In today’s fast-paced business environment, the ability to process invoices quickly and accurately is crucial for your business.

While managing invoices can quickly become overwhelming for your business due to numerous daily transactions, using the right tools and strategies can help your business streamline its invoice processing operation. Thus, helping you reduce the risk of errors and delays.

In this resource, you will learn the ins and outs of supplier invoice processing and the best practices to help you optimize your invoice processing workflow.

Let’s dive deep and learn to master the art of invoice processing for a healthy cash flow for your business!

 

What Is Invoice Processing?

Invoice processing refers to the series of steps your company must follow so you can pay your suppliers efficiently and effectively.

Invoice processing involves verifying, approving, and paying invoices to ensure you pay your dues to your suppliers promptly while maintaining accurate financial records. A well-designed invoice processing for your business procedure can help you enhance vendor relationships, improve financial management, and promote compliance with financial regulations.

Why Is Invoice Processing Important?

The primary purpose of invoice processing is to ensure that your company pays your suppliers on time, avoiding late payment fees and improving your reputation with your vendors. Additionally, having an accurate and efficient invoice processing system helps your business maintain reliable financial records, making it easier to forecast your cash flow and prepare your financial statements.

Here are some of the reasons why invoice processing is important for your business:

1. Maintaining trust with your vendors: One of the most critical aspects of invoice processing is maintaining trust with vendors. Honoring payment terms and ensuring timely payments are critical to building healthy vendor relationships, which can result in better pricing and other partnership opportunities. On-time payments also help improve trust and credibility with vendors, making them more likely to want to continue doing business with you.

2. Cashflow Management: Effective invoice processing can significantly affect cash flow management. By streamlining the invoicing process, your company can ensure that your invoices are processed quickly and accurately and that your payments are made on time, reducing the risk of late fees and penalties. This can help you optimize cash flow, allocating funds towards other business initiatives, such as growth or investment.

3. Significant Cost Savings: Did you know automating your invoice processing system can lead to significant cost savings over time? It reduces human error risks, eliminating manual entry costs and other manual processes. Automation can also reduce the costs of paper invoices, invoice scanning, data entry, and other manual tasks. This can lead to significant savings per invoice, reducing the overall cost of invoice processing.

4. Boost Employee Productivity: By eliminating manual and repetitive tasks, your employees can focus on more targeted initiatives that add value to your business. This can lead to happier employees likely to remain with your company, reducing recruitment and training costs.

What Is The Step-By-Step Flow Of Invoice Processing?

The invoice processing workflow typically involves several steps. Let’s look at each step to understand invoice processing better.

Step 1: Receiving Supplier Invoice

The first step in invoice processing is receiving the supplier invoice. This can be in the form of paper or electronic, depending on the supplier’s preference. When the supplier invoice is received, the invoice is logged into the system and assigned a unique identifier.

Step 2: Extraction and Capture of Invoice Data

Once the supplier invoice is received, extracting and capturing the invoice data in a standardized format is next. This includes the invoice number, date, supplier details, itemized purchases, taxes, and any discounts or credits applied.

Having complete and accurate data extraction is important to ensure that the invoice is processed correctly and that payments are made on time.

Step 3: Accurate Coding

After the invoice is extracted, it then needs to be coded accurately. Accurate coding is important because it ensures that the invoice is allocated to the correct general ledger account. Thus, making it easier to track expenses and maintain accurate financial records.

Coding can be done manually, but many businesses are now turning to automated AP automation solutions to help streamline the process and minimize the risk of errors.

Step 4: Invoice Approval

The next step in the invoice processing workflow is invoice approval. The approval process can vary depending on whether the invoice is PO-based or an expense invoice.

For PO-based activities, the invoice is compared against the purchase order and receipt of goods to ensure the invoice matches the purchase order. On the other hand, expense invoices may require additional approval from department managers or other stakeholders.

Step 5: Payment Processing

The invoice is ready for payment processing once it is approved. Payment can be made through different methods, which include electronic payment, wire transfer, or check.

Payment processing can be done manually, but many businesses now turn to AP automation solutions to help streamline the process and minimize the risk of errors.

Step 6: Record Retention

The last step is archiving the processed invoice for record retention purposes. Record retention is critical to maintaining accurate financial records and complying with legal or regulatory requirements.

The majority of businesses store their invoices electronically. This ensures easy access while minimizing physical storage requirements.

