82% of finance departments are overwhelmed by the high numbers of invoices they receive on a daily basis.
Besides, there are a variety of formats for an invoice. Thus, it can be a cumbersome task to process all your invoices manually.
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It’s time for companies to move from a manual system of processing an invoice and develop an efficient paperless invoice processing system.
Let’s start with the basics first.
What Is Invoice Processing?
Invoice processing, also known as invoice management, is a business function performed by the account payable department whereby it tracks and pays supplier invoices.
It consists of a series of steps that involves receiving an invoice from a third party, validating the information, paying the supplier, and making the general ledger entry.
Most companies have moved from the traditional invoicing procedure to automated invoice processing with the help of invoicing software.
An invoicing procedure flowchart is a guided manual for the accounts payable department to process vendors’ invoices.
Let’s start with the terminology first.
Step-by-step Guide to Streamline Invoice Processing
To begin with, modern offices have adopted a paperless work environment.
Digitization has taken over, and most documents are shared over email or slack rather than printing it out.
Step #1: Receiving an Invoice
The very first step is to receive an invoice and keep them organized.
There are good chances that you have invoices coming from all different mediums — emails, fax, images, and others.
Manually gathering and organizing each invoice can be time-consuming. Having an invoice solution installed, you can have all your vendors sent directly to your system.
The system then automatically captures all information from the invoice organizes it with no human intervention.
Step #2: Verifying and Tracking Information
A company needs to verify all the purchases and ensure that all the information is correct to deliver the payment within the agreed-upon times with an accurate amount.
Some of the essential information that needs to be included in an invoice for easy verification —
- Date when the vendor created and sent the invoice
- Contact information of both the purchaser and the vendor
- Billing information and point of contact
- Purchase details, including product or service details
- Payment information
If your invoice is coming in electronically, the accounting automation software can easily capture and extract the data. It eliminates the need to enter the data manually.
Step #3: General Ledger Coding
General ledger coding refers to a system that makes it easier to track debits and credits.
Once the staff member verifies the invoice, they need to enter the data for accounting purposes.
Manually entering data carries the risk of human error, which can soon turn into a heavy penalty for wrong tax filing. However, an automated invoicing system can reduce your invoicing procedure costs by 75% to 85% while eliminating the chance of human error.
Besides, these automation platforms are generally integrated with your accounting system that categorized your invoices and automatically codes with your general ledger accounts.
Step #4: Forwarding and Receiving Approval
After the invoice information has been verified, the AP department submits the invoice for approval before the final payment.
Paper invoices can sit on an employee’s desk or get moved around from desk to desk. It slows down the whole approval process, which can have a significant impact on the turnover time.
Using an automated invoice management system, you can save a lot of time tracking down your documents.
A computerized system follows a standardized workflow with every invoice that speeds up the entire approval process, reducing turnover time and paper invoice costs.
Interestingly, the cost of a paper invoice can range between $12 to $30 to process, with an average price of $15.
Step #5: Submitting Payment
The last step to processing an invoice involves making the actual payment to the vendor.
Upon successfully completing the verification and approval steps, your invoicing automation solution can automatically process the payment.
It can then also update it into your accounting system, saving you time and effort.
Best Practices for Invoice Management
A lot has been said about how to process an invoice and how automation can make the whole procedure easier. But how does automating help exactly?
An invoice processing automation tool can streamline the entire existing invoice process. If you are looking to save your account payable department time and effort, here’s how you can do it.
i. Go Paperless
Without going paperless, the ability to streamline your invoicing procedure will be limited.
Going paperless starts with sending or receiving invoices from your vendors electronically. Or, in case your vendors aren’t up for sending invoices online, you can always scan and upload them into your invoicing system.
ii. Centralize Your Data and Processes
Another significant advantage of automating your invoice management is that it standardizes the workflow. With its integrated capabilities, you can streamline the entire invoice communication.
In simple words, if you have a new invoice in your system, the tool can automatically verify the details by pulling information such as purchase order details from your integrated accounting system.
The system matches the invoice date with the purchase order to ensure that it is correct. Thus, it speeds up the whole process by centralizing all information in a single platform.
If all your documents and data are stored in different systems and aren’t integrated, you might be stuck with duplicate efforts. You will have to manually enter data to ensure that your invoice has been accounted for.
That’s why it’s crucial to have a centralized system to streamline the entire effort.
iii. Establish and Track KPIs
The good news is that if you are using a paperless system, it tracks everything and creates a timestamp for every action taken.
Thus, it leaves an audit trail that you can effortlessly search through the system’s advanced search and reporting.
It provides accountability and gives a holistic view of all activities so that all users are on the same page. Besides, these actions can be used for references at a later time.
Some of the key metrics you can track are average processing time, duplicate payments, late payments, and more.
Keeping track of these KPIs can help you further enhance your invoicing process to increase efficiency and turnover time. It directly impacts your relationship with the vendors.
iv. Make Invoice Communications Easy
Every time you need to refer to an invoice, you don’t want to spend your time searching through emails, voicemails, or texts.
An automated system stores all conversations about an invoice in an organization at a central location. It makes sure that all communication takes place in a single place, which can be referenced later.
Processing an invoice doesn’t have to be time-consuming. Overcome the manual process and get invoice software — designed to streamline your entire invoicing procedure.
There’s no denying that the automation method is much more efficient and clean than the traditional structure that we have today.