The Basics of Online Invoice Payment Processing

Businesses and organizations in the global digital economy are increasingly reliant on online electronic invoice payment as an effective form of digital transformation. Online invoice payment processing is advantageous when paying for B2B accounts payable and making real-time eCommerce and retail purchases worldwide. 

To support this rapidly increasing digital economy use, automation software systems and payment gateways handle domestic and cross-border payment transactions, providing efficient and secure payment solutions and electronic payment method choices through an online invoice payment provider. 

What is Online Invoice Payment Processing?

Online invoice payment processing is how business customers pay for invoices and retail purchases using their choice of electronic fund transfers (EFT) through an online payment gateway and payment rail. Accounts payable automation systems, e-invoicing, and eCommerce/retail systems enable efficient B2B online invoice payment processing. 

Who Uses Online Invoice Payments? 

Businesses, non-profit organizations, government entities, and consumers use online invoice payments when they can access automated accounts payable systems enabling online payments after digitally capturing invoice data. Suppliers receive online invoice payments from their customers. Bank systems enable online electronic bill pay by their account holders. 

Types of online invoice payment transactions include:

• B2B transactions
• Routine bill pay
• Recurring SaaS and other subscriptions
• Ecommerce and retail transactions
• Freelancer payments

B2B Transactions

Business-to-business (B2B) transactions include purchases of inventory, supplies, fixed assets, services, and travel accommodations from other businesses to serve customers and operate your business. 

When these transactions are invoiced and flow through accounts payable, online invoice payment processing is the most efficient method of payment. In accounts payable automated invoice processing for B2B transactions, invoices are verified, coded, and matched to purchase orders, then approved and securely paid electronically with selected payment method options and currencies.

Routine Bill Pay

Businesses and consumers may pay routine invoices like electric and gas utility bills, wireless and Internet services, and insurance invoices through online invoice payments. Some invoices or e-bills from e-billing systems or accounting software include an online Pay Now button that links to a payment gateway. 

Recurring SaaS and Other Subscriptions

Online subscriptions can be set up for automatic online payment processing for recurring invoice payments by ACH/global ACH, debit card or credit card. Not all subscriptions provide periodic invoices, but businesses can still set up recurring payments for these subscriptions. 

Subscriptions may be paid annually upfront for the year to receive a better price. The costs are initially capitalized as prepaid expenses, a current asset, through general account coding. Then subscription costs are recognized each month using an automated journal entry to recognize the monthly expense for software usage over time.  

E-commerce and Retail Transactions

Upon cart checkout, eCommerce and retail transactions go through a payment gateway (like Stripe or Square Payments) for accepting debit card or credit card payments or another designated type of electronic payment option. A payment gateway is an online payment API integration with the eCommerce website or retail point of sale (POS) in a physical store location. 

Invoices or receipts are generated for each transaction with headings and detailed line item descriptions, quantity, pricing, and any sales tax payable.  Receipts for real-time online payment transactions also include a record of the payment time and payment method used. 

Freelancer Payments

Freelancers invoice their clients for services performed under their independent contractor agreement. Because freelancers may be globally based and often work remotely, receiving timely online invoice payments in their local currency is essential or preferable. 

Top Payment Methods for Online Invoice Processing

Online invoice processing payment methods include systems and types of EFTs that can be used for online invoice processing. AP automation software is automated invoice processing software for invoice-to-pay. It also serves as invoice management and spend management software. 

AP Automation Software 

Businesses use AP automation software (like Tipalti AP automation) integrations with their ERP or accounting software as part of the online OCR and invoice processing cycle that includes global online invoice payments. 

Tipalti AP automation functionality includes:

• Streamline accounts payable workflows with best practices
• Onboard suppliers through a self-service Supplier Hub 
• Digitally capture invoices with AI-driven OCR 
• Validate suppliers to reduce fraud 
• Verify invoices (with exceptions testing) to reduce errors and avoid paying duplicate invoices
• Automatically match and code invoices 
• Automate approvals routing 
• Indicate cash flow requirements for paying invoice batches 
• Make and automatically reconcile global online invoice payments in large batches
  • To 196 countries in 120 local currencies 
  • Using a choice of 50+ payment methods
• Give suppliers automated supplier portal visibility and notifications about payment status
• Provide real-time spend visibility and AI-driven analysis 

AP automation software collects IRS W-9 or W-8 forms or other country-required tax forms during self-service onboarding, simplifies supplier tax compliance with tax preparation reports, and automates global regulatory compliance. Inefficient paper invoices and supporting documents requiring manual data entry aren’t required. 

Other Unified Tipalti Finance Automation Products

Tipalti also offers advanced FX software products, Multi-FX and FX Hedging. Multi-FX enables paying suppliers through a virtual centralized payment account for all subsidiaries and entities. It supports 30 currencies. FX Hedging is used to lock in foreign exchange rates before paying invoices on the due date. 

In its unified finance automation products platform, Tipalti offers Procurement software for purchase requisition (PR) intake, approval, and automatic purchase order (PO) creation, plus a centralized document repository. 

