Invoice tracking: How to keep track of your invoices

Invoice tracking is an essential aspect of running a business. It’s how you keep track of your cash flow so you always know your financial situation.

For small businesses, the administrative work surrounding invoice tracking can quickly become overwhelming. For that reason, it’s important to develop an effective invoice tracking process that will help you save time, reduce errors and maintain strong relationships with vendors and buyers alike.

In this article, we’ll cover what invoice tracking is and why it’s important for your business, as well as 5 best practices for keeping track of your invoices.

• What is invoice tracking?
• Why is invoice tracking important for your business?
• Invoice tracking: 5 best practices for your business

What is invoice tracking?

Invoice tracking is the process of monitoring the status of an invoice – from the moment it’s received until it’s been paid and recorded. Once a manual process, invoice tracking can now be automated through an invoice management system, saving valuable time and resources for businesses of all sizes.

Typically, the primary focus of invoice tracking is to keep track of whether the invoice has been paid. However, this isn’t the only important information an invoice management system should track.

Other key invoice data include:

• Invoice number
• Buyer/vendor ID
• Transaction details
• Invoice due date

An invoice tracking system can monitor both incoming and outgoing invoices, determine whether an invoice has been paid and how many days an invoice might be outstanding. This improves transparency and makes it easier for you to prioritise unpaid invoices – and that’s important for more than just your own cash flow.

You might also be interested in: ‘ How to keep track of business expenses 101 ’

Why is invoice tracking important for your business?

A smooth invoice tracking process can benefit your business in many different ways – and not just internally.

Let’s take a look at some of the reasons why invoice tracking is important for your business:

• Timely payments: Invoice tracking helps you keep track of invoice due dates. This helps you avoid late payments – and that’s important for both your cash flow and your vendor relationships.
• No late fees: Many companies assess fees for late payments. With invoice tracking keeping you up to date on invoice dates, you’re sure to pay your bills on time, making worrying about late fees a thing of the past.
• Stronger relationships: Late fees aren’t the only issue you avoid with invoice tracking. By building a reputation as a reliable business partner, you can nurture stronger relationships with vendors and buyers alike, as well as avoid the hassle of chasing down payments.
• Better expense management: Invoice tracking helps you keep a closer eye on your spending. This helps you get a clearer understanding of your company’s financial health and identify trends and patterns that can help you make more informed business decisions along the way.
• Improved efficiency: Automated invoice tracking allows your accounting department to process a higher number of invoices faster and with higher accuracy – a significant advantage for your overall operational efficiency.

Invoice tracking: 5 best practices for your business

Below, you’ll find five best practices for invoice tracking to help you maintain a healthy cash flow, reduce risks and improve the financial operations of your business.

1. Automate your payments

We’ve mentioned more than once that automation saves valuable time and resources for your accounting department – and the best invoicing software can even automate your entire payment process.

Accounts payable software can automatically pull data from your incoming invoices. This way, you can streamline the process of capturing, approving and paying invoices. To benefit from automation, encourage your vendors to send you electronic invoices. This helps reduce manual entry errors and speed up your processing times.

2. Set up an efficient approval workflow

A crucial part of improving efficiency is to ensure that incoming invoices land on the right desks when they need to. For that reason, it’s important to establish a clear approval hierarchy that ensures invoices are reviewed and approved by the right people at the right time.

Set up an automated approval workflow that routes invoices to the right approvers. Automation also enables you to send reminders for pending approvals, helping to ensure that your invoices are paid on time – always.

3. Take measures for fraud prevention

When handling payments, it’s important to safeguard your operations against fraud. For that reason, you should always take measures to reduce the risk of fraud and verify the legitimacy of your invoices.

Separate duties among different employees to reduce the risk of fraud. For example, the person who approves invoices shouldn’t be the same person who processes payments. You should also regularly review your vendor list for suspicious or duplicate entries and other red flags that could indicate fraud.

4. Maintain strong vendor relationships

In terms of keeping your vendors happy, payment automation does some of the work for you – but it can’t do everything. For that reason, it’s important to build business relationships that go beyond just paying on time.

Practise open communication with your vendors regarding invoice statuses, payment schedules and any issues that may arise. Make sure to address and resolve any disputes or discrepancies quickly to avoid payment delays and maintain good relationships with your vendors.

5. Stay organised

For future reference, it’s important to keep records of your invoices. Your invoicing software should allow you to keep organised and accessible records of all invoices and other documents such as payment approvals and related correspondence.

You should also implement a document retention policy that complies with legal requirements as well as your business needs.