How to automate AP processes and skyrocket staff productivity
To put it simply, incoming invoices are formal, written requests from a vendor, supplier or service provider that need to be verified, approved, assigned the GL account coding and prepared for payment processing. Handling incoming invoices can be a simple or complex process, depending on the rules of your company, and must follow compliance standards.
Typically, invoice processing is performed by the accounts payable department in larger organizations. In small to midsize companies, processing invoices might fall to general accounting departments, office managers or owners.
Incoming invoices from a vendor or supplier need to be verified, approved, assigned GL account coding and prepared for payment processing. Handling these invoices can be a simple or complex process depending on the rules of your company, and whatever approach you choose, you must follow compliance standards.
The most important factor is that incoming invoices are processed quickly, accurately and digitally — and that the right people are in the approval workflow. This yields immediate benefits:
The core process of digitizing incoming invoices, and how document management and workflow software can enhance, automate and streamline the entire process.
Find out more about invoice processing below and learn:
How invoices are processed varies from company to company. But whether you're processing and recording invoices manually or using invoice processing software and automation, some basic accounting principles are the same. Here are 5 common steps for processing invoices.
Invoices are received a number of ways, including, but not limited to:
At this step in the process, it's critical that your business has a way to quickly and accurately capture the invoice and bring it into a system where it can be processed effectively. Attempting to process invoices from various sources via disparate processes (such as using one process for paper invoices and one process for electronic invoices) increases error rates and drives down efficiencies.
The data you record and how you do it depends on your own processes, but at minimum, you need to know:
One of the great benefits of supporting your invoice processes with document management is that you don't have to record every single tiny detail from invoices. If accounts payable staff or anyone else has any questions, they can quickly access the invoice for additional information.
When processing invoices, organizations must first and foremost verify the accuracy of the information to avoid duplicate payments and fraud. Formal invoice verification involves the review of necessary and mandatory invoice data by the accounts payable department.
Verification ensures the invoice amounts are correctly stated and calculated, including the correct tax rates, tax amounts and any other fees listed. The total amount and all other calculations are checked here as well, including entering the general ledger coding and the appropriate accounting period. In most cases, accounts payable also handles these tasks.
Content verification determines whether the product being billed for was the one actually ordered and received. The number of items, quality and the agreed price are also checked at this point. These tasks are usually handled by clerks in the accounts payable department, receiving department or purchasing.
Finally, every invoice undergoes fraud examination. Validating whether the vendor is known and approved, ensuring that invoices have not been sent more than once, and checking to verify that individual line items do not appear on more than one invoice are part of the verification process.
If done manually, verification is expensive and time-consuming. To realize leaps forward in efficiency, companies should optimize invoice verification as part of their accounting activity whenever possible.
Once the accuracy of an invoice is verified, depending on your business rules, it may be approved and sent to be paid. If additional approval is necessary, the invoice should be routed to the appropriate approver.
Processes for invoice approval vary by company and invoice type. Some invoices can be automatically approved while others might require the signature of a department head or executive.
Some common practices for invoice approval include sending the paper invoice or an associated form via interoffice mail to someone's physical inbox or doing the same thing via email. Neither of these approaches is especially productive; they both leave plenty of room for documents to get lost, people to drag their feet or misunderstandings to occur.
It's better to automate your approval processes as much as possible and keep approval workflows within your invoice processing system. That way, you can easily see where any invoice is in the process, how long someone has been sitting on an invoice and if someone is backed up with many invoices to approve.
Once an invoice is approved, it can be put in line for payment. Typically, this simply means it's routed to a workflow so an accounts payable representative or other authorized employee can process payment.
To process payment, you typically need information such as:
Gone are the days when accounts payable staff simply processed a tidy stack of checks to go along with a stack of approved invoices. Today, your team may need to process payments via paper check, electronic check, credit card or even online payment processing platforms such as PayPal.
Once payment is processed, final data can be captured and archived, as appropriate. General ledger entries for the payment debits and any other relevant accounting entries are made. With the right invoice processing software, such entries can be made with a few clicks of a mouse instead of numerous taps on the 10 -key, further reducing opportunities for error.
Finally, invoice images and supporting documents, such as purchase orders, shipping manifests and account approvals, can be saved in a secure, searchable document repository. That ensures they're ready for easy retrieval as needed, including during audits.
Every company has one thing in common: it processes invoices. Whether you're paying manufacturers for raw materials, wholesalers for products or vendors for services performed, you need a process to ensure payments are correct, made on time and follow your company policy.
You can ensure your invoice processing system is delivering benefits in addition to simply getting the payments out in the end. Some of the benefits of investing in automated invoice processing include:
The risks and downsides of working with paper documents are well known and documented. Eliminating paper yields these clear benefits:
Imagine no more filing cabinets, fewer printing devices, and shelves of storage reclaimed from paper and toner supplies — less shipping, less photocopying, less filing and searching. The first advantage is a cleaner, brighter, more spacious office.
Custom access controls and digital data security make it easier and less expensive to maintain compliance, reducing the likelihood that missing documents will result in fines or lost revenue.
