or creating invoices, when a program can do it for you. Weigh the value of that time against all the features the software offers, and the monthly price, and decide then if it’s worth it.

What Are the Pricing Tiers?

Perhaps someone recommended the software to you, and maybe mentioned what they were paying. Maybe the monthly fees sounded like too much of an expenditure for your small business. But consider that most good accounting software programs come with pricing tiers. If you only have a small client base, and minimal accounting needs, most likely the accounting software you’re interested in offers a basic plan. So, when checking out the various programs, go to the pricing link on the accounting software’s homepage and see if there’s a tier with a price that will work for you.

Does It Offer a Free Trial?

This is a good way to get an idea of whether the program will actually do what it promises, and if it meets your specific needs. Sign up for the free trial and experiment with the features. Load some expenses in, or try the invoice template. Pretend an invoice has been paid, and see how the system adjusts for that. Generate a report. Ask your staff to play around with the program too.

If you still like it after the free trial, and are confident it’s going to work for your business, some accounting software programs offer discounts if you pay for the year in advance.

Check out the Software’s Reviews

What’s the management of other small businesses saying about the accounting software you’re interested in? This is particularly important because it will tell you how the software company’s support team handles user problems.

2. Follow Best Practices for Invoicing

An accounting software program will provide a user template for you to generate invoices. This is particularly handy in that the program will always create a new invoice number for you, and will remind you when payments are due.

However, although this simplifies the process, you must ensure you enter accurate and detailed information, every time, into the fields provided. This may not seem like a big deal when creating the invoice, but if an invoice goes unpaid, these details could suddenly be very important.

When filling out the fields on an invoice, it is recommended you do the following:

Make Sure the Description Is Detailed

Do not write “project as discussed” under the description section of an invoice, or simply put the client’s purchase order number there (that should go under “Reference”). Be specific. Both you and the client should be able to understand this invoice at a glance, a day or a year from now.

Make Sure the Due Date Is Correct

Often a program will automatically determine a due date that payment is due to you by. Make sure it’s when you really expect payment. If you don’t adjust it, chances are the client’s accounting department may go by that incorrect date, and it may delay you getting your money.

Make Sure Your Contact Details Are Accurate

Perhaps you’ve been using the program for a while, but you’ve moved or changed your phone number. Make sure to update this information.

Having all the details as clear as possible on your invoice will help speed up your payment, because it will minimize the chance of confusion on the part of the client, or the client’s accounting department.

3. Follow up on Invoices the Software Flags as Late

A proper accounting software will notify you when a payment is late. Some systems will actually generate and send reminder emails to clients. However, often these emails are ignored.

Best practice is a courtesy phone call to the client first, to ask about the payment. If the contact can’t be reached, a follow up email with the original invoice attached, will often do the trick. The client will appreciate the fact that you supplied the invoice, and that he won’t have to hunt it down. This means he has all the information he needs to check on the payment status of your invoice, with his accounting department.

4. Run Reports Regularly

Now that you have the software, make sure you maximize its benefit by running regular reports, including a “Profit and Loss Report”. A profit and loss report is a particularly handy tool as it totals up all the invoices to date (whether paid or unpaid), and then deducts your expenses to give you a net profit total.

Let’s give an example. Mitch’s Mobile Repair is a small store in Niagara Falls, New York. The business is new, having been in operation for only six months. Mitch runs the business by himself and as such, does all the accounting too. He does this through an accounting software program. He has been very diligent about entering all expenses and income into the system. Now he runs a profit and loss report.

The report tells him his gross income to date is 180k and his expenses are 120k. His net profit is 60k. From this, Mitch realizes he should probably cut back on a few expenses, in order to maximize profit.

In this way, you can see how a profit and loss report would be helpful to a small business owner.

Mitch can also run another report, in his program it’s called “Invoice Details”. It tells him the amount he has invoiced vs the amount that has been paid. Immediately he can see what’s outstanding, and by which company. He can then follow up on what’s owed.

5. Use the Software to Help Determine Future Financial Strategy

Once you’ve been using the program for a while, you’re going to start to notice patterns. There will be expenses that may seem unusually high, or invoices that are always paid late. Take notice, and make notes. Create a new financial strategy for the future by deciding if there are ways you can cut expenses by doing things differently, or if you should change the payment terms for customers who always pay late.


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