Establishing strong vendor relationships is paramount for the procurement department. Right from onboarding new vendors to payout of invoices, vendors expect a seamless experience. Just as the buyer expects timely delivery of goods/services, vendors also expect timely processing of their invoices. Automated invoice processing enables transparent and efficient invoice processing.
Invoice automation simplifies invoice processing and ensures timely payment of invoices. This blog explores automated invoice processing, its benefits, and how to automate invoice processing.
Invoice Processing Workflow at a Glance
The accounts payable department is in charge of invoice processing. The vendor raises the invoice containing the payment details of the goods/services delivered to the buyer. Invoices are formal, written requests from a vendor or service provider that need to be verified, approved, and assigned to the GL account holding and prepared for payment processing.
The accounts payable department must follow compliance rules while verifying, approving, and assigning GL account coding. Quick and accurate invoice processing is a must to enable strong vendor relationships.
Invoice processing involves tracking and payment of supplier invoices. The series of steps that take place from the time a supplier is created until it is paid and recorded in the accounts ledger are categorized as invoice processing.
Irrespective of whether an invoice is received via email PDF or email, or as an e-invoice, the information contained in it must be scanned into the accounting system. Once the information is scanned into the system, the invoice goes through a specific workflow and payment.
The typical steps in the invoice processing workflow include:
1. Invoice receipt
Once the invoice is received by the team they will verify if the product or service was procured. The billed amount will then be matched with the amount on the original purchase order. Any discrepancy in the amounts must be resolved with the vendor before routing the invoice for approval.
2. Invoice approval
When the invoice intonation matches with that in the PO and goods received a note, it is routed to approval as per the company policies.
3. Invoice payments
Approved invoices are sent to payout according to the terms that were negotiated with the vendor. Some vendors provide early bird discounts to buyers who make payments typically within 10 days of issuing the invoice.
An established invoice processing workflow improves the efficiency of the accounts payable department and enables them to track and process invoices quickly and accurately. Invoice processing comprises the following steps:
- Upon receiving the invoice, the accounting department verifies if the product or service was procured. When delivery of the services or goods is received, the buyer raises the goods received note (GRN). This note consists of information on the number of goods and the billing amount. Once the invoice is received, the accounts team has to capture the data and bring it into a system. The invoice must contain basic data that includes the amount owed, who is owed, payment terms, cost of goods (including shipping, taxes, and service charges), category of the invoice, and category codes for bookkeeping purposes.
- 3-way matching is the most important step in invoice processing. The authenticity and accuracy of the invoice need to be verified before being sent for approval. The data on the purchase order, goods received the note, and the invoice needs to match accurately. 3-way matching prevents fraudulent or duplicate invoices from being sent for approval.
- Invoices in which the data matches accurately are routed to the right internal employees. The route depends on the company’s policies. For example, invoices, where the amount exceeds $ 10,000, may be routed to the procurement manager first and then to the accounts payable team. The process for invoice approval varies with the company and invoice type.
- For invoices where there is a discrepancy in the amount when compared with the purchase order or goods received a note, they are routed back to the vendor or appropriate stakeholder for corrective action.
- Payment of the invoice is done based on the terms and conditions agreed upon in the purchase order or vendor contract. The mode of payment is usually agreed upon while drafting the vendor contract or purchase order.
- Payment of the invoice is carried out by the accounts payable team. The approved invoices are routed to the appropriate employee in the accounts payable department for processing the payment. To process the invoice, the accounting team requires information that includes the total amount owed, who is owed (along with contact information), any payment identifiers to be included in the payment, and types of accepted payments. Once the payment is processed, the final data must be captured and archived in general ledgers.
Most of the above-mentioned steps in invoice processing can be effectively automated with AP invoice automation software. Invoice automation software ensures that invoice payments are done on time and vendor discounts are leveraged properly.
How does Automation Improve Invoice Processing?
Irrespective of whether your company is handling small or large volumes of invoices, it pays to automate invoice processing. How does invoice processing automation improve invoice processing?
Improves invoice management – Even if your company is handling only a few invoices a month, implementing automatic receipts and invoice management software supports business growth and simplifies invoice processing. The entire accounts payable process can be streamlined with AP invoice automation software, without compromising on accuracy.
1. Minimizes Manual Data Entry
A common step in the AP approval process entering invoice data into the accounting system. When done manually, this step is prone to errors and overlooks. Not only is manual entry prone to errors, but it is time-consuming as well. A 2020 Payables Insight Report by Coupa reveals that 51% of companies consider manual data entry and inefficient processes as the biggest pain points of a manual AP process. Invoice processing automation helps users create dynamic forms that automatically populate the accounting systems, which brings down the error margin in data entry.
