Invoice processing steps
While every company has its own unique accounts payable process, it usually contains several of the following steps:
Mobile Invoice Approvals
Reduce human factor
Get approvals in minutes, not days. Supply your decision makers with one-touch mobile approvals solution.
Do more with same headcount
Automate workflow from capture to payment. Define business rules and handle exceptions instead of keying or manual matching.
Turn AP into a profit center
Maximize your working capital by enjoying early vendor discounts and spending less on manual processes.
In a fast-growing company, an accounts payable process can quickly turn from handling one to two invoices per week to processing five to ten invoices per day. This can easily overload your accountant or operations person, and the number of errors increases as a result. You don’t want these errors, and your overworked accountant will get stressed and spread too thin. A better system should work simply and differently.
Proper accounts payable management provides cost savings and better budget management by:
- preventing the payment of fraudulent or inaccurate invoices;
- ensuring you don’t pay the same invoice twice;
- paying legitimate invoices in advance to ensure a vendor’s early payment discounts.
Companies that automate their invoice processing report better financial performance than their counterparts, who are stuck to the man-and-paper approach. Manufacturing and logistics companies benefit the most from these budget savings. The delayed customer payments are an unnecessary burden on their free cash flow. Paying invoices at the right time saves company resources and eliminates late payment charges or vendor service disruption due to missed payments. Effective automation of invoice processes is an undeniable budget advantage for any company.
Placing a purchase order. If the company continuously works with the vendor and buys goods or services on a regular basis, the employees usually reuse previous purchase orders from the same company. This step is usually fulfilled by a different procurement department. However, it’s an important part of the workflow since the upcoming invoice should be matched later with the purchase order (PO).
Registering an invoice. The invoice arrives to the company by paper, email, or fax. You need to register it in a software system to keep further track of it. While the company is small, one might use a spreadsheet as a register of invoices. Entering invoices into accounting software at this stage is also an option, but doing so limits your invoice visibility, since senior management rarely has direct access to the accounting or ERP system. Oftentimes, accountants forward an invoice to managers for approval.
Capturing invoice data. If the company processes more than 10 invoices per week, it makes sense to install an invoice capture tool to save valuable time for your human workers. This is software that can read document scans or PDF files, extracting data like invoice number, due date, vendor name, address, payment terms, and more importantly, the line item data. These tools are readily available and are generally referred to as optical character recognition (OCR) software.
Tools like this save a lot of time, but they are not 100% accurate, so they should always be manually verified. A vendor name might be written slightly differently on the invoice, so the capture engine is not capable to match it to a vendor list record in the accounting software. When the first invoice from a new vendor arrives, the vendor list should be updated.
Running an invoice approval workflow. Put the proper controls in place to ensure an invoice is valid, not a duplicate, and has all the relevant supporting documentation. Make sure that your contracts haven’t expired. Make sure that export regulations are met. Lastly, ensure that you are within budget limits and can require additional approvals in case you are not.
Mobile approval is crucial for C-level executives, as it drastically reduces invoice turnover times. Business rules should be flexible if the company has large business within certain states, for example. The approval flow there could be different than for the rest of the company.
Invoice matching. This is a crucial step in the approval flow for PO-based invoices to ensure the company pays for items that have actually been delivered. Every vendor uses their own item codes in their invoices, which can be entered into accounts payable software while a procurement department uses internal item codes when issuing purchase orders. Invoice matching automation requires the harmonization of all the item codes between procurement software and accounts payable software. If a large company purchases similar goods locally from different vendors in various locations, you should also make sure that item codes match up between all vendors’ price lists. It provides the ability to compare purchasing prices between vendors and territories.
Price-checking. Sometimes this step is combined with invoice matching. A company may incur a price change without warning from a vendor, and the customer learns this only after payment is processed. It’s annoying! In order to eliminate overpayments, this price check raises a red flag in case of a price mismatch during the invoice approval workflow, not after the money is wired out.
General ledger (GL) coding. Use proper GL codes before finalizing invoices in the accounting system. Many times an invoice contains items that should be attributed to different GL accounts. Worthwhile invoice approval software should provide the capability to:
- assign a GL code for the whole invoice;
- assign a GL code on per-item basis;
- assign a GL code for taxes/discounts.
The chart of accounts should be in sync with the accounting software. If a new account is created there, it should be automatically copied to the workflow system.
Export to an enterprise resource planning (ERP) or accounting system such as Microsoft Great Plains or Intuit QuickBooks. The export process should be fully automated to avoid manual double entry. The export function should detect and prevent duplicates in the accounting software. After export, the invoice could not be changed in the workflow software to avoid data inconsistency between the two systems.
Payment. The company needs to be sure the payment is issued on time, not too early or too late. The company can send a check or wire a payment to a vendor. Payments should be prioritized and never be made manually without all the authorizations obtained during the approval flow. Paid invoices should be marked as such in the invoice register.
Archiving. During routine audits to come later, the company is occasionally required to provide all the documentation pertaining to a certain vendor. Invoices should be easily accessible and searchable in electronic form. A company’s finance department should be able to pull up all the invoices and contracts regarding a certain period of time, and they should be able to do it immediately. The documentation transparency significantly decreases the risk and number of concerns auditors outline in their report.
The exact processes within your company may vary. They may consist of the same steps above in a different order, or they may be different steps entirely. For example, one might want all the invoices to be entered to Great Plains or QuickBooks early before the approval flow. You should be able to configure your workflow system to handle your specific scenario.
Collaborating for faster invoice processing
In the past, finance and operations departments have been siloed off from each other, operating independently without much attention to what the other was doing. But a worthwhile procurement and accounts payable software solution ties them to each other effectively so that they can collaborate and move forward together in a synergistic manner.
Nowadays, CFOs are developing more strategic approaches to their cost and budget management, taking the lead in overseeing procurement functions. They are building transparent, streamlined procure-to-pay operations in their organizations by remastering their business processes and investing in new collaboration technologies. Both accounts payable and procurement functions benefit when they can collaborate harmoniously.
True cooperation between accounts payable and procurement yields greater cost savings, improved processes, and better compliance. It’s too important to ignore.
Monitoring the process
Software for invoice processing automation ought to provide easy-to-understand metrics for measuring process performance. While it’s not necessary to track those metrics daily, we suggest holding a weekly meeting with people from finance and operations departments to discuss key performance indicators. It may be done less frequently down the road, perhaps once a month, but we strongly advise that these committee meetings are established on a permanent basis.
Here are some examples of most valuable reports used to monitor the health of invoice processing performance:
- breakdown of the invoice pipeline by due date, number of invoices, their totals, region, or expense type;
- breakdown of the missed invoices by date;
- average invoice processing time by invoice type;
- top spend categories;
- top vendors.
The software
Your accounts payable automation software should operate on the principle that faster invoice processing time is not always good, but less effort is always good. Speedy processing time may be convenient for the human employees involved in the workflow, but it can also lead to problems that cost your organization time and money. Whether it’s the quick payment of fraudulent invoices or the missed payment of legitimate invoices, speed too easily leads to mistakes.
Less effort, however, means that human employees will lean into a software solution that can effectively reduce the burdens associated with task management. When it is unambiguously clear who in your organization is responsible for a given task at any given time, your work moves forward without issue.
We are invested in making sure that our software meets every single one of your organization’s needs. If you want a free demo of Pyrus, customized and personalized to your business specifically, then please fill out the form below and one of our customer success associates will get in touch right away.