Information is only seconds away with a quick search — no more putting people on hold to dig through folders. Deliver the speed and quality of support your customers and vendors deserve.
Using digital workflows instead of paper results in greater transparency, allowing management to monitor business processes in real time for smarter decision making.
If you have a “green” initiative in place, one of the easiest ways to reduce your carbon footprint is to print, ship and store less paper. Introducing digitization to any part of your business will help your organization go paperless.
Invoice software lets you process payments faster and more accurately, which helps develop trust in the relationship between you and your suppliers. Better invoice processing allows you to quickly develop a reputation for paying your bills on time (or even early) and being a financially responsible client.
See how DocuWare's invoice processing software takes care of your invoice processing automation securely and easily:
Understanding the common terms associated with invoice processing can be helpful when you're considering how to best deal with accounts payable in your business. Check out this brief glossary of general invoice and accounts payable-related terms.
Automation is foundational to strong invoicing practices. It's not that you want to or have to take people out of your processes — accounting processes do need human oversight and intervention. Automation is about eliminating tedious and unnecessary tasks so accounting staff can concentrate on more complex issues.
According to data from the American Productivity & Quality Center, the average cost of processing invoices is $5.83 per invoice. Low performers (those with less efficient processes) may pay as much as $10 or more per invoice while high performers (those with the most efficient processes) pay an average of $2.07 per invoice.
Here are just a few examples of how automated invoice processes can save you time and money while ensuring your invoices are paid faster overall:
Invoice and payment data can be sensitive. It includes account numbers, business addresses and plenty of other information that could be used by cybercriminals. And even if you're not worried about hackers, imagine losing all of last year's invoices and the headache that would cause during tax time.
Secure storage of invoices is a best practice whether you're talking about documents in the current workflow or an archive held for compliance or audit purposes.
Even with automation, some invoices and related processes require an actual signature. Whether it's for the purpose of complying with regulatory rules or you simply want a sign-off on high-dollar invoices, managing paper-and-ink approvals gets messy fast.
Instead of routing paper documents around the office or relying on someone to scan, sign and rescan documents sent to email, consider investing in document management and invoice processing software that supports electronic signatures.
With digital workflow automation in place to ensure invoices go to the right people as efficiently as possible, the next step is invoice approval, including escalation. There are four key steps to the automated invoice process.
Invoices can come from anywhere: emailed PDFs, XML-only transmissions, faxed documents, even mailed paper. No matter what the source or format, the document management system intakes the invoices and starts the process of “reading” them.
Low-quality systems will simply capture an image of the document, and force users to input key data like totals, vendor, tax information, due date, and more. Some systems perform OCR to read the text to at least make it searchable but there is zero contextual business information.
The best document management systems use modern capture technologies to intelligently read the document, understand its content, and then push that data into key index fields.
This fully eliminates the need for manual data entry. The best systems use machine learning to learn the patterns and templates of invoices to get smarter over time and reduce the friction of incoming invoices even further.
Once the document management system intelligently indexes the incoming invoice and determines its content and purpose, it can use key index data like vendor, purchase order, address fields, totals and more to automatically decide how invoices should be processed.
For example, invoices from an approved vendor under a certain dollar amount can be automatically approved — with no human touch.
Invoices from an unknown vendor can start a new vendor workflow before any approvals happen protecting you from fraudulent vendors.
Invoices with large dollar amounts that require multiple levels of approval based on dollar thresholds or multiple cost center approvals can be sent through a digital approval workflow based on your business rules. The workflow ensures the correct individual approves based on the set criteria in the system.
Once the key index data of an invoice is understood, digital workflow enables fully customizable automation to closely follow business rules.
The combination of intelligent indexing and workflow automation yields impressive time and cost savings at every point in the invoice process.
Feature-complete document management systems will use workflow logic to expedite the fastest possible approvals with minimal exceptions.
Once invoices are approved and the process is completed, that data can be synchronized with financial applications like QuickBooks, Sage and other accounting systems. While native integrations are possible through APIs and prebuilt connectors, the universal method to export and import transaction data is through CSV files which sophisticated document management systems will produce.
Automating the incoming invoice process enables meaningful savings across many touchpoints.
The final step is securely archiving invoices in a legally compliant manner.
The invoice is archived in the document management software with retention policies applied. These retention policies are extensions of workflow and dictate when documents can be safely destroyed.
In addition, the safe archive of digital invoices — or any documents — will have robust access rights and data encryption to prevent tampering, loss and unwanted access. Security is one of the most important aspects of a document management system and is crucial to ensuring peace of mind at the end of a document’s lifecycle.
DocuWare has helped more than 15,000 customers across 100+ countries simplify their work through digitizing, automating and transforming key processes. More than half our customers use DocuWare in their accounting departments, providing us with unique expertise that we share with our customers.
The digitization of accounting drastically increases total team efficiency since numerous processes can run in a parallel, automated manner and with much less human intervention.
Invoice processing is easier when you have the right tools. Invoice processing software lets you:
Contact DocuWare today to find out more about how we can help you achieve invoice processing best practices.