How Invoicing and Billing System Works & Their Features

Numerous transactions are made daily in business, such as payments coming from customers and payments going to suppliers or vendors. This regular cash flow keeps the business operational. Cash flow can be compared to the blood circulation of any business and thus determine the business's health. This is where the invoice and bills come in.

This article will discuss the definition of an invoice and bill. We will also discuss how they work and how they differ from each other.

Invoice Definition

A business issues an invoice to get paid for the service or product it sold. Additionally, an invoice is required to conduct business and regulates business relations between a buyer and a seller in the case of payment.

Invoice details include:

  • Product or service description
  • Price of each unit
  • Quantity
  • Amount of money that is owed
  • Client's contact information
  • Business's contact information

An invoice is usually issued after the business completed the customer’s order and requests the payment of the order.

What is an Invoicing System?

An invoicing system is software designed and developed specifically for generating an invoice automatically after a product or service is rendered. This system creates a product description and associated costs and sends the copy to the business's client as an invoice.

What is a Bill?

The word "bill" refers to an accounting document that states the amount of money the business has to pay for a service or product purchased. Bill is a part of the invoicing process. 

Although the two terms are closely related, there is one main difference. When a company sends you a commercial document for a payment request, that company expects you to pay the bill. For that company, the document is an invoice, upon receiving by you that documents become a bill.

Invoicing and Billing System

The invoicing system is software designed and developed specifically for easily generating an invoice after a product or service is sold. This system creates a product description and associated costs and sends the copy to the client for collecting due payment as an invoice. 

A sophisticated invoicing system comes with a dedicated billing system. This billing section allows the user to track bills for billable products and services purchased by the business. The program simplifies the process of payments due by the business and can also track the work hours of team members for billing purposes.

Features of Invoicing System

Invoicing systems speed up the process of collecting due payments and ensure businesses get paid on time. 

Must have features in an invoicing system:

  1. Recurring Invoice Automation
  2. Customizable Design and Template
  3. VAT/TAX Compatibility
  4. Upcoming or Overdue Invoice Reminders 
  5. Quote Generator
  6. Activity History
  7. Credit Note Management
  8. Clients Management
  9. Products or Services Catalog. 
  10. Stock Management
  11. Online Invoice Payments
  12. Reporting
  13. Authorization
  14. Business Analysis
  15. Payments Follow Up


1. Recurring Invoice Automation

You can set up recurring invoices to be issued for the regular customer using the invoicing software. This feature will save time for both ends. 

2. Customizable Design and Template

The invoicing system comes with visually appealing built-in templates, which are also customizable. This feature enables a business to choose its preferred templates and make changes based on needs, such as resizing the business logo and fonts, changing the color etc.

3. VAT/TAX Compatibility

Paying tax is compulsory for business. An excellent invoicing software can determine the tax amount and tell the user whether TAX/VAT should be applied to the product or service sold. 

4. Upcoming or Overdue Invoice Reminders 

Business relies on cash flow. This is why a business needs to get reminders about upcoming, due, and overdue payments. Automated software can take care of that responsibility by segmenting the reminders, such as reminding the customer of the last due date before five days.

5. Quote Generator

There will be a situation where a customer might ask for a quotation. You can easily create a quotation using this system and send it to the customer. On top of that, if the customer accepts the quotation, the software can convert it to an invoice. 

6. Activity History

A good software will keep the logs after each entry and can tell who is responsible for the modification and the entry time. 

7. Credit Note Management

Sometimes, your customer might return goods to you. In that case, the automated system can generate a receipt and give it to the customer.

8. Clients Management

Since invoices are created for each client, it is important to have a separate client section where all client information is recorded.

Typically, the user will have to input the client’s information in the invoicing system before or during the creation of the invoice or quotation. This process allows the business to build a sophisticated client database which can be used later on for sending notifications or quotes to each client when necessary. 

9. Products or Services Catalog. 

Businesses can create catalogs for goods and services, including prices and units, all in one place. Catalogs are essential for invoicing process because, in the catalog, the business will have to input the list of all products and services that will be invoiced later on.

10. Stock Management

For a business to survive and to keep the selling process running, it is essential to track stock. The stock management function allows the user to track inventory and warn you about the low stock so that you can replenish your stock level before it runs out. 

11. Online Invoice Payments

With a cloud-based invoice system, a business can easily create invoices with a payment link and send multiple copies to multiple clients and accept payments from them simultaneously. 

