What is Invoice Processing and Why Does It Matter?
If there’s one thing CFOs always seem worried about, it’s their organization’s ability to manage cash flow. Most companies try to make the most of their cash flow by forging beneficial supplier relationships and extending their vendor payment terms. These measures may work in some cases, but an easier and more sure-shot way to maximize cash flow is ensuring that you never miss or misplace a vendor invoice, never go past the payment date, and pay your invoices strategically.
What this effectively means is setting yourself up for a more robust invoice processing method.
The mistakes that happen in a manual invoice process during the purchase to pay cycle are common irrespective of the seniority or experience of your team — even if your accounts payable clerk is a highly responsible person, problems are bound to surface. Studies show the human error rate in completing manual invoices is between 12 to 15 percent.
Imagine the amount of manual data entry, not to mention confusion and frustration, that goes into processing invoices. Thankfully, organizations can leverage all manner of automation software that have been built to solve these problems. It’s not just your accounts payable teams that would be happier with a superior invoice processing and, hence, a more streamlined AP process; as it happens, the benefits are actually felt across departments and levels of seniority.
Why Does Invoice Processing Need To Be Automated
A manual invoice process is slow and error-prone
If your purchase to pay process* is still based around using emails and spreadsheets, then it’s likely that there is a great deal of time and energy wasted on doing manual data entry on purchase orders, and on manually sorting and storing incoming invoices.
*By purchase to pay, we mean the process beginning from the early stages of requesting for the purchase of an item to the secondary stages involving approval workflows to the last stages of actually paying for the item or service.
Purchasing software exists to automate such crucial steps, if time-consuming, steps in the purchase to pay process and eliminating the tedious work of organizing your incoming invoices. For example, once the invoice comes in, it can be stored, as a scanned image or as an image clicked on a phone, on a central database. The right kind of automation software can store the image of the invoice in such a way that each and every invoice can be subsequently searched for, and matched up with its respective purchase order number in a matter of seconds.
Some software go a step further by processing an invoice’s details with optical character recognition. With the resultant time-savings, your team can do so much more and begin to actually focus on their core job functions.
An end to late fees
Whether you own a small business, or a larger one, a critical invoice will inevitably, at some point, be misplaced or forgotten on account of human error. Being penalized for late fee payment is far from a pleasant experience, and if the invoice (or invoices) in question relates to expensive items, you risk seriously draining your cash flow.
Having a manual invoice process dramatically increases your probability of missing invoices. The only remedy to such a problem is using a reliable invoice processing software which can increase your invoice capture rate by an order of magnitude. Better still, you should look to upgrade your entire purchase to pay process by choosing a purchasing software that takes care of invoice processing as well.
Your ERP system needs reliable invoice processing
Most companies are already saddled with a legacy ERP system that may be useful in capturing company-wide data for a host of functions — HR, Finance, Procurement etc. However, despite their comprehensiveness, most ERP systems have weak purchasing modules, which means that their ability to process invoices is questionable. In such situations, IT departments aren’t particularly enthusiastic about adopting new invoice processing applications because they tend to be very loyal to their existing tech stack.
The good news is that invoice processing solutions — at least the best among them — can seamlessly integrate with most ERPs or with any accounting system. With that, your invoice process becomes more agile, and lets you stay on top of things.
Invoice fraud is one of the most common types of business fraud — it’s so pervasively common that even big tech companies like Facebook and Google aren’t spared. In 2017, the two tech behemoths were victim to a $100 Million invoice scam. The modus operandi differs from case to case: often, a fake invoice may be sent under a fake business name using fake email addresses. Other times, a supplier may send you an invoice twice (duplicate invoices) so that you end up paying twice the amount you owe. The right invoice processing solution reflags such activity before any money leaves the bank.
Reduction of Unnecessary Costs
What is the cost of invoice processing? According to studies, if one accounts for the number of man hours and resources spent on using a manual invoice process, it comes down to a matter of losing between $8 to $60 per invoice. Misfiling, manual routing, storage and labour are some of the factors responsible for this. Additionally, if an employee is unable to find supporting documents against a particular invoice, the cost can escalate to $200 per incoming invoice.
On the other hand, invoice processing, as long as it is supported by the right kind of software, can minimize manual work by up to 20 times.
Convenience in Data Extraction
The days of manual reporting are not from a bygone era — most companies still stick to glaringly inefficient and slow financial reporting traditions. If the finance department wants to create an accurate and up-to-date financial report without spending the better part of the month in manually collecting information, then supplier invoice data, invoice numbers and other kinds of invoice information need to stored be in a central and organized way. This would help the finance department find such information quickly with the full confidence of knowing that their cash flow projection is based on the latest and most up-to-date information.