Everything Accounting teams Need to Know About Invoice Management
Invoice management is a core tool that all accounting, finance, and procurement teams need to consider. Consider for a moment how your time is spent best, working to build mind-blowing products for your startup or managing administrative tasks. The best invoice management practices may help alleviate the heavy load you face from these mundane tasks.
Accounting teams at a hardware-centric startup have to handle these tedious tasks in some way. It is a core component of moving projects forward. The high cost of invoice processing and the errors that often come with it tax your job, making it much harder to manage. Noting these challenges, it may be time to consider a new way to manage accounts payable, including invoice automation. Invoice management, at its core, is a tool you can use to improve your invoice approval workflow, accounts payable, and accounts receivable, freeing up valuable time for you to handle other tasks.
What is Invoice Management?
Invoice management is a method that lets companies track and pay supplier invoices in an efficient manner. Typically, this is a back-office function that is a part of the procurement process. In most operations, the accounts payable department manages this process. It’s issued by accounting systems.
A simpler definition is that it is a process that manages the process of receiving an invoice for purchased products and services, recording the data from it, validating and ensuring the data is accurate, verifying the invoice, and then paying for the service. The final step involves recording the payment as a transaction in the company’s books.
When invoice management is applied, it is possible to regulate the payment process. That is, it is possible to ensure that invoices are approved and paid properly to minimize any excessive fees and penalties for making payments late. It also enables potential discounts for early payments. This is an important part of best practices with accounts payable.
How Invoice Management Processes Work
The days of a paper invoice are gone in most operations. Though you may receive a paper invoice, most of the time, invoice processing is automated. Invoice automation is an empowering process as it can make paying a purchase order more efficient. With invoice management software, there are typically four steps involved.
#1: Receive the Invoice from the Vendor
The first part of the invoice management process is to receive the invoice from the vendor. Suppliers send invoices once they deliver products, complete work, or otherwise provide a service. Often, the accounts payable, finance, or accounting person receives the invoice.
The invoice typically includes the date it was sent, the contact information from the supplier as well as buyer information, purchase details outlining what it is for, and the payment details.
#2: Recording the Data from the Invoice
The next step in invoice automation is recording the invoice data into the accounting software. The information from the invoice is verified as a part of the invoice processing. This may be done manually or with AP automation. Invoice management software typically handles this through automation.
A digital version of the invoice is then made. This serves as a backup to the original. The copies are beneficial if suppliers find any problems, including a duplicate invoice or a mistake in the billing.
#3: Validating and Verification of Received Invoice
With the invoice logged, the next step is to have the accounts payable department or person verify that it is accurate. This is a final approval step. It is done prior to making payment.
With automated invoice processing, this task is eliminated. The invoice management software can compare the purchase order to the invoices as well as other goods receipts. This speeds up the billing process allowing for faster approval.
This invoice management process tends to be more efficient because it can allow for the supplier invoice to receive approval faster, allowing for the invoice to be paid sooner. Invoice approval is an option for many invoice processing software programs like this.
#4: Approving Payments
The next step is the payment. At this point in the invoice approval workflow, the purchase order received approval from the system. The invoice management software checked for duplicate invoice documentation. Every step is complete, and the invoice is sent to the person who handles the actual payment.
The payment process can take several days or longer. The payment system itself is an important component of this process. In some cases, email confirmations can get lost. Accounts payable needs to then ensure that there is good communication in this step to ensure processing invoices is done properly.
Automated invoice processing can handle this step for you as well. It will allow you to set up the invoice processing through payment and allow for approval to be automated or done by hand, depending on your needs.
How to Get the Best Out of Invoice Management
Automation is an important solution for many engineering directors who need to speed up the procurement process. If you handle procurement within your startup, it is critical that no delays in payment occur, as that can slow down the procurement process for your organization.
With a limited supply chain and vendors often having multiple buyers for their products, it’s critical to ensure invoice approval can be fast and efficient. It is not uncommon for vendors and creditors to stop working with companies that fail to make payments on the agreed terms. This could impact your startup's ability to compete, especially in situations where the supplier has other buyers.