Tipalti Expenses software works with AP automation to pay employee expense report claims submitted, automatically checked for company travel & expense policy compliance, and approved through a mobile app. Tipalti offers (approved users who apply) the Tipalti Card as a corporate spending card to control employee non-PO spending. 

For global non-invoice payments to freelancers, creators, streamers, influencers, and ad networks, Tipalti offers a finance automation product for mass payments that also integrates with some performance marketing systems. 

Pay Now Button in Electronic Invoices

The Pay Now button is a payment link on an electronic invoice (e-invoice) that’s used in online invoicing and payment processing to accept payments online. Some digital invoices or bills that may be emailed to the customer from the invoicing software include an online Pay Now button that links to a payment gateway for online electronic payment. 

For example, QuickBooks Online, a small business software product, provides this Pay Now button invoicing solution feature to its approved QuickBooks Payments customers who issue e-invoices. 

Banking Online Bill Pay

Through their banks, customers can set up suppliers and enter the amount of requested electronic payments for online bills or invoices when invoices are due. When invoices aren’t required, customers can also set up recurring ACH payments that will be made through a designated bank account for bills that include rent payments. 

Types of EFT Payment Methods Used in Online Invoice Processing 

Types of electronic fund transfer payment methods include:

• Credit cards 
• Debit cards 
• PayPal
• Apple Pay
• Domestic ACH in the US and global ACH, including SEPA in Europe
• Wire transfers
• FedNow and RTP real-time payments in the U.S. 
• Digital wallet transactions

The Benefits of Online Invoice Payments

Benefits of online invoice payments include:

• Efficient and timely payments made globally
  • With quicker receipt of the payment by the supplier
  • To avoid late payment charges or earn early payment discounts
  • Fewer payment reminders from the supplier
  • Resulting in increased supplier satisfaction and no shipment cutoff delays if funds for timely invoice payments are sufficient
• Elimination of paper-based payments like checks that require time-consuming signing, printing, envelope stuffing, and mailing
• Reduction of fraud risk from stolen and altered paper checks 
• Choice of electronic payment method and local currency
• Automated payment status for suppliers in AP automation systems to reduce supplier inquiries, follow-up hassle, and AP team time
• Automatic real-time batch payment reconciliation to close the books faster
• Better spend visibility and analysis

In automated accounts payable invoice processing, the supplier and invoice are checked for validity and accuracy before approval and payment. Online payment processing generally has a lower fraud risk than using paper checks that can be stolen, washed, and altered by fraudsters if your business knows its customers (KYC) to avoid scammers (and AML risks). 

Suppliers receive timelier payments for better supplier relationships. Businesses can process their invoices on time to take lucrative early payment discounts like 2%, net 30 in their payment terms. 

How to Send and Receive Online Invoice Payments

This section describes how to send and how to receive online invoice payments as two separate processes. 

Sending Online Invoice Payments

The best way to send online invoice payments is to use ERP-integrated AP automation software from Tipalti. 

The steps to send online invoice payments through Tipalti AP automation software are as follows:

1. Use the self-service Supplier Hub to onboard suppliers and collect required tax forms before making their first payment.
2. Automatically validate suppliers and verify their taxpayer ID number (TIN).
3. Capture and extract invoice data from PDF or other accepted file formats, including headers and line items, using automated AI-driven OCR technology.
4. Use paperless and automated touchless invoice processing to verify invoices for exceptions using algorithmic rules, catch any duplicate invoices, match invoices, code to general ledger accounts, check for global regulatory compliance, and route invoices for approval.
5. Schedule batches of approved invoices by the due date or early payment date (in different local currencies, in each recipient’s preferred payment method) for payment after viewing cash requirements.
6. Financial management approves the large batch payment. 
7. Sync data with the integrated ERP system and automatically reconcile payments in real time.

Receiving Online Invoice Payments

Businesses receive online invoice payments from their customers in batches for a business day and generally collect the funds in their designated merchant account within two business days from the customer’s payment. These bank transfers for payment amounts received are net of any processing fees charged by the payment processor. 

The source of the online invoice payments received may be a PayNow invoice button link emailed through the seller’s invoicing system for a credit sale flowing through accounts receivable, in-store point-of-sale credit card sales transaction proceeds, or eCommerce sales. If the customer pays for a purchase in real-time, they may receive a paid receipt instead of an invoice from the seller. 

Adopt an Online Invoice Payment Processing Solution

Your business can greatly benefit from using an efficient online invoice and payment processing solution that provides a choice of global electronic payment methods, helps your business reduce costs, and improves supplier relationships. 

Ecommerce and retail businesses use payment gateways for online customer payment processing in real-time for their accounts receivable. For accounts payable invoice processing, these businesses, B2B and B2C businesses in all industries, and non-profit organizations use AP automation software. 

Tipalti AP automation software integrated with your ERP system will help your business save time and money when processing and paying global supplier invoices online, reduce hiring needs, and give your team real-time visibility to better control spend. Learn more about accounts payable online invoice payment processing.