What Is The Invoice Processing Workflow?

 

The invoice processing workflow involves vital steps that must be followed in a specific sequence to ensure accurate and timely processing.

Let’s break down the steps of the invoice processing workflow.

Step 1: Receiving an Invoice

The invoice processing workflow begins with the receipt of an invoice. Depending on the supplier’s preference, this can be a paper or an electronic invoice. Once the invoice is received, it must be logged into the system and assigned a unique identifier for tracking purposes.

Step 2: Data Capture

The next step in the invoice processing workflow is data capture. This involves extracting the relevant data from the invoice, such as the invoice number, date, supplier details, itemized purchases, taxes, and any discounts or credits applied. Accurate and complete data capture is essential to ensure that the invoice is processed correctly and that payments are made on time.

Step 3: Invoice Matching

The next step in the invoice processing workflow is invoice matching. This involves comparing the invoice data against the purchase order and receipt of goods to ensure the invoice matches the purchase order. This is typically done for PO-based invoices. The matching may involve additional approvals from department managers or other stakeholders for expense invoices.

Step 4: Routing for Approvals

Once the invoice is matched, it needs to be routed for approval. The approval process can vary depending on the organization’s policies and procedures. The invoice may need approval by multiple stakeholders, such as department managers, finance managers, or procurement teams.

Step 5: Payment Queueing

Once the invoice is approved, it is queued for payment. This involves setting up the payment details and scheduling the payment. The payment queueing process can be done manually, but many businesses are now turning to automated AP automation solutions to streamline the process and minimize the risk of errors.

Step 6: Archiving

Finally, the processed invoice is archived for record retention purposes. Record retention is critical to maintaining accurate financial records and complying with legal or regulatory requirements. Most businesses store their invoices electronically to ensure easy access and minimize physical storage requirements.

What Benefits Does Your Organization Gain From Utilizing Automated Invoice Processing?

Doing manual invoice processing can be quite time-consuming. Aside from that, it is prone to errors which can lead to delayed payments, unhappy suppliers, and inaccurate financial records.

Automated invoice processing solutions can help your business overcome challenges to streamline operations.

Let us go through some of the benefits of implementing an automated invoice processing solutions in your business:

1. Improved Efficiency: Automated invoice processing solutions can help your business improve efficiency by reducing the time required for manual data entry, matching, routing, and payment processing. This allows your business to process invoices more quickly, reduce errors, and even free your staff to do more strategic tasks.

2. Increased Accuracy: Using Automated Invoice Processing Solutions can help you improve accuracy by reducing the risks of manual errors such as data entry errors, incorrect coding, or even missed approvals. This helps your business avoid costly mistakes and improve the accuracy of your financial records.

3. Faster Payment Processing: Automated Invoice Processing Solutions can help your business accelerate your payment processing by automating payment scheduling and reducing the time required for manual approvals. This can help your business maintain good supplier relationships and avoid late payments.

4. Enhanced Visibility And Control Over Your Invoice Processing Workflow: Automated invoice processing solutions can help your business track the status of your invoice, identify bottlenecks, and even monitor performance metrics easier. Thus, helping your business make better decisions and even improve your operations.

What Is The Step-by-Step Processing Of Invoice For Payment?

Here are the steps involved in processing an invoice for payment for your business:

1. Record the invoice as an accounts payable: When a vendor invoice is received, it is recorded as an account payable liability and offset as an expense on the income statement. This ensures that the expense is recorded in the correct period and reflects the amount owed to the vendor.

2. Submit the invoice for payment: Once it has been recorded, it is submitted to the accounts payable representative. The accounts payable representative will need the following information to process the payment:

• The total amount owed
• Vendor information, including name, address, and contact information
• Payment identifiers, such as invoice number, purchase order number, and date
• Types of payment accepted by the vendor

3. Choose A Payment Method: The preferred payment methods are ACH or wire transfer. These fast and secure methods minimize the risk of errors or delays. Some vendors may also offer early-payment discounts, which can be a significant cost savings for the business.

4. Approve And Process The Payment: Once the payment information has been verified, the payment is approved and processed. The payment is then queued for payment, and the vendor is notified when the payment has been sent.

What Is Invoice Processing Automation?

 

Invoice processing is an important aspect of your business operation. This stresses the importance of your supplier invoices needing to be reviewed, approved, and paid promptly.

