The term “invoice processing” describes the management of a supplier invoice from when it is received until it has been posted in the ERP system and is prepared for payment. An organization’s accounts payable (AP) department is in charge of processing invoices. Automated invoice processing, or simply invoice automation, is the term used to describe invoice processing that is frequently carried out using software.
A flowchart for invoice processing outlines the procedures that account payable must take to process vendor invoices. Whether you get an invoice in the mail, as a PDF attached to an email, or as an electronic invoice, the data it contains must first be manually or automatically scanned into your accounting system. The invoice is then approved and paid after passing through a specific procedure.
What is Invoice Processing Used for?
The entire cycle of invoice processing includes receiving a supplier’s invoice, authorizing it, setting a remittance date, paying the invoice, and finally entering it in the general ledger. It is an essential component in managing a firm. The accounts payable component of invoice processing manages the whole invoice life cycle, including receipt, approval or rejection, payment, and archiving activities.
What is the Important Checklist for Invoice Processing?
The checklist for invoice processing includes:
Complete Quotes
Detailed written quotes that the customer must accept before work begins are provided to avoid misunderstandings. Clearly state what customers will receive for the price quoted.
Invoice Straightaway
Immediately after a job is finished, send an invoice. Everyone still remembers it, which indicates that it was not forgotten.
Communicate
Contact the client and ask them if they received the invoice and everything is in order. If a larger corporation knows who is in charge of payments, it can communicate directly. Verify there are no inquiries about the invoice.
Agree on Payment Terms
Specify fair and appropriate payment terms. For example: Due on receipt, within seven days, 14 days, and 30 days. Watch out for large firms that only pay on their terms.
Steps for Invoice Processing
Invoice processing authority lies with the Account Payable Department of an organization. Here are the steps of invoice processing.
- Step 1 -� Identify the general ledger (GL) code, and match any supporting documents, such as a purchase order or delivery receipt. Invoices from vendors are obtained by fax, mail, email, or by an accounts payable system.�
- Step 2 – Send invoices to authorized approvers or those with the power to accept or reject them.
- Step 3 – Authorize invoices and submit them to a financial system for payment.
- Step 4 – Process invoices for payment using traditional payment methods, including cheques, automated clearing house transfers, or wire transfers.
- Step 5 – Invoices that have been paid are kept for future reference or audits in a filing cabinet or online system that also keeps track of the invoice processing history.
What is Automating Invoice Processing?
Processing invoices is a vital but frequently tiresome activity for organizations. It can be quite time and resource-consuming for businesses to process hundreds of invoices per month. Thankfully, several AP software options are available that can automate this procedure and save a tonne of time and money. Automation of invoices is meant to address problems with manual accounts payable, such as inefficiencies and errors.
For example, AP software can automatically process payments, fill in blanks in the accounting software, and collect data from invoices. It assists in ensuring accuracy, preventing late payments, even utilizing early payment discounts, and enhancing cash flow. With so many advantages, it makes sense that an increasing number of companies are automating their invoice processing.
What is the Difference Between Manual and Automated Invoice Processing?
When all steps of the procedure are carried out manually, from receiving an invoice to the payment clearance, the process is referred to as manual invoice processing. This procedure is labor-intensive and requires a lot of manual labor, yet it is not error-free.
Extracting information from an invoice, validating it, and securing it in the accounting system are all made simpler by automated invoice processing. In addition to lowering costs by decreasing human labor, it is more effective and precise than manual invoice processing.
What Are the Advantages of Automated Invoice Processing?
Here are some of the most significant advantages of automated invoice processing.
1. Quicker Invoice Processing
Automated Invoice Processing helps in processing invoices fastly. Without an automated invoice processing solution, processing only a few invoices, checking the figures, and getting them authorized might take up to two weeks. By creating a streamlined workflow for the procedure, an automated system can drastically cut down on time.
2. Strengthen Relationships with Vendors
Relationships with outside vendors and suppliers are extremely important. Automated invoice processing helps improve relationships with vendors by guaranteeing on-time payments and removing the back-and-forth calls and trouble that suppliers typically experience.
3. Improves Accuracy
Since there are several levels of communication between the various departments, manual data entry is prone to mistakes. Lost invoices, incorrect computations, and process problems can happen at any time, especially when there are many items to process. An invoice processing system helps you filter out mistakes and improve accuracy.
4. Observation and Reporting
Automation increases transparency, which makes it easier for your company to keep track of costs and determine how much money is being spent, where, and when. Most automated invoice processing technologies come with robust reporting and analytics features that give you a real-time visual representation of the data to aid corporate decision-making.
5. Avoid Delays And Late Fees
When there are multiple invoices from suppliers and vendors, there are bound to be many hits and misses with a manual process. Sometimes, vendor agreements have late fees and penalties added, further adding to your costs. An automated invoice processing system can help you circumvent these penalties and help you process invoices faster.
FAQs
The following are frequently asked questions about invoice processing to give you a better idea.
Q1. Who is authorized to process invoices in a company?
Ans. A common practice is to use one approach for invoices based on a purchase order and a different approach for invoices without a Purchase order. Based on the kind of transaction or transaction value, some businesses also have particular criteria. Both kinds of invoices are often processed by an organization’s accounts payable department.
Q2. How many invoices can an AP clerk process in a day?
Ans. According to Coreintegrator, an AP clerk may manually handle five invoices per hour or 12 minutes per invoice. This employee might process up to 30 invoices per hour (2 minutes per invoice) using invoice automation, which is a six-times faster rate.
Q3. Can I process multiple invoices for a single purchase order?
Ans. For a single purchase order, a vendor might submit multiple invoices.
Q4. What Should You Verify Before Processing an Invoice?
Ans. Information about the Supplier (name, company name, email address, phone number), number of the purchase order, Invoice Number, Quantities, Description Of Goods/Services Delivered, Pricing, Payment Policies (due date and payment method).
Q5. How can I speed up the processing of my invoices?
Ans. Automating the process of comparing the invoice with the purchase order will make the biggest difference in the invoices’ processing time. The processing of the bills is quicker with a purchase order.
Conclusion
An important part of running a business is managing incoming invoices from the moment they are received until they are paid. The final step of any procurement activity is carried out by the accounts payable department and is a crucial aspect of the procure-to-pay process.
The purchasing process is streamlined, the invoice route is more transparent, time and money are saved, staff productivity is increased, and vendor relationships are strengthened as a result of the automation of invoice processing. Invoice flow automation frees up human workers to focus on more valuable, less routine tasks like planning and strategizing. These boost the company’s general effectiveness and profitability.