Invoice Processing: Benefits, Steps and Challenges

Are you a business owner who is being overwhelmed by the increasing complexity of your invoice processing? Or someone entrusted with improving the effectiveness of your company's accounts payment workflow?

 

The first step is to comprehend the invoice processing stages, as well as the underlying inefficiencies and hazards that they entail.

 

 

What is Invoice Processing?

 

The actions necessary from receiving an invoice to paying it are referred to as invoice processing. This may appear to be straightforward. However, there are a few phases in between, and depending on the size of your organization, these procedures can rapidly become complex.

 

Invoices are available in a variety of formats these days, including emails, PDFs, and even paper. Before payment, they must be filed, recorded, and approved by someone.

 

This straightforward process gets more complicated as the organization grows in size.

 

Receiving a supplier invoice, authorizing it, defining a remittance date, paying the invoice, and then entering it in the general ledger is invoice processing. It is an essential component in running a business.

 

When vendor bills are not paid on time, it can disrupt your inbound flow of services, supplies, and raw materials, as well as harm your supplier relationships. One or two late payments may be excused, but continuing to be late may harm your business.

 

By definition, Invoice Processing is a business activity done by the accounts payable department that consists of a set of stages for managing vendor or supplier invoices from receipt through payment and recording in the general ledger. 

 

Invoice processing is frequently done with software, which is known as automated Invoice Processing or Invoice Automation for short. An invoice processing flowchart is a systematic guide that details how accounts payable processes vendor invoices.

 

Also Read | Types of Software

 

Why is Invoice Processing Important?

 

Developing a systematic invoice processing plan and providing workers with the resources they require to carry it out may assist a business in a variety of ways. Some of the most crucial reasons for implementing invoice processing in your firm are as follows:

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Importance of Invoice Processing

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1. Cash Flow Management: Invoice processing is an essential component of your organization's successful cash flow management. Processing enables your firm to stay within its budget and keep track of any outstanding debts, allowing you to spend and invest wisely.

 

2. Reduced Payment Times: Implementing an Invoice Processing System inside your firm might make it simpler to pay invoices on time by ensuring that they move more effectively through the processing structure.

 

3. Improved Vendor Relations: Improving Invoice Performance inside your firm might have a favorable impact on your supplier relationships. 

 

A more efficient system helps you establish deeper connections, which may lead to professional benefits when engaging with a vendor since it makes it simpler for outside parties to guarantee that they are paid on time.

 

4. Reduced Employee hours: Developing a more efficient invoice processing system reduces your workers' working hours. This allows you to redirect their saved time to other duties, resulting in a more productive staff.

 

 Also Read | What is Hyper Automation?

 

Benefits of Invoice Processing

 

Automation of invoice processing is a critical step in organizations, especially if you have to deal with hundreds of invoices every day. Invoices are a vital source of information for all organizations. The invoices you receive and raise provide you with information about your accounts payable and receivable. 

 

Invoice Processing ensures that all of your invoice-related information is accessible in a digital repository. This is usually outsourced, especially if there are a large number of invoices to input, which may disturb the routine operation of the firm. Here are a few strong reasons why you should outsource Invoice Processing to a capable partner:

 

1. Digital Data that can be accessed easily

 

Invoice processing guarantees that your valuable sales invoices are kept digitally and may be utilized to rapidly consolidate receivables. You can monitor your cash flow from anywhere at any time, even if you have many offices. 

 

These invoices can be centrally kept in order to have access to consolidated accounting information. Business outsourcing ensures that invoice data is entered accurately and completely on time.

 

2. Real-Time Information

 

When invoice processing is automated, each invoice is entered with a timestamp. No changes may be made to the invoice once it has been authorized. This automates and standardized the accounting process. 

 

When the most crucial component of your business, invoicing, is automated and digitized, it provides you with a wealth of information about how you are performing in terms of sales and cash flow. 

 

These invoices may be connected with other modules of your company's ERP to consolidate different relationships and numbers. Invoice processing company services are an essential component of all firms that operate in the B2B and B2C sectors.

 

3. Reliable and Reduced Storage

 

When you digitize your bills, you no longer have to keep the physical invoices for an extended length of time. You may need to temporarily keep them until the invoice data processing is simplified and becomes the norm in your firm. 

 

This not only saves you significant physical storage space that would otherwise be necessary, but it also provides superior security for the digitized invoice storage. You may password encrypt the data and preserve numerous backups so that it is safe and secure and can be accessed whenever necessary.

 

4. The Reporting Process becomes more efficient

 

Digitization ensures that vital information is recorded in a systematic manner in a database and is available for different comparisons and reporting reasons to management, especially if you use specialist software for invoice processing. 

 

Management has access to understandable reports based on real-world data in a variety of forms for a variety of purposes, including taxation and other legal requirements.