12. Reporting

Excellent software should provide you with overviews and reporting based on product groups and subgroups. Common Reports are:

  • Sales Report
  • Transaction Report
  • Client Transaction Report
  • Stock Report

13. Authorization

In a business, it's essential to divide roles and responsibilities among employees.  An exceptional invoice system comes with “Role-Based Access Control (RBAC).” This feature defines the permission of access for each employee so that everyone can use the invoice software for their specific work, such as pricing, managing inventory, processing the invoice, approving the invoice, etc. 

14. Business Analysis

Businesses can find out the most sold products or services by analyzing invoices. 

15. Payments Follow Up

The program allows the user to take care of due payments. Based on predetermined dates, the software reminds the business to follow up on due payments. The software also can create automated payment schedules, such as monthly or yearly.

How Invoicing System Works?

Every firm, large or small, must invoice clients to assure payment for services or items rendered. This is an essential aspect of any commercial transaction and keeps the company's cash flow in check. 

However, you must maintain certain things in business before processing an invoice, such as inventory, products or services catalog, setting up the payment method, managing clients etc. Luckily, the system can help you take care of these. 

Invoice processing varies based on the business nature, but the uses of accounting principles remain the same.

Here are the standard invoice processing steps:

1. Managing Invoices

Creating the Invoice Template:

Business creates invoices to get paid. Since invoices are paid late, businesses should practice sending invoices weekly. Preparation of an invoice starts when Goods or services are sold to a customer.

Prepare an invoice for the service or product sold. In the invoice template, the business should add the following:

  • Date
  • Invoice number
  • Customer name and address
  • Description of goods and services
  • Cost of each unit
  • Total cost
  • Check and approve the invoice

Certain invoices might require approval from higher authority. Using the invoicing system, staff members can schedule multiple invoices to the higher authority for completing the approval process.

Send the Invoice to the Clients:

After approval of the invoice, the system can send the invoice to the clients for payment in various formats, such as PDF or docs by email.

Processing Payment:

In an invoicing system, payment should be processed in various ways, such as bank transfers, bank checks, etc.

  • Online payment system

Online invoicing includes a payment gateway integrated with it. The customer can make the payment using a credit or debit card through the payment gateway.

  • Cash or check

Some customers prefer the traditional way.  Though these methods take time and cost a trip to the bank to make payments.

  • Recurring payment

In case of regular customers, the business can schedule the payment option for that specific customer. In this way, the user of the system won't have to create invoices for the same customer again and again.

  • Payment reminder

Businesses can use the invoicing system to follow up on unpaid invoices and send a reminder for upcoming payment.

If payment is received:

Upon receiving the payment, using the system, the business does the following:

  • Matching the payment amount
  • Record the payment in the system as received 
  • Sending receipt or bill copy to the customer

In case of no payment:

Using the invoice system, business can chase the payment in various ways:

  • In case of late payment
    • Business can send another reminder for overdue payment

If payment remains unpaid:

In this case, the business records the payment as bad debt.

2. Managing Clients

Here in this section, businesses collect customer’s information, such as name, address, telephone or mobile number, etc., to build a client database in the system.

3. Managing Products & Services

The invoice system keeps a catalog of offered services and goods along with a price tag. Using this function, a user can generate a quote and send it to the potential customer upon request.

4. Managing Inventory

In this section, the responsible person creates a purchase order for new stock and sends it to the supplier. Upon receiving products, the inventory stock amount is recorded in the system. Additionally, the smart system notifies the user about a low stock. 

5. Checking Reports

The invoice system can generate financial reports for better insight by analyzing provided data, such as a successful collection of payments, bad debt etc. 

Difference Between Invoice vs. Bill

One might get confused about these two, as they seem the same. This confusion occurs because they describe the same things in different ways. It depends on which side of the coin you are on. For example, the business sends an invoice to the client, and the client receives it as a bill. So whether you are a sender or receiver, let's explore more about their differences.




Document Type

A formal way to request payments from clients

The service provider issues bills to the clients after receiving the payment.

Unique Order Number

The invoice contains a unique order number

The unique number is not essential for bills

Transaction Type

They are issued for credit transactions as the product or service has already been sold

Immediate cash or other forms of transactions upon receiving the document


Used for customer behavior analysis, financial reporting

Bills serve as proof of financial transactions for future reference.


Contains detailed information about products and services, such as item name, price, quantity, and both parties' addresses.

Bills don't need to contain detailed information.