How Does Billing Software Work?

Businesses use different kinds of billing systems. It can be as simple as manual (pen and ledger) system or as complicated as a fully integrated IT system that covers different business processes, including invoicing and billing.

While computers and software have seen rapid technological evolution and sophistication, the most basic billing concepts have remained relatively unchanged. There’s the provider, the customer, and the cost of service or product. The invoice, either paper-based or digital, contains all of these components.

Back in the days, businesses manually prepare paper-based invoices and sent to customers, either personally or via snail mail. It is a repetitive and time-consuming process that involves various documents. Nowadays, the billing process has been simplified and digitized, thanks to computers and billing software.

What is billing software?

Billing software is a computer program or application specifically designed to create and send invoices. It tracks billable products and services delivered to customers. It also records into its database customer information, line items, and transaction data.

Because of its ease, convenience and efficiency, billing software has become commonplace. From freelance providers to small- and medium enterprises to big companies, almost every business now uses invoicing software.

There are numerous off-the-shelf billing software programs such as Intuit QuickBooks, Xero Accounting, and Sage Peachtree, as well as, cloud-based software. There are also custom IT solutions like enterprise automated software The Kansys Edge that can be used in businesses with unique processes.

How does invoicing software work?

Although invoicing programs differ in terms of user interface, sophistication, capabilities and operation, they work almost the same.

1.   Create customer profile

First, a customer account is created. Typically, the system automatically creates the customer code. Some programs allow users to create unique codes for every client.

Customer information such as name, billing address, contact details, and payment option and terms are collected. If the transaction involves a third-party payer such as an insurance company, it will also be included. If credit card payments are accepted, that information is secured as well.

2.       Validate and encode

Once data are collected, information is validated. If necessary, the insurance coverage and/or credit score will also be checked. Once verified, data are encoded into the software program. Billing software has a user-friendly interface with fillable and drop-down tabs where you can input the data.

Customer information, particularly credit scores, is considered sensitive data. Hence, billing software uses stringent data security technologies.

3.   Set up coding system

A coding system categorizes every service or product a business offers. This makes it easier to bill, manage and track these items. The number of codes depends on how many services or products the business offers. It can be solitary or a variety of services/product. Each code will have corresponding item description, cost, retail price, and quantity in stock (if applicable). Codes can be updated as necessary, such as when updating prices or stock inventory.

These item codes are saved into the database. When creating an invoice, the user simply needs to select the item code and input the quantity availed. This hastens the

4.   Issue bill

Once the service or product is delivered, an invoice or bill can be created. The user inputs the customer name, line items availed, quantity of each item, and payment terms; then schedules when the bill will be sent. It can be instantly (one-time billing) or as scheduled, such as monthly, quarterly, semi-annually, annually, or other agreed payment schedule. With invoicing software, you can reduce the possibility of delayed billing. Typically, billing software sends the statement electronically but it can also be printed out and sent through standard mail.

Furthermore, the software enables users to sort out customers or transactions based on maturity date or payment schedule. This way, business owners can forecast cash flow. It also gives insightful data such as the amount of collectibles at a certain period of time, and the payment compliance and delinquency rate.

5.   Manage and track invoice

Billing software enables business owners to manage and track invoices. You can set the program to send reminders for overdue accounts or notifications for penalties. Likewise, the program can be set to send early payment reminders to keep customers informed of an upcoming due date.

Billing software allows you to act immediately on delinquent accounts. You can initiate collection strategies like making phone calls, sending collection letters or filing legal claims. Some businesses hire third-party collection services to oversee delinquencies and non-payment issues. You can forward the data from the billing software.

Aside from these basic functions, invoicing software also has other features, such as:

  • create professional, beautiful invoice templates,
  • convert quotations to invoice,
  • accept credit card and other online payment options,
  • automatically prepare tax computation and documentation,
  • quick invoice reconciliation,
  • make financial audit easier,
  • send invoice anytime, anywhere, and
  • flag overdue invoices or delinquent customers.

Indeed, invoicing software is a boon not just for business owners but also for customers. For businesses, their useful features simplify an otherwise complicated and tiresome task. Meanwhile, for customers, it gives added convenience and security.

Before deciding on which billing software to use, take note that not all products are the same. Do your research to find billing software that is most suitable for your company.

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