Invoice to Cash

Invoice to cash, also known as I2C, refers to the business accounting process that encompasses, from start to finish, the entire customer payment cycle.

It begins with the initial transaction, which is documented and communicated to the customer via invoice. It ends when payment is received and its cash value is attributed, through cash application, to the appropriate account where the transaction originated.

I2C is a compound process that encompasses many component parts, or other processes, that work together.

The process begins with the issuing of an invoice. This is a document provided by a business to its customer that provides all the necessary details of a transaction. By documenting this information, the business has provided the customer with a supporting record of payment to be made.

Once the customer receives an invoice, the business expects payment to follow. If payment is not made at the same time as the transaction, it becomes part of the accounts receivable (AR) process. In these instances, the customer has not yet paid for the goods or services received. Instead, the business has extended credit to the customer and expects to receive payment for the transaction at some point in the future.

The AR process itself is a multi-layered system that an accounting staff structures and implements in order to manage payments owed to the business. Among other things, it involves the issuing of credit and collections of payments.

Credit systems in a business are also complex processes that involve various guidelines and policies. These govern who is eligible to receive credit, how much they may receive, what sort of interest is charged to them, and the guidelines for paying off the bill.

Forms of payment have evolved drastically in the age of technology, and businesses may have many different platforms in place for receiving payment, including but not limited to cash, mobile, online, credit cards, ACH, and money wiring.

Businesses also have systems in place to ensure that payment is received, even if it is late. AR teams use dunning letters to collect on overdue receivables and prevent accounts from going delinquent. A dunning letter is a collection notice sent to a customer explaining that a payment they owe is overdue. They help the business communicate with its customers and prevent delinquent accounts.

If the dunning letter doesn’t get the customer to pay, accounting teams implement other steps to support gathering payment - this part of the process is known as collections. It can take on many different approaches depending on the customer, the business, and its accounts receivable process.

In an ideal world, all customers will pay in full and on time, but this does not happen all the time. Some bills go unpaid. At some point, if the business determines that a debt is not collectible, it will move to the phase of recovery. In this phase, the business will enlist the help of a collections agency to collect the debt.

The invoice-to-cash process does not end when payment is received. Cash application is the process of matching incoming payments to outstanding invoices and assigning them to the proper account in which they were entered. Similarly, invoice reconciliation aides in this process by matching invoices with payments recorded in the general ledger.

Both are essential ways for businesses to track cash flow and capital so that funds can be utilized efficiently, accurately, and quickly. The more efficiently a business can apply payments received, the more effectively it can utilize its incoming revenue.

Several factors can make invoice to cash more effective. For example, a detailed and accurate invoicing process improves the customer experience by providing them with all the information they need to know about payment, when they need to know it. This puts the process of payment on the right path from the start.

Credit policies that are well developed also aide in the I2C process. Careful consideration should be given to expand the customer pool without exposing the business to unnecessary risk. This allows more opportunities for the business to increase revenue without losing payments to unreliable customers.

Similarly, a collections process that is well-timed and efficient will help the business improve the gathering of payments and minimize bad debt.

Finally, an effective and accurate cash application process allows the business to quickly and efficiently put incoming revenue back to work for the business, paying for operating costs and investing in the future.