Invoice Processing 101: Everything You Need to Know

Invoice processing is an important business function that involves the entire process of receiving, approving, and paying the invoices received from the business vendors/suppliers. Any delay or mistakes in invoice processing directly affects the business’s relations with its vendors/suppliers and thus affects its operations and cash flows. This complicated process has been managed by businesses manually for a long time, but now the market is transitioning with technological advancements and favoring automated invoice processing services. The automated systems make the process more accurate and efficient, and a business can manage it with the help of an in-house or outsourced team without much hassle.

However, before going for an automated system, it is important to know about the meaning, steps, and challenges of invoice processing and how automation helps overcome the challenges. Let’s read further to learn about invoice processing in detail.

What is Invoice Processing?

Invoice processing refers to the process of managing the invoices issued by the vendors from the issuance to payment to recording in the accounting books. It is managed by the accounts payable department of a business. Whether the invoice is received manually or digitally, businesses need to accurately and timely track it, verify it, make relevant payments, and ensure entry in General Ledger.

Businesses can manage their invoice processing with the help of accounting automation systems or by hiring invoice processing services.

Steps Involved in Invoice Processing

Businesses need to set up an efficient invoice processing workflow, and the basic steps in this workflow include:

1. Receiving invoice
2. Approving the invoices
3. Invoice payment
4. Recording invoices

Receiving the invoice is the first step of invoice processing, and numerous steps must be followed to make accurate payments for the purchases. The businesses must record every step of the process in the books of accounts to reflect the status of the invoice. Following are the steps involved in processing an invoice:

• Once the invoice is received, the accounting department must check and verify if the goods and services related to the invoice have been procured.
• After confirming the order procurement, it is important to match the payment amount mentioned in the invoice with the amount in the original purchase order (PO).
• The invoice is then sent to the relevant business personnel for invoice approval.
• Fix any inconsistencies and inaccuracies in the invoice when compared to the PO.
• After fixing the discrepancies in the invoice and getting the approval for payment, the invoice is forwarded for payment as per the agreed-upon payment terms.
• The final step is to make the invoice payment, preferably on or before the due date and after considering all the necessary terms and conditions.

Following all these steps and ensuring accuracy takes too much time and resources. Businesses can outsource invoicing to save time and resources, which can be used for other important business activities.

Invoice Processing Automation

Invoice processing automation is an advanced technology-driven invoice process that removes manual processing and its challenges from the business scenario. Automated invoice processing means using accounting software with the help of in-house or outsourced invoice processing services.

What are the Common Invoice Processing Challenges?

Every accounting function involves a complicated process, especially the invoice processing function. The complications bring challenges to them. Invoice processing faces numerous challenges that can easily be solved with the help of automation and invoice processing services providers, in-house or outsourced. Following are some common invoice processing challenges every business faces:

1.Burdensome supplier management-

Manually onboarding and managing the numerous business vendors/suppliers is one of the most burdensome invoice processing activities. It may cause failure to collect all required documents; the information can be wrongly entered into the system, and duplicate entries can be made. Sometimes, even the approvals can drag along for a long time. Automated invoice processing systems help resolve these vendor management issues.

2.Less time for strategic tasks-

The accounting department of every business spends a huge share of its time on repetitive manual activities such as data entry and tracking information. It leaves very less time for the account managers to focus on more strategic tasks to enhance business growth.

3.Late payments-

As paper documents are maintained under manual invoice processing, there are always risks of the missed or misplaced invoice or an invoice being stuck at the bottom of the approval or payment process. All this can cause late payments, and late payments bring penalties. To avoid such situations, the best thing is to use accounting software with invoice processing ability or outsource invoicing to an expert.

4.Too many supplier inquiries-

When it comes to business purchases, the accounting department, more specifically the accounts payable department, is busy fulfilling the supplier inquiry calls and emails. It leads to time wastage for business accounting experts. Therefore, it becomes vital to move from manual to automated invoice processing. The self-service vendor/supplier portals help save this time and provide suppliers with the necessary information.

5.Too many emails and paper documents-

The manual and paper-based invoice processing are difficult to adapt, especially for remote personnel. Also, emails are only a minor improvement from paper invoicing. It takes time to verify and approve all the invoices one by one. Automated invoice processing services help solve this issue by providing a single platform for all the invoicing activities to make the process faster and smoother.

6.Poor visibility-

Accounting managers find it difficult to know the exact status of the invoices when they are managed manually or in paper form. It leads to a lack of visibility, causing difficulty in managing the operations and maintaining a healthy cash flow.

7.Numerous check payments to suppliers-

A business has numerous vendors/suppliers, so it must make numerous check payments. Using paper checks is costly and prone to damages; however, resorting to online payments makes the process easier. The automated invoice processing system enables businesses to make smooth electronic payments and conducts automatic reconciliations to ensure accuracy in the books.

8.No scalability-

When the business grows, so does the number of transactions and invoices. However, businesses can’t afford to hire and train new personnel every time the invoices increase. Also, it is not feasible to lay off the personnel when the number of invoices is lower or keep paying them even though they don’t have any tasks to work on. This scalability issue can be solved by choosing to outsource invoicing, as the business will not have to worry about hiring, training, or paying the extra personnel required every now and then.

Benefits of Invoice Processing Automation

As the business grows and the number of transactions increases, manual invoice processing becomes difficult. Invoices provide information about the business cash flow and vendors. Transferring all the invoice data from a manual system to a digital system helps keep the data safe and easily accessible. The benefits earned by businesses by switching to automated invoice processing services include:

• Easy access-

The data saved digitally are safer and accessible by every relevant business personnel. With the use of cloud software these days, accounting data can be accessed from anywhere, anytime. All the necessary information is stored in a central consolidated platform. When businesses outsource invoicing, the service provider helps ensure accurate and complete data entry on time.

• Real-time information-

Invoice processing automation standardizes the process and ensures that every data is entered into the system with a timestamp. Invoice automation lets businesses gather important real-time information about business sales and cash flow. The automated invoices can easily be integrated with the business ERP system to prepare a consolidated system and source of business data.

• Efficient reporting process-

Automation of invoice processing ensures data management in a systematic way. It allows efficient reporting and data comparisons for informed decision-making. As a result, the business gets real-time and understandable data.

• Reduced and safe storage-

Manual invoice processing involves a lot of paperwork, which requires huge storage spaces. The physical storage system is also prone to losses and destruction. All these issues can easily be solved by replacing physical and digital storage. Automated invoice processing services store data in a central online database and prevent it from any damage by using security protocols.

Conclusion

Though manual invoice processing has existed for a long time, the changing technology and business scenario need change in accounting processes as well. Being one of the most important parts of business activities that directly affect the business cash flows and business operations, invoice processing needs to be managed carefully. Automated invoice processing services not only make the process faster but also make it safer and easily accessible to every relevant business personnel and party. However, choosing the right automated service per business requirements and budgets is important per business requirements and budgets. So, make the right decisions on time to earn the maximum benefits for your business. If you are struggling with invoice processing, contact us today and get in touch with our experts, who can solve all your invoicing issues.