What is invoice payment? What are its advantages and disadvantages?

What is invoice payment

Invoice payment is a payment method that can only be used by corporate and sole proprietor users.


Invoice payment may be an unfamiliar term unless you are involved in accounting, but it is “deferred payment” in simple terms. “Invoice payment” adopted among companies refers to “deferred payment” or “credit sale.” In this article, to understand invoice payment, we will introduce necessary information on invoice payment, how to use it, advantages and disadvantages of the billing side and paying side, items required for billing, and precautions for invoice payment.

NOTE: This page’s information is provided for informational purposes only and should not be interpreted as legal, tax, or financial advice

This Article Covers:

What is invoice payment?

How to use invoice payment?

Invoice Payment Stages

How to pay an invoice?

Advantages and disadvantages of invoice payment

Items required for invoice

Notes on invoice payment

The invoice processing procedure

What to do if there is no payment after the payment deadline?

How to efficiently issue and manage invoices, quotations, and purchase orders?

What is invoice payment?

Invoice payment is a postpaid payment service for corporations and sole proprietors. You pay after you receive your invoice, not when you purchase the item or service. It may be easier to imagine if you think of it as something similar to “convenience store deferred payment” when buying products or services on a mail-order site. “Convenience store deferred payment” is also a “credit sale” because you pay the price after receiving the invoice from the mail order site.

Invoice payment is common for B2B (Business to Business) transactions. It is also called a “credit transaction” because it is a transaction that is based on the trust of both parties. However, in the case of transactions with new business partners, there are many cases where “pay-as-you-go” or prepayment, in which the price is paid each time a product is purchased, is adopted.

This transaction depends on the other party’s credit, as the term “credit transaction” implies. This is because we provide goods and services before we receive the payment, so there is a risk that we will not collect the payment. Therefore, keep in mind that it may not be possible to settle by invoice payment when the credit relationship has not been established.

How to use invoice payment?

If you want to use invoice payment when trading between companies, you must clear the “credit standard.” The credit standard is a standard that the company on the ordering side judges that there is no problem selling its products and services to the company on the ordering side. The company on the ordering side conducts a “credit check” on the company on the ordering side to check whether it meets the company’s standards. Credit checks may require the ordering company to present the materials directly or be conducted through a third party. The ordering company needs to communicate to the company their ability to pay and their willingness to pay.

Invoice payment stages

The stages for paying invoices for payment of goods, works, services are as follows:

Stage 1

The buyer of this or that product he needs contacts the organization that is the seller of this product. The parties negotiate what is needed, what kind of product, discuss the quantity and price conditions.

Stage 2

Based on the reached agreement on the price, the quantity of the goods, the seller draws up an invoice for payment and sends it to the buyer (by email, fax, using a courier service, by mail). If the invoice for payment contains all the elements essential for the contract, then the contract is not additionally drawn up; if not, then the contract must be drawn up.

Stage 3

Based on the seller’s bank details specified in the invoice for payment of the goods, the buyer pays the amount indicated in the invoice.

Stage 4

After confirmation of receipt of payment of the invoice, the seller delivers the goods or provides the necessary service, performs the work.

How to pay an invoice?

With the help of an invoice for payment, one party (the buyer) transfers to the other party (the seller) funds (payment) for the purchased goods. An invoice for payment is an optional document, not legally regulated, but to avoid payment delays, disputable situations, you need to know how the invoice is paid for goods, works, services.

When an organization issues an invoice for payment for goods, works, services, its payment can be made in various ways, depending on whom the payer is – a legal entity or an individual.

Payment options for invoices for goods, works, services are presented as follows.

Advantages and disadvantages of invoice payment

Here, we will introduce some advantages and disadvantages of bill payments on both the billing side and the paying side.

Advantages and disadvantages of the billing side

The most significant merit that the billing side can obtain is “to improve billing and collection confirmation efficiency.” If transactions occur multiple times a month, billing and collection operations must be performed each time. It will be a heavy financial burden and will carry the risk of making mistakes. However, with invoice payment, you can process all the payments for transactions in a certain period, such as one month. As a result, the accounting burden is reduced, and mistakes can be prevented, making billing and collection operations more efficient. In addition, even if there are only a few transactions a month, if there are multiple similar companies, invoice payment may be adopted to reduce the burden of accounting.

On the other hand, the inevitable disadvantage is that there is a risk of not collecting the price. In the unlikely event that uncollected items occur, additional collection operations must be performed. Large amounts or multiple occurrences can adversely affect cash flow. If you are worried about your business partner’s business condition, you will need to take measures such as an annual credit check and have them pay part or all of the price to avoid the risk of bad debt. Some companies place importance on capital and company size as the criteria for paying invoices.