2. Automates 3-way matching
3-way matching is an important step in invoice processing that checks against fraud or duplication. The accounts payable process is susceptible to fraud and duplication. A survey conducted by the Association for Financial Professionals reveals that 74% of the organizations were targets of payment scams and other billing schemes. Accurate invoice matching helps prevent instances of AP fraud. Automated invoice processing improves the speed and accuracy of 3-way matching and integrates with the accounting system to flag discrepancies and prevent malpractices.
3. Automate routing of invoices for review and approval
In an automated invoice system, review and approval of invoices and resolution of exceptions are automatically routed to the appropriate manager. Automation of invoicing creates an automated workflow that routes the invoices to the appropriate manager and issues alerts and notifications in case of a delay in approval. Invoicing automation ensures that all invoices are approved and subsequently paid on time.
4. Centralizes records
Automated invoice processing software usually provides an electronic document management system (EDMS) for centralized access to accounting data and documents. Centralized document management makes it easy to find the files needed. Role-based access can be given to employees for the safety and security of sensitive financial data.
5. Improves performance
An efficient invoice automation system enables procurement teams to take advantage of early payment discounts. Automation software provides an intuitive dashboard for tracking key metrics across workflows in real-time, making it easy to identify process bottlenecks and resolve them ASAP. Resolving process bottlenecks speeds up the approval process and enables the effective capture of payment discounts.
What is Automated Invoice Processing?
Invoice processing automation is the process of streamlining and automating the invoice processing workflow. Invoicing automation streamlines the accounts payable processes by automatically paying supplier invoices. Invoice processing workflow includes steps like extraction of invoice data, entering the data into the accounting system, and reviewing and approving invoices automatically based on preset rules.
Automated invoice processing software allows companies to take a more hands-off approach to accounts payable management. Accounting teams are also freed up from tedious manual tasks so that they can focus on strategic tasks. Key features that automated invoice systems provide are standardized coding, automated approval, and dashboards that show the status of invoices.
Most invoicing platforms can directly integrate with ERP platforms, which helps increase the timeliness and accuracy of payments. Streamlining the accounts payable process improves cash management and accelerates the financial close process.
The must-have features of invoice automation software are:
Multi-channel invoice capture – The software must support multiple channels for vendors to select from for sending invoice data. Common data formats are PDF, electronic invoices, scanned copies, paper-based invoices, and XML formats.
Intuitive user interfaces – The software must provide intuitive user interfaces that can be easily used and understood by users. Simple and intuitive interfaces require very little or no training for using the invoice software.
KPI/SLA management – The software must provide capabilities to track and manage key performance indicators and SLAs associated with your invoicing process. These insights can be used to track invoice statuses and monitor where money is being spent and why.
Integration – The invoice automation software must be able to integrate seamlessly with other accounting systems. Integration with other accounting systems allows the routing of validated data into existing ERP systems.
Customization – The invoice automation software must be customizable according to the requirements of the business. The rules for routing the invoices to appropriate employees vary in each company. The software must allow for customization as per business rules unique to each business.
How to Implement an Automated Invoice Processing System
Now that we are clear about the need for automated invoicing and features of automated invoice processing software, the next step is to implement the solution. When you choose a no-code BPM software like Cflow, automated invoicing workflows can be set up within minutes. Cflow simplifies workflow automation with the visual form builder. New workflow forms can be built using the drag-and-drop option with visual clues.
The invoice workflow can be built following 4 easy steps:
- Use a pre-built template or create your own form for the invoice workflow. Cflow provides several pre-built templates that can be used to create key business workflows. Using the pre-built invoice approval process flowchart workflow, you can create a new workflow. If there are no templates that suit your business requirements, you can create a new workflow form with routing and business rules as per the needs of your business. The drag-and-drop form designer can be used to customize forms that fit specific business requirements. For example, adding an invoice line items table enabling digital signatures, or creating drop-down lists. Cflow also enables users to add dynamic behaviours to automated invoices. For example, forms can be set up such that only certain information is shown to stakeholders as the form goes through the approval process steps. The best part about the visual form builder is that even a person without any technical expertise can easily set up the workflow without having to code a single line of code.
- Customizing the invoice processing workflow. Invoices usually go through several rounds of approval. Once you have created invoice workflow forms as per your business requirements, the next step is to route invoices from one approver to another as per business rules. The workflow builder in Cflow is also fully visual just like the form builder. The code-free interface is used to apply conditional rules to your workflows. For example, logic can be added for automatically routing invoices to a senior executive when the amount exceeds $ 10,000. Conditional logic ensures that senior executives approve only invoices that exceed a certain monetary value, and do not waste time reviewing invoices of low value. Workflows are more efficient and enforce compliance within internal policies when conditional logic is implemented.
- Integrate with other accounting systems. The accounting function is made up of several systems like ERP, Invoice approval, Expense approval, etc. Data needs to be exchanged between these systems for the smooth functioning of the accounting function. Manually entering line items from approved invoices into ERP systems is a tedious and time-consuming process. Cflow enables seamless integration with all accounting systems that are used by your business. Seamless integration with other accounting systems ensures that all records are up to date. Integrations help streamline the approval process and cut down manual interactions.