Consider these best practices for invoice processing and billing management.
#1: Prioritize Invoice and Billing Processes
While invoice management is a valuable tool, organizations need to ensure that they are prioritizing invoices to keep track of what is paid and what is essential to pay first. In fast-growing startups, this can be critical. The accounts payable department needs to understand the payment date and payment terms upfront to streamline the billing process. That is the case even with automated invoice processing.
Prioritize which items are most important to pay first, such as recurring invoices, those that relate to accounts receivable, and those where the supply chain and procurement process are of the highest priority. It is also important to focus on the costs associated with the process. For example, some purchase on credit carries a higher interest rate than others. Spend on the lowest level of interest possible, but ensure that billing pays down the highest interest rate first to save money.
#2: Streamline the Invoice Processing Workflow
In a procure to pay system, it is critical to have a streamlined process for ensuring billing is handled properly. Look at existing workflows within the accounts payable department. Look for any bottlenecks that could be delaying invoice approval, especially with recurring invoices.
No matter the accounting system, ensure that invoice approvals are centralized and standardized. This should be applied throughout the organization and all invoice management software used. Also, factor in a purchase order or paper invoice that may need to be a part of the process.
Do not overlook the value of AP automation. Automated invoice processing saves time, reducing the risk that invoice approval may not occur on time. AP automation may reduce the invoice processing time by as much as 709 percent in some situations. At the same time, it ensures the invoice in a p2p process is accurate, and payments are made on time.
#3: Ensure Fraud Detection Is Present
This is one of the best practices you cannot overlook when it comes to invoice management. Even with Invoice management software, mistakes can occur. It is critical to ensure that invoice software has some type of backup that can help to detect and eliminate fraud in the procurement process and billing.
Recognize the risks. With automation, the risk of someone writing a check to themselves or otherwise manipulating the spend within the company is much harder to do. Purchasing is streamlined, and invoicing software is difficult to manipulate.
#4: Track Problems Within the Invoice Management Tool
Another way that invoice management software can help you is by providing a way to track any disputes within the procure to pay process. Mistakes happen, and errors occur in any aspect of the supply chain. With invoicing software like this, it is possible to pinpoint those problems, dispute them, and track resolutions. That can be a part of the accounts payable automation.
This is important in procurement. In the p2p process, good relationships with suppliers are critical. At the same time, organizations need to manage cash flow and ensure their purchasing is properly documented. The procurement team needs to know that information is up to date and accurate and that if a purchase requisition is inaccurate, it is fixed quickly.
#5: Automation Saves Money
With strategic sourcing so important today, a procurement team or an engineering director needs to ensure that spend is under control and procurement is as affordable as possible. Automation enables this.
Within the invoice management process, automation is often the solution organizations need to fix bottlenecks within procurement software that cost time and money. In addition to this, accounts payable automation increases transparency in the invoice process. It helps improve relationships with the suppliers, which are critical to strategic sourcing efforts. Overall, it helps to simplify the procurement process while at the same time boosting employee productivity. In many ways, this is a very valuable solution in accounting software.
For accounting, procurement, and engineering teams at a hardware-centric, fast-growing startup, this type of automated accounting software offers a number of core benefits.
- It saves time.
- It creates potential improvements in the purchase requisition process.
- It builds supplier and vendor relationships.
- It works to eliminate fraud and minimizes the risk of problems and bottlenecks in the entire process.
- It makes procurement software more streamlined and efficient to use, boosting employee productivity.
Invoice management is no longer an option for many organizations. It is a tool that they need to have to remain competitive in a fast-growing startup where managing supply chains and purchases are critical.
For the accounting team of a hardware-intensive startup, it is not unusual to be overwhelmed by all the purchases and invoices that have to be tracked. Invoice management software, then, is an effortless investment. It provides pain reduction and time savings for engineering, accounting, finance, and procurement teams.
Today's modern accounting director is busy, but this type of software can be set to automate many of the workflows necessary for invoice approval, saving the company time and money. Most importantly, it enables the best use of the director's available funds, including the best use of time. Ultimately, a move to AP automation simply makes financial sense for any organization aiming to achieve a better outcome.