Invoice tracking 101: Best practices for better invoice management

Once you’ve received an invoice from a vendor, contractor, supplier, or anyone else, how do you keep track of it until it gets paid? Even small businesses that receive just a few invoices each week can find it tedious to manually track the status of each one.

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Fortunately, managing incoming invoices is one of the simplest finance operations to automate. In this post, we’ll explain invoice tracking, why it’s important, best practices for managing invoices, and features to look for in an automated invoice tracking solution.

What is invoice tracking?

Invoice tracking refers to monitoring the status of the invoices you send and receive. At any given time, you should be able to figure out exactly where an invoice is in the accounts payable cycle or payment process, from the date it’s sent or received to when the invoice gets paid.

What invoice data should you track?

You should be able to see the following invoice data for every vendor invoice in your system:

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• When you received the invoice
• The vendor ID and invoice number
• What service or product the payment is for
• When the invoice is due
• Whether there are discounts for early payment or penalties for late payment
• The payment method you used to pay the invoice and the amount you paid
• Any other outstanding invoices you have with that third party

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You can use a similar tracking system for outgoing invoices. If you send a bill to a customer, you should be able to pull up the invoice in your system and figure out:

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• When you created the invoice
• The invoice number and customer ID
• When you sent it
• The due date
• When your customer viewed it
• Whether the invoice is past due and, if so, whether a reminder was sent
• Whether late payment charges or late fees have been assessed
• When it was paid, and in what amount
• The payment method your customer used (credit card, bank transfer, etc.)
• Whether there’s an outstanding balance

Why you need an invoice tracking system

Why is it so important to keep track of incoming invoices? The right invoice tracking system will improve your accounts payable operations and provide a number of other business benefits as well:

Helps you avoid late fees

Knowing when each of your invoices is coming due is the only way you can ensure you pay on time. If even one of those invoices falls through the cracks, you could face hefty late payment fees. Business credit cards, for example, typically charge flat fees and exorbitant financing charges if you pay late; third-party vendors or suppliers might do the same.

Improves vendor relationships

Paying your bills on time maintains good relationships with suppliers and vendors, which can lead to its own benefits. For example, a vendor may prioritize your needs over another customer’s, which avoids operational setbacks. You might also get discounts on bulk orders or rush shipping charges.

Optimizes cash flow

With proper invoice management, you can better forecast your cash requirements so you always have money on hand to pay your bills. Invoice tracking systems can also help you use cash more strategically by prioritizing different payments at different times, or automatically paying them all on the date they’re due.

Enables better decision-making

Tracking outstanding invoices leads to more accurate financial statements. Real-time information on business spending will help you identify patterns and trends, which can help you make better strategic decisions. Accurate data can also help you understand whether your expenses are reasonable, or whether you should negotiate with your current vendors for better pricing.

Prepares you for an audit

Accurate and well-organized records prepare your business for tax season and help make any potential tax audits easier to handle. If the auditors ask for evidence of expenses, you’ll have the records you need readily available to trace expenses back to the source.

How to keep track of invoices: 5 best practices for better invoice management

Invoice processing might look slightly different from one company to another, but there are some tried-and-true tips for success no matter your business’s particular needs. Here are some best practices to consider as you build out your invoice management system:

1. Use invoice management software to automate payments

The moment you receive a bill, you need to enter it into your tracking system. While many small businesses might be able to get away with using Excel spreadsheets to track invoices, it’s much more efficient to use invoice management software. The right app will be able to:

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• Set up payments to go out on the date of your choice
• Follow up with the manager if the payment needs signatory approval
• Notify your vendor contact that you’ve initiated payment

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The best software can automate invoice processing from start to finish by pulling the necessary information from incoming invoices and initiating the approval process automatically.

2. Create an aging report

Every so often, you should run an AP aging report to view any outstanding invoices and when the payments are coming due. With this information, you can build more accurate cash flow estimates. If you find any unpaid invoices, you can look to see why payment wasn’t initiated and promptly correct the matter.

3. Stagger your vendor payments

Strategically prioritizing different payments at different times can help you better manage cash flow. Paying all your bills at the end of the month on the date they’re due could lead to a sticky situation if you don’t have enough cash on hand to pay for any unforeseen expenses. Staggering invoice payments can help you maintain a healthy amount of cash to cover incidentals or jump on growth opportunities.

4. Check for duplicate payments

Invoice tracking software should recognize if your vendor or supplier sent more than one invoice and warn you not to pay twice. It can also detect suspicious patterns and help protect your organization from fraud.

5. Control access

To prevent fraud and ensure your AP operations run efficiently, limit access to your invoice management system. Good software makes this task easy by letting you set role-based permissions for individual users and keeping an audit trail of who made changes and when.

Features to look for in an invoice tracker

Invoice tracking software can be the missing piece your billing cycle needs. Not only can the right software automate a good portion of the process, but it can also improve accuracy, provide better security, and build better reports. Here are the key features you should look for in invoice management software:

Ease of use

Is the software easy to use? Is it easy to implement, or will it disrupt your AP process? Think of who in your organization will implement and use the software and select a tool that fits their skill set. If you’re switching from one AP automation tool to another, look for a vendor that will help with your migration.

Integration capabilities

Find software that integrates with your existing tech stack, including:

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• Accounting software like QuickBooks, NetSuite, and Sage Intacct
• Inventory management systems
• Payment gateways
• Customer relationship management (CRM) platforms
• Enterprise resource planning (ERP) systems

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If it has this functionality, you can easily streamline your invoice management tasks. For example, your invoice management system will be able to make a journal entry and categorize expenses automatically if it can communicate with your backend accounting systems. It can also link payment with an existing purchase order to ensure the goods and services you ordered were delivered and paid for.

Automation features

Good invoice management software should be able to automate most of your AP process. For example, most invoice tracking software can use optical character recognition (OCR) to capture and digitize invoices you receive.

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With that information, the software can draft journal entries and suggest payment amounts to save time. Look for a solution that can automate payment delivery, vendor notifications, and monthly reports, too, to save your team time and reduce manual work.

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Modern invoice management solutions that combine AI and automation can provide even more value. For example, Ramp’s models analyze millions of transactions and tell you whether you’re paying too much for your monthly SaaS invoices.

Security

Any software you purchase and install should be secure by default. Look for a software solution that:

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• Offers role-based access control (RBAC)
• Encrypts data in transit and at rest
• Uses multifactor authentication (MFA)
• Partners only with well-vetted third parties
• Maintains an audit trail
• Performs regular penetration testing
• Reports suspicious requests for sensitive information
• Employs fraud defenses when necessary

Reporting and analytics

Your system should give you access to real-time expense data. You should be able to generate custom reports and dashboards that help you make better business decisions and report accurate financial data to leadership and other stakeholders.

Scalability

As your business grows, can the software grow with you? Or are you restricted to a certain number of invoices each month, or a certain number of vendors or suppliers? If you invest in additional software, like an inventory management system separate from your existing accounting software, will the invoicing software still meet your needs?

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Choose an invoice management solution that doesn’t charge you based on arbitrary seat or usage limits so it can scale up or down as your business needs change.

Automate your invoice management process with Ramp

When you automate invoice tracking, you free up your finance team to focus on more valuable work. Ramp’s modern financial tooling can help you do just that.

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Ramp Bill Pay automates your entire AP workflow so every invoice is recorded, tracked, approved, and paid without any manual intervention. With all your financial data in a unified dashboard, you can quickly find any invoice, analyze monthly spend, and find opportunities to optimize cash flow.

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Never lose track of an invoice again. See why Ramp customers save an average of 5% a year with an interactive demo.