- Test and review the performance of the newly implemented invoice automation system. Once everything is set up, the next step is to perform user acceptance testing. Users need to be trained to use the new system. Once implemented, the performance of the new system needs to be tested, Regular performance testing is essential to ensure that expected outcomes are achieved.
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Major Benefits of Automated Invoice Processing
Irrespective of the type of business, processing invoices is an integral part of business operations. Whether you are paying manufacturers for raw materials wholesalers for products or vendors for services performed, you need an invoice processing system to ensure that payments are made on time and that strong vendor relationships are maintained.
Automated invoice processing offers several benefits for a business, some of which are highlighted below:
1. Reduced manual entry
Strong invoice processes rely on e-invoices or converting paper-based invoices into electronic form. Automated invoice systems eliminate the need for manual data entry into accounting systems. Document management software scans invoices and extracts data more efficiently and accurately when compared to manual entries by accounting teams. Lesser manual entries automatically improve the accuracy of accounting systems and save time for the accounting team.
2. Improved reliability of invoice verification
Review and approval of invoices are sometimes quickly waved through the process especially when accounting teams are pressed for time while dealing with heavy workloads. When invoice processing is automated, the entire accounting team has access to invoice-related information immediately and payments can be authorized easily, speedily, and accurately. An automated invoice processing system verifies and validates invoices automatically based on preset business rules. Routing of invoices is also done automatically in an automated system.
3. Easy access to information
When invoice processing is automated, any questions that the accounting manager or staff has on the invoice are readily answered. All the necessary information and data on invoices can be easily retrieved and displayed at any time, in any location. Automation improves information flow and access to information. The appropriate employee can retrieve information or approve invoices using any device, from any location, and at any time.
4. Automated workflows
Automated workflows let teams set rule-driven processes that route invoices through the proper steps to payment. Rule-based workflows ensure that invoices are routed to the right person based on the value of the invoice. For example, invoices for office supplies amounting to $100 need not be routed to the CFO for review and approval, while a $10,000 invoice for new office equipment needs to be signed off by the CFO or CPOs.
5. Leveraging early payment discounts
Several vendors offer early payment discounts to buyers. Strong invoice processing practices help companies leverage more early payment discounts. Automated invoices are processed faster, which in turn avails early payment discounts. Saving money via these discounts translates to more earnings for the business.
6. Reduced audit preparation time and effort
Finance and accounting departments need to be compliant with the company’s policies and other industry regulations and standards at all times. An automated invoice processing system ensures that data and invoices are captured and stored in an easily accessible system. Moreover, the data format is compliant with Finance and accounting policies and regulations. Accounting teams are always audit-ready when operations are automated.
7. Increases scalability
Technology-driven invoice processing is better suited for handling the evolving needs of growing businesses. As business operations expand, the volume of invoices that need to be handled increases proportionally. The right AP invoice automation software helps businesses scale up easily to higher volumes without having to hire additional AP staff.
8. Sizeable cost savings
Invoice automation offers several ways to cut down on costs. The first way is by cutting down on the human effort required in invoice processing. AP staff spend less time on route tasks in invoice processing and, hence, are able to focus on tasks that contribute to improving productivity. Improved productivity translates to cost savings. Automating invoice processing brings about digital invoices, which cuts down the costs associated with paperwork. Timely payments via automated invoice processing help businesses cash in on early payment discounts offered by vendors. At a large scale, cost discounts help realize huge savings for businesses.
9. Reduced business risk
Automated invoice processing provides custom access controls and digital data security, which increases audit compliance. The risk of missing or misplaced documents is mitigated in automated invoice processing.
10. Improved visibility
Digital accounting workflows in place of manual workflows increase visibility across the process. Management is able to monitor business processes in real time for data-driven smart decisions.
11. Improved vendor relationship management
Maintaining strong and healthy vendor relationships is a breeze with automated invoice processing. Information is just seconds away in an automated system. Payments alerts and notifications issued to stakeholders ensure that vendor payments are done on time. Timely payments also help establish trust-based vendor relationship management.
12. Positive environmental impact
Less paperwork reduces the carbon footprint, which has a positive impact on the environment. Automated invoice processing means less storing and shipping of paper.
Go digital with automated invoice processing. From less paperwork to more compliance; from reduced redundancy to increased productivity; and from nil, late payments to strong vendor relationships – automated invoicing helps the AP team achieve more with less.
A workflow automation software like Cflow can make the transformation easy and super quick. You don’t have to worry about coding or lengthy installations or staff training with Cflow. We simplify invoice automation so that you can achieve better business outcomes with streamlined workflows.
The visual workflow builder makes it super easy to build custom workflows within minutes. We’ll show you how to automate invoice processing and also provide insane after-sales support that helps you ease into the new system. Sign up for the free trial today to explore Cflow.
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