What is invoice processing?
Invoice processing is a business process performed by the Accounts Payable department which consists of handling vendor or supplier invoices from receipt to payment and even archive for audit. AP technology solutions provide automated invoice processing software more commonly referred to as AP Automation software to add more control over internal processes and improve efficiency.
In this post, we’ll discuss how invoice processing automation tools are enabling Accounts Payable (AP) departments to keep their current workflows and how AP technology is streamlining their existing invoice processes.
The Quest to Improve AP Efficiency
In today’s current business environment, it’s not just sales, marketing, or operations that are looking for the best option when it comes to their technology stack. Financial departments are also among business departments searching for the best automated invoice processing software to add more control over their internal processes in a remote reality. In addition to streamlining invoice capture and coding, financial leaders consider functionality such as smart approval routing with context, all the while maintaining their current processes even if their workforce is distributed.
Since accounts payable isn’t a profit center, departments look at other ways to deliver value and the key to adding value is to become more efficient, which means saving time and reducing operating expenses.
AP automation is a great way to save both time and money. But for AP teams, efficiency means something different—and that’s cutting down on the backlog of invoices for real-time visibility into cash flow, reducing errors and eliminating repetitive manual tasks via technology.
But you already know all this; you’re looking for the good stuff, the best practices guide and strategies you can use to actually build your own AP utopia.
Your Invoice Processing Software Guide
If you’re looking to streamline your Accounts Payable department and save time and money for both your organization and your AP team, here’s how you should start.
1. Paperless invoice processing
Frankly, if you’re not willing to go paperless for processing invoices, your ability to streamline your AP function will be limited. Going paperless starts with the invoices you receive from your vendors, but if they’re unwilling to send electronic invoices (e-invoices), you have two options. The first is to convince your vendors to invoice electronically by pointing out all the benefits. The second is to scan vendor invoices into your AP automation system.
2. Centralize your data and processes
The beauty of a paperless AP function (beyond saving trees) is that once everything is digital, invoices are turned into actionable data for automation workflows, integration capabilities, and unified communication on top of the invoice.
For instance, let’s say you have an invoice in your system that needs verification. If the purchase order (PO) can be pulled from your integrated accounting system, your invoice automation software will help match your invoice data to the PO to ensure it’s valid. Thereby, providing your approvers with sufficient documentation to make a faster decision on the invoice itself.
But if your data, documents, and tools all live in different systems and can’t be integrated, you’re going to be stuck with duplicate efforts and manually keying in data to ensure your invoices can be accounted for and processed. Once everything is under the same roof, you can make the AP magic happen.
3. Establish (and track!) KPI’s
If you’re going to take steps to improve your invoice processes with the intent to streamline your AP department, you better darn well measure your efforts! The good news is that if you’re following the two best practices listed above, establishing KPIs becomes easy.
Paperless systems track everything and create timestamps for when actions happened. This leaves an audit trail which is easily searchable through an Advanced Search and Reporting.
Audit trails provide more accountability and control by logging all activities in the middle feed so all users are on the same page, and actions are auditable if needed for reference at a later time.
Another way to track KPIs is through reporting functionality available in a Management Dashboard, which provides a birds-eye view into all invoice-related activities and laggards.
If you spot a recurring bottleneck or approver taking too long in your approval process, you can take a deeper look and figure out why that’s happening. Once you make the appropriate adjustments (e.g. increase notification frequency for that approver), you can track the effectiveness of your optimizations.
Consider the following questions when outlining your key performance indicators:
- How long does it take on average to pay an invoice?
- How long does it take to verify and approve an invoice?
- How much does it cost to process an invoice?
- How often are you late on your payments?
- How often do you take advantage of early payment discounts?
- How often do you issue duplicate payments?
You get the idea. Start thinking about your biggest obstacles to AP utopia, assign each obstacle a metric, then get to work moving the needle.
4. Make invoice communications easy
Have you ever had that terrible feeling that you’ve already received an approval for a bill but just can’t seem to find the proof? Or worse, that you’ve received information about an invoice that makes you question its legitimacy, but again, can’t find the documentation.
Digging through emails, texts, and voicemails is not only a time-consuming and frustrating experience, it’s totally unreliable.
If you’re going to have conversations about an invoice in your organization, you really want to make sure that all those communications take place in an easy-to-use and central location which can be referenced later. This is also available in the middle feed mentioned above, where all invoice communications are centralized from comments and questions to responses. This not only makes invoice communications easy since every invoice is provided with context, but it also helps with accountability.
So how do these best practices look out in the real world? Let’s take a look at some AP tasks that you can apply them to.
Save Time and Money by Automating Invoice Processing
One huge mistake that some people make when considering AP automation is to view the system in a dichotomy—100% automated or 0% automated.
In reality, invoice processing is made up of several smaller processes, some of which will require the human touch such as approving a cost or verifying for accuracy. While others are ripe for automation like data capture and approval workflows.
