Small businesses increasingly rely on fintechs not just to accept payments, but to manage how and when they get paid. Invoicing—once a back-office afterthought—has become a core part of the payments experience. Because invoicing tools can be complex to build and maintain, it’s tempting for business owners to turn to a PayPal or Square for this service.
Yet banks themselves are best suited to offer invoicing. In The Invoicing Gap: How Small Businesses Get Paid, and Why Banks Are Missing Out, Ian Benton, Senior Analyst of Digital Banking at Javelin Strategy & Research, looks at how many banks are missing an opportunity by failing to build and marketing this key capability to their small business clients. Banks are finally starting to recognize that without invoicing tools, they risk losing engagement—and ultimately relationships—in other areas of the business.
What Businesses Need from Invoicing
Offering invoicing services isn’t as simple as creating a basic payment form. A business needs to be able to store products and services in a database, manage customer information and communications, set up recurring billing, and customize invoice design. Building and maintaining these capabilities is a heavy lift for owners who are already focused on running and grown their businesses.
With traditional paper invoices, one of the biggest frustrations for small businesses is sending an invoice and then never hearing anything more about it. Their customers are often supplying larger corporations, creating a power imbalance that makes it difficult to press for timely payment.
“This is a classic dilemma,” said Benton. “The biggest thing is being able to track the status of the invoice, the status of the payment, to be able to contact the customer, and send reminders.”
At the same time, invoicing does not always need to be an expansive process. For many businesses, all that’s required is a simple payment request— especially for one-time transactions or predictable monthly services. In situations where payments are recurring and the business has an established relationship with the customers, a full suite of invoicing features may be unnecessarily.
“That’s why we talk about doing sort of an invoicing light,” said Benton. “I think it’d be useful to attach that to Zelle, because a lot of times those relationships are going to be with folks you really you already know. That’s where a Zelle payment is going to make sense.”
Invoicing: An Untapped Banking Asset
Too many banks do not make a strong effort to engage their customers in invoicing processes—if they even offer it at all. Chase offers it, US Bank offers it for merchants, and TD and Citizens provide it through Autobooks. Autobooks delivers invoicing as a turnkey system, which simplifies adoption for retailers but offers less control over the customer experience. Beyond simply offering the service, banks need to be more strategic in how they sell the value proposition and position invoicing within their broader digital banking offerings.
“Many business owners don’t even realize that their bank would offer invoicing,” said Benton. “But they would find it extremely useful, especially in mobile, if you said, ‘Hey, we can help you create an invoice in five minutes, you can accept payment for free instantly via Zelle or you can do a card payment if you want.’”
Communicating the value of transitioning customers from paper to electronic remains a challenge for many banks. However, moving customers who are already using Square for invoicing or PayPal to invoice, may be easier to explain and justify.
“With Square or PayPal, once you get paid, your money sits in that account,” Benton said. “It takes a few days to get the money to your actual bank account and gain access to it. By having it all centralized within your bank, the business gets immediate access to their funds. And the bank can say, ‘Hey, we can have all your all of your invoices, all your customers here in one place.’”
A Gateway Drug
Banks that have not yet developed these tools risk seeing their customers turn to a Square or a PayPal. Once they do, they’ll discover that those fintechs also offer card acceptance, as well as loans and checking accounts for small business. Benton compares invoicing to a gateway drug.
For banks, however, invoicing opens the door to even more opportunities they can offer business clients. The biggest advantage of an invoicing strategy for small businesses is its integration into cash flow, which is essential for both analysis and forecasting. Bank are well positioned to help here, but to provide meaningful cash flow projections, they need visibility into all outstanding invoices and their expected payment dates.
Invoicing can also be a powerful driver for customers to upgrade from a personal account to a business account.
“If you’re a consumer or a sole proprietor that’s operating on a consumer account, you really need to justify spending the $15 or $20 a month for a business account,” said Benton. “The ability to invoice your customers and accept payment instantly is very valuable.”
Another key product is traditional factoring, which involves selling invoices to a third-party at a discount in exchange for immediate cash. If a bank has access to a business’s invoices, it can instead offer a loan product secured by those receivables.
Going Further
It is critical that the invoicing solution be available on mobile. Business—such as contractors, garage door repair services, or landscaping companies—work primarily in the field. These professionals need to be able to create an invoice on the fly, present it to the customer immediately, and request payment either via Zelle or by card. Providing this capability delivers value for businesses that operate outside a traditional office setting.
“Businesses prioritize payment flexibility and visibility over advanced features, which are all potential bank advantages,” said Benton. “Banks that go further and support a full range of options—from payment requests to receivables management—will be in a position to earn engagement and remain relevant as their customers’ needs evolve.”