 

Also Read | Types of Taxes

 

Steps Involved in Invoice Processing

 

Invoice processing is handled entirely by the accounts payable (AP) department and consists of four steps :

 

1. Receive the Invoice

 

When AP receives an invoice from one of its suppliers after they have already completed their job, the procedure begins. The following information should be included on the invoice.

 

• The date the bill was sent by the provider

 

• Both the supplier's and the purchaser's contact details are provided.

 

• Details about the purchase, such as the items, services, and pricing

 

• Payment Specifics

 

All of this information must be available so that employees may cross-reference it with their previous purchase order and verify they are not being overcharged. Managers should contact the vendor to rectify any issues if the details do not match.

 

2. Record the Invoice Data

 

These particulars are validated and recorded into the billing system, either manually by an AP clerk or electronically via software. Manual data entry, on the other hand, frequently results in errors, such as misspellings. This approach is also inefficient, necessitating additional effort and resources, raising costs.

 

Businesses should make a copy or digital version of the invoice in addition to preserving it to ensure a backup. Invoice copies are useful if vendors uncover inconsistencies or attempt to demand extra money.

 

Companies, on the other hand, must design an orderly file system that takes up little space and makes it easy to retrieve bills. It is critical to keep the invoice recording system in good working order since it may easily get congested if not managed on a regular basis.

 

3. Send the Invoice for Approval

 

After the invoice has been validated and documented, AP must transmit the bill for final approval before submitting the payment. Depending on the size of the company, two or three executives may have the authority to approve or refuse bills.

 

The channel via which the approval process travels is the most important factor of its speed. In the past, bills were produced and deposited on the executive's desk to await approval. This tends to lengthen the process since employees may misplace or forget about the invoice, resulting in late payments and penalties.

 

Other businesses deliver invoices through email in the form of a PDF. However, as previously said, these emails can be disregarded, deleted, or forgotten. Both of these systems need AP personnel checking in with executives on a regular basis to verify if the invoice is ready, wasting significant time.

 

4. Pay the Invoice

 

The payment is the final stage in the invoicing process. This may alter for distinct bills, since remuneration may be delivered to a specific person or department inside another organization. The payment process might potentially take days or even weeks depending on the receiver.

 

The billing system also has a significant impact on payment acceptance time, as email confirmations might be lost or ignored. As a result, AP should talk with the receiver directly to ensure that they understand how and when they may expect to receive their money.

 

Also Read | What is Internet Banking?

 

Challenges Faced in Invoice Processing

 

There are some common problems encountered in invoice processing 

 

1. Missed or Misplaced Invoices

 

This is an issue when a firm has several vendors and many bills to deal with on a daily basis. The issue is complicated by the fact that invoices might be received in a variety of formats, including paper copies, scanned PDFs, word processing files, and so on. 

 

It becomes difficult to handle these many types of bills, which are received at different times and by different individuals. Invoices that are not paid on time result in late payments and penalties, strained vendor relationships, operational delays, and audit difficulties.

 

2. Data that is Mismatched or Missing

 

An invoice comprises crucial information such as business IDs, tax information, the service/product given, the price, the delivery status, and so on. When invoices are in many formats, it becomes difficult, if not impossible, to extract all valid data from them. Here are a few examples of blunders that are simple to make:

 

• Using the Incorrect Client's Name 

 

• Failure to clearly itemize Products/Services

 

• Does not correspond to the requested Brand

 

• Incorrect Calculations

 

• Failure to use the Correct Currency

 

• Failure to State the Deadline

 

• Failure to Specify Discounts or Penalty Cost

 

• Incorrect Tax Rates

 

3. Unknown Invoice Status

 

The present state of an invoice in its processing schema is frequently uncertain, particularly when there are several stakeholders participating in the process. 

 

What is its location? Who gave their approval? What else is there to say? When is the money going to be made? These are the kinds of queries that frequently emerge as a result of a lack of openness.

 

4. Invoice Routing Errors

 

On a daily basis, a corporation may get invoices from various vendors. Following a preliminary review, the AP invoice processing team places each invoice in the routing queue. Even the most efficient AP specialist may make an error in invoice routing. 

 

When an invoice is incorrectly routed, it undergoes redundant procedures, wasting time and human effort. This "high-touch" circumstance is highly demanding, especially since the AP team must close books on a regular basis. 

 

As a consequence, while accounts payable teams are intended to assist the sourcing and procurement process, they may spend an unreasonable amount of time following bills through the convoluted approval path and correcting errors that occur along the way.

 

Also Read | Network-as-a-Service

 

Invoice processing can assist your company in keeping track of its cash flow on a continuous basis. This is a significant element of your accounting, which will also be automated. 

 

With digitalization, critical information is safely saved and can be accessed and transported more easily. Invoice processing gives managers access to real-time data that they may utilize to make educated decisions. It is an excellent instrument for propelling your company to success.