With that said, let’s break out some of the AP processes that are perfect for automation and provide some details about how and why.
If you haven’t implemented AP automation for invoice processing yet, there’s a good chance you have invoices coming from all over the place from different departments and mediums—snail mail, faxed, email image attachments, and electronically.
We likely don’t have to tell you how much time your staff uses to gather, organize, and scan invoices and how tedious the process is, so we’ll say this instead:
If you can receive your invoices electronically, you can have all your vendor invoices sent to your AP automation system to save time on invoice receipt.
And guess what? There’s actually plenty of benefits for your vendors to submit their invoices electronically, too.
Data capture and extraction
If you have your invoices coming in electronically—great! AP automation software is uniquely suited to help capture and extract that data with no human intervention. That’s right; your staff doesn’t have to manually key in data anymore.
Manual data entry is not only tedious for your team, but it’s also time-consuming and prone to typos and human errors. On the other hand, software that’s designed to read and understand the data on an invoice is highly accurate and nearly instantaneous after learning your processes.
With Stampli, you can also capture and extract invoice data below the header, including individual or custom line items. And if for some reason your vendors aren’t sending electronic invoices yet, you can still scan your documents and Stampli will extract the data via OCR with incredible accuracy.
General ledger coding
Since you’re already using software to extract data from your invoices, why not have it code it as well? With an API integration, your AP automation platform will be synchronized with your financial system to categorize your invoices and automatically code them with your general ledger accounts.
Invoice verification is a huge responsibility for the AP department—this is how we avoid duplicate and fraudulent payments. However, when approving invoices manually, verifications become time intensive, and three-way matching can be nearly impossible for invoices missing information such as PO number.
With AP automation, software can automatically read data on invoices and search its central database for corresponding data in POs or other supporting documents. Moreover, if your vendor forgot to include the PO number, you can search open POs from your integrated accounting systems with AP solutions like Stampli.
Routing and approvals
If the invoice is now in your system, it’s properly coded, why not just automatically send it to the person who needs to approve it? Think about the alternative:
After coding, one of your AP team members has to type out an email to a coworker in a different department, attach the invoice, then send the email… with their hands? It’s practically barbaric.
With an AP automation platform, the system aligns with your approval workflows and all AP has to do is review any suggestions and verify. Moreover, in the case someone left the company or is on family leave, it’s extremely easy to add/remove approvers. Once routed for approval by AP, the invoice is sent to the appropriate approver(s) and in the correct order. Using automation for routing approvals, including follow-up notifications, can dramatically reduce the amount of time it takes to get an invoice approved.
With Stampli, all of the invoice approvals and communications happen ‘on top’ of the actual invoice, so if there’s an issue that needs to be addressed, the processor or approver can write notes within the context of the actual invoice—no more digging through separate emails to find out why something hasn’t been approved yet.
Submitting for payment
The whole reason we do what we do in AP is to ensure invoices are both valid and vendors receive payment. Which takes no small amount of effort given the number of steps, fraud prevention controls in place, and number of people involved throughout the invoice processing lifecycle.
So by the time you’ve gotten all the way through the long lists of tasks and everything is perfect with your invoice processes, why not just have your payment system automatically remit?
Upon successfully completing the verification and approval steps, along with the internal controls your organization has in place, your AP automation solution should automatically be able to send the approved invoice for payment directly into your accounting system. Then when payment has been processed, updated back in your AP automation system.
Again, the choice to automate many of these tasks is a no-brainer—the computers are simply more accurate and more diligent when it comes to data extraction, etc., and not to mention your team usually loathes those types of busywork anyway!
AP automation is the key to streamlining your invoice workflows while increasing the accuracy of your work. Take a look at how Stampli’s accounts payable automation software allows you to take control of invoice and bill processing.
Invoice Processing FAQs
Invoice processing is an accounts payable function that handles the invoice life cycle consisting of invoice receipt, invoice approval or rejection, invoice payment, and the invoice archive processes.
Here are the invoice processing steps:
Capture. Vendor invoices are received by fax, mail, email, or captured by an accounts payable system.
Register. Invoices are prepared for approval by coding and updating the invoice data.
Dispatch. Authorized approvers are sent invoices for a payment decision.
Approval/Rejection. Approvers will either approve or reject the dispatched invoice for payment.
Payment. The approved invoices are then processed for payment.
Archive. Paid invoices are stored either in a file cabinet or online system with invoice processing history for later reference or audits.
Invoice processing software in comparison to manual paper process is a digital technology and is used by accounts payable to electronically handle vendor invoices from receipt to archive.
Automated invoice processing or invoice processing automation uses software to automatically perform steps in the invoice lifecycle such as data capture, and dispatch for approval. Note that invoice processing software can either be automated or manually performed by accounts payable on a computer.