Steps to efficient invoice management for your business
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According to a recent study by SME, 82% of finance departments feel overwhelmed by the sheer number of invoices they’re faced with daily, a problem compounded by the various invoice formats. Any invoice management process still requiring manual entry opens the door to accounting errors, increased expenses, and strained vendor relationships.
Even though the costs of processing a single invoice have decreased dramatically over the years due to technological advances, there are still massive savings for companies that have an efficient invoice payment management system. It is estimated that high-performing Accounts Payable departments save their companies as much as $7 per invoice.
The benefits of optimizing your invoicing go far beyond expenses. In efficient systems, the time it takes to review and approve invoices is reduced and the chance of overpayment or duplicate payment is mitigated.
But how can you manage your invoices more efficiently in your business? Let's explore what invoice management is and discover strategies and solutions for optimizing it in your business.
What is invoice management?
Invoicing is the process of tracking, reporting, and paying vendors who supply the goods and services your business needs to operate. Once an invoice is received, it’s verified, paid, and noted in the company’s records.
That’s a simplistic view of a process that can involve multiple people and cause real tax and compliance challenges if done improperly. Here are the reasons why invoicing management is so important:
- Vendors are paid from invoices; if payment is delayed you may not receive the supplies you need to operate
- It helps you track your supplies on hand to avoid waste and increase efficiency
- It provides more transparency and accuracy in your accounting and reporting
- Allows management to make better financial decisions
- Helps to simplify tax documentation
Invoice management can involve multiple people and/or departments in a company, but who really does invoicing in a company? In larger businesses, the Accounts Payable department handles the process. But in a smaller company, an office manager or even the business owner could be involved in any or all of the invoicing steps.
Key steps in the invoice management process
There are four main steps in the invoice management process:
The receipt of an invoice may seem like a fairly straightforward step, but it's still a point of the process where disconnects occur. The company receives an invoice from a vendor by email or paper mail. But there’s always the possibility for delays if the invoice doesn’t go to the correct person, and ends up forgotten in an inbox or shuffled around the office.
After the invoice is received it's typically manually entered into the company’s records. However, there is software that many companies use to extract the pertinent data from the invoice email or document. This is preferable to human data entry because incorrect invoice entry is a main source for accounting issues.
Once the information from the invoice is entered into the invoice management system, the information needs to be verified. That means checking to ensure that the products or services were delivered by the vendor and at the cost agreed upon in the contract.
In most cases, a manager who has checked the validity and verification of the invoice conduct the approval step. After the invoice is verified and approved, the vendor is paid and recorded in the company’s books.
Challenges in invoice processing
Most of the major challenges in invoice processing can be attributed to human error due to manual processing. When vendors aren't sure where to send their invoices, delays can arise from misrouted documents. When an invoice is entered manually into the system, data entry errors can cause overpayment or missed payment.
If there are delays in verifying information, the whole process gets off track. In the approval step, if the manager fails to double-check the invoice, the document goes missing, or if the manager doesn't correctly approve the invoice, more challenges are created.
More importantly, if there are still manual aspects to recording invoices and payments in your business, it can negatively affect accounting reports at the end of the month and tax documentation at the end of the year.
Even though manual data entry is a major pain point in the invoice management process, there's also a substantial loss of time that arises from the double handling of invoices and the increased email traffic that results from invoice routing.
Streamlining the invoice management process
Invoice management technology has drastically improved over the years, but there are additional ways to streamline your invoicing. The first step is to understand your invoicing process from start to finish and define clear roles for each staff member involved in the process.
It also includes instructing your vendors on who to contact and what format to use. Adopting standardized procedures for invoice management will cut down on misrouting from vendors and mishandling by your team.
But there’s another culprit in many invoice issues: paper. Paper invoices cause storage costs, lost document delays, and data entry errors. Digital platforms have become much easier to integrate into your operations and can mitigate many issues paper causes.
Beyond just the recording of invoices, technology has become more active in the invoicing process. Automating repetitive tasks, such as the processing of routine invoices, can save significant amounts of time and money in the short term, and increase tax transparency and financial decision-making in the long term.
How to manage invoices effectively and ensure accuracy
One main way to increase efficiency and accuracy is to enter new invoices on the same day they are received. While that may be a struggle for your busy AP department, quick entry means there’s less chance the invoice will be mishandled or that payment will be delayed. It also helps management to understand exactly how many invoices are open at a given time.
Clear lines of communication with your vendors are also beneficial. Your partners should know how to invoice your business correctly and to whom to send the invoice. Once the invoice is received, verification of all its data is critical to prevent errors in the invoice and eliminate the opportunity for fraud.
The Association for Financial Professionals estimated that 65% of businesses experienced attempted or actual payments fraud in 2022. While the majority of those incidents were related to checks and credit cards, companies with less efficient invoicing systems were more susceptible to fraudulent invoices.
Vendor relationships and compliance
No business can go it alone. Every company needs partners to achieve success, and clear communication and reliable payment are critical to building lasting vendor relationships. A streamlined invoicing process will help optimize those relationships so payments are correct and timely.
To that end, many companies have created vendor or supplier portals where their vetted partners can input their company’s invoices themselves and select the method of payment they desire. This reduces data entry errors and allows vendors to check the status of invoices on their own, without unnecessarily tying up your AP department.
Another major benefit of a streamlined invoice management process is minimizing compliance issues. Transparent invoicing makes for transparent accounting and leaves a clear audit trail if the occasion arises. Invoicing affects revenue, and inaccurate invoicing can lead to inadvertent breaches of government regulations.
Automate invoice processing with AI accounting software
Many companies are implementing automated approval workflows because of the compliance risks involved with invoicing. Automated approval workflows are designed to reduce repetitive and routine tasks where simple administrative errors often occur.
Ramp's accounting automation software is designed with user-friendliness and efficiency in mind. It allows you to easily manage invoices, integrate seamlessly into your business operations, and track expenses with ease. In addition, its advanced AI capabilities guarantee that your financial transactions are compliant with the latest regulations. This makes invoice management a breeze and a strength for your organization.
Reach out to learn more about how Ramp's platform can streamline your invoice management process.