However, the traditional method of processing invoices with manual data entry, invoice matching, and approval workflows can become tedious and time-consuming. This is where the concept of invoice processing automation comes in.

Invoice processing automation is the process that simplifies invoice management, where your company leverages accounting software to pull data from the invoices and store it in an organized manner. This automated system eliminates the need for your company to go through the hassle of manual data entry, reducing the time and effort needed to track and review supplier invoices.

Undoubtedly, traditional invoice processing can be full of challenges, particularly when done manually. For example, the process can be time-consuming and labor-intensive, requiring several manual tasks such as data entry and approval workflows. Also, keeping a solid invoice processing routine can be challenging, leading to a backlog of invoices that need to be reviewed and paid, impacting vendor relations.

Using automated invoice processing provides your company with a solution to address these challenges by rising accounting software to reduce the burden on AP employees.

What Are Some Of The Challenges Faced In Invoice Processing?

Despite the benefits of invoice processing, there are still several challenges that your company might face while managing your accounts payable workflow. Here are some of the common challenges:

1. Missed or Lost Invoices: One of the most common challenges in invoice processing is missed or lost invoices. When your invoice is not properly recorded or filed, it might cause delayed payment, resulting in late fees. Thus, damaging vendor relationships.

2. Data Entry Errors: Data entry errors are another challenge of invoice processing. These errors can lead to incorrect payment amounts, payment to the wrong vendor, or other costly mistakes.

3. Delays in Payment: Payment delays can be very challenging regarding invoice processing. This can occur due to slow approval processes or even inefficient payment systems. Remember that late payments can damage vendor relationships and thus can result in additional costs like late payment fees.

4. Lack of Insight: Lack of insight is another challenge. This occurs when your company has limited visibility in your accounts payable processes, making it very difficult to identify your inefficiencies or areas for improvement. This can also lead to missed early-payment discounts or other cost-saving opportunities.

5. Compliance Issues: Maintaining compliance with regulations and company policies is another challenge in invoice processing. Failure to comply with regulations such as tax laws or even industry-specific regulations can result in your company facing legal and financial penalties.

What Are Some Tips In Processing Invoices?

Processing invoices for your company is very important. It can be complex and challenging, considering it comprises several difficult tasks, from capturing invoices to authorizing and submitting them for payment.

Here are some top tips for processing invoices that can help optimize the procedure:

1. Capture Supporting Documents: When processing invoices, always capture all the relevant supporting documents, including receipts, contracts, and purchase orders. These documents serve as evidence of the transaction and help ensure the accuracy of the invoice.

2. Accurate Coding: Accurately coding invoices is necessary to ensure smooth processing. Assign unique codes for each invoice, vendor name, and date to avoid confusion.

3. Matching Supporting Documents: Match all the supporting documents with the invoice to ensure accuracy. Ensure the invoice matches the purchase order and other supporting documents, including shipping and delivery receipts.

4. Send Invoices to Authorized Approvers: Invoices should be sent to authorized approvers who can review and approve them for payment. This will ensure that payments are made only for legitimate invoices and within authorized payment terms.

5. Authorize and Submit for Payment: Only authorized and verified invoices should be submitted for payment. This will avoid any confusion or mistakes in the payment process.

6. Archive Invoices and Payment Information: Archive all the invoices and payment information securely for audit purposes. This will help ensure compliance with regulatory requirements and provide a record of all financial transactions.

What Is An Invoice Processing Software?

Invoice processing software refers to a type of technology designed to help companies streamline invoice processing workflows and automate manual tasks involved in the process.

Invoice processing software helps your business manage your accounts payable more efficiently, helping you reduce errors and help you gain greater visibility into your financial operations.

Typically, invoice processing software includes features for the following:

• Data Extraction
• Data Entry
• Invoice Matching
• Routing For Approval
• Payment Processing
• Archiving

By automating these tasks, your invoice processing software can help your business reduce processing times and minimize the risk of error while improving the accuracy of your financial reporting.

What Are The Best Practices For Implementing Invoice Processing Software Into Your Accounts Payable Department?

 

Here are some best practices for implementing invoice processing software in your AP department:

1. Choose the Right Solution: The first step in implementing invoice processing software in your AP Department is choosing the solution that fits your organization’s needs. Ensure your software can seamlessly integrate with your existing workflows and systems. The software you choose must be easy to use and provide robust reporting capabilities.