Advantages and disadvantages of the payer

The payer has the two merits of “improving the efficiency of payment operations” and “creating a margin in cash flow.” If the payer also pays the invoice, the payment work burden can be reduced compared to pay-as-you-go. Also, many invoice payments can delay payments for goods and services by about a month, so you can afford to raise funds. One of the benefits is that you can easily plan payments because you can see the costs incurred the following month.

On the other hand, the disadvantage is “credit loss due to forgetting to pay.” Forgetting to pay invoices should be avoided as it damages your company’s credibility. Consider not only credit loss but also the possibility of worsening the cash flow of the billing party and the burden of paying in bulk later and managing the payment due date daily.

Items required for invoice

Invoices do not have clear rules such as how to write or what to write, but they are an important tool for asking the other party to pay. Here, we will introduce the items that are required for an invoice.

  • Invoice issuer’s name and address
  • Invoice issue date
  • Billing address
  • Transaction contents
  • Billing amount
  • Transfer information
  • Payment due date

Notes on invoice payment

Here, we would like to introduce four points to note when paying invoices.

Don’t forget to seal your invoice.

As a typical rule, you do not need to have your seal stamped on your invoice. However, stamping a seal prevents not only the forgery of invoices but also increases credibility. In addition, some companies do not accept invoices that do not have a seal stamp, so it is safer to have a seal. Invoices often use a square stamp that acts as a stamp used by the document’s issuer to identify it as a company document. The place where the seal is stamped on the invoice is where it covers a part of the right part of the company name that issues the invoice.

Check whether it is tax included or tax excluded.

The difference between the internal tax and the external tax is also meant to prevent the recipient from misunderstanding that the product’s price has increased due to the tax increase. Therefore, it does not matter whether you choose the internal tax or external tax notation. However, you need to make sure that the products you handle are tax-included or tax-excluded.

This is because the calculation of consumption tax may be complicated due to the mixture of internal and external tax. In particular, you must be careful when using accounting software. If you do not change the consumption tax set according to the internal tax and the external tax, the total amount will differ. And again, it’s important to be clear so that the recipient can tell at a glance whether it’s tax-included or tax-excluded.

Adjust payment deadlines

When you conclude a contract with a business partner, you need to adjust the payment due date. This is to prevent trouble later. In most cases, the payment is paid at the end of the month and the end of the following month or the following month. It is possible to set your own due date, but payment mistakes may occur if it is different from the general due date, so you must confirm with the other party. The claimant may want to collect it as soon as possible, but if the deadline is too strict, it may become impossible to collect it, so it is recommended to adopt a general date as much as possible.

Arrange the burden of the transfer fee

When making a contract, decide whether the claimant or the payer will bear the transfer fee. There is no exact rule, but in many cases, the payer is responsible. However, different companies may have other ideas, so it is recommended to discuss in advance just in case. When you ask the payer to pay, please write in one note on the invoice that you will be asked to pay the transfer fee. Assuming that the person in charge may change, it is safer to state which one will pay the transfer fee each time you send an invoice.

The invoice processing procedure

To understand what is involved in the invoice processing process, it is important to know the different steps in the process:

  1. Invoice processing starts with the receipt of a supplier invoice.
  2. To be able to process the invoices in a digital workflow, the invoice data must be extracted and registered in a standardized format.
  3. The creditor department is responsible for invoice processing. It will make the correct posting manually or automatically using an invoice management system that is preconfigured with its special business rules.
  4. Invoice processing then continues with invoice approval. This step in invoice processing varies depending on the invoice type: cost invoice or invoice based on the purchase order. For invoices based on a purchase order, the invoice processing can be performed entirely automatically with invoice matching in an invoice management system.

What to do if there is no payment after the payment deadline?

What should I do if I haven’t paid after the due date? First, let’s tell the business partner by e-mail or phone that the payment cannot be confirmed. Most of the time, your business partners have forgotten to pay, and I think this reminder will solve the payment delay.

If you still don’t get paid, keep in touch (in some cases you may want to go to the company to explain the situation) and mail the invoice sent with proof of content. If you ask the director to prove it and you still do not pay, you will be exercising legal measures.

The invoice is valid for 2 years. Furthermore, if you certify the contents, the expiration date will be extended for half a year. Rather than worrying about expiration dates, it’s more important to manage your invoices and be clear about whether you’ve paid or not.

How to efficiently issue and manage invoices, quotations and purchase orders?

Invoice creation and subsequent deposit processing are some essential tasks in business operations. By using the cloud accounting software Billed, you can efficiently perform everything from invoice creation to deposit management.

Efficient billing and deposit management

Invoice creation, mailing, and subsequent payment management are completed within the accounting software. By responding all-in-one and linking billing and accounting data, accounting operations will become more efficient.

In addition to invoices, it is also possible to create quotations and invoices. Billed is all you need to create the documents required for the entire process from quotation to billing and delivery.

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