2. Provide Comprehensive Training: Once you have selected the software solution, it is critical to provide comprehensive training to your AP team members. This training should cover all aspects of the software, including how to use it, how to handle exceptions, and how it integrates with other critical systems. Proper training can ensure that your team can use the software effectively and maximize its benefits.

3. Establish a Clear Communication Plan: Communicating the implementation of the invoice processing software to all your company’s stakeholders is crucial. A clear communication plan will ensure everyone in your company is on the same page and knows what to expect. The plan should explain how the software will be integrated into your existing processes and how your team and other stakeholders can access it.

4. Continuous Monitoring and Evaluation: After the initial implementation, continuous monitoring and evaluation of your chosen software’s performance is essential. This monitoring should review the metrics to track the solution’s use, identify areas for improvement, and refine the processes. By tracking the use of the software, you can identify issues that your team may have and refine the processes to make them easier for the end users to use.

5. Seek Guidance from Expert Consultants: Implementation of invoice processing software can be challenging and time-consuming. Hence, working with consultants with expertise in implementing similar solutions is beneficial. These experts can help you refine your processes, give tips, and ensure that you follow best practices to maximize the software’s benefits.

FAQs

Can You Tell Me The Average Timeline Of Invoice Processing?

Invoice processing can be different depending on several factors. The traditional manual method of processing invoices may be time-consuming and take several weeks to complete. On the other hand, automated invoice processing software can reduce the time needed for processing invoices by a few days or even hours.

Some factors that may affect the invoice processing time may include the following:

• The complexity of the invoice
• The accuracy of data entry
• The level of approval required
• The chosen payment method

What Should You Check Before Processing Invoices?

Before processing invoices, you must verify the supplier’s information, including the name, company name, email address, and phone number.

It’s also essential to confirm the purchase order number and invoice number, as this help to track and match invoices with corresponding purchase orders. Checking the invoice details, such as quantities, description of goods/services, and pricing, is also crucial to ensure that everything matches up with the original purchase order and that there are no discrepancies.

Additionally, ensure to accurately confirm the payment terms, including the due date and payment method.

By carefully checking these key pieces of information before processing an invoice, businesses can avoid errors and ensure that their payments are accurate and timely.

Who Uses Invoice Processing?

Invoice processing is vital in any organization that manages payables and receivables. It involves the entire process of receiving, reviewing, and processing supplier invoices for payment. Failure to manage this function efficiently can negatively impact cash flow, damage vendor relationships, and create unwanted disputes.

Were you aware that automated invoice processing offers enhanced security compared to manual invoice processing? This can be attributed to the following factors:

Your team is tasked with managing supplier payments, ensuring that invoices are accurate and compliant, and managing the payment process to ensure timely payment.

Which Method Provides Greater Security: Automated Invoice Processing Or Manual Invoice Processing?

Were you aware that automated invoice processing offers enhanced security compared to manual invoice processing? This can be attributed to the following factors:

• It eliminates the need for manual entry, reducing the risk of human error
• Automated invoice processing can detect fraudulent activity more often than manual processing. Automated systems can flag unusual amounts, duplicate invoices, and other anomalies that automatically alert the accounts payable team to investigate further.
• Automated invoice processing offers advanced security features, such as encryption and access control, to safeguard sensitive financial information.

What Is The Timeline Of Implementing An Automated Invoice Processing Software?

Automating invoice processing can be a game changer for your business to achieve improved efficiency, save time, and reduce errors.

The implementation timeline for automated invoice processing software can vary depending on several factors. Having the right personnel available to manage the project and ensure a smooth implementation process is crucial.

Additionally, determining who will be responsible for managing the product, setting up workflows, and handling vendor communication will significantly affect how quickly the software can be up and running.

Another key consideration is training. All stakeholders interacting with the software must receive adequate training to ensure they can utilize the software effectively. The training process can take several days to weeks, depending on the software’s complexity and the organization’s size.

Considering these factors, automated invoice processing software can be generally implemented in just a few weeks. Although, having a clear plan and roadmap is important to avoid potential pitfalls.

Conclusion

Invoice processing is truly a critical component in your business’s financial management. It requires a high degree of accuracy, security, and efficiency.

By automating your process, your organization can streamline your accounts payable operations, minimize errors, and even reduce the risk of fraud within your business, resulting in significant cost savings and improved vendor relationships.

If you’re ready to set up an automated invoice processing workflow within your business using an automation you can trust, schedule a demo with our team at ProcureDesk today!