Most companies have well-designed invoice processing procedures that were perfected early in the company’s history. However, the benefits of those traditional invoice processing best practices are far outweighed by the benefits that automated invoice processing is producing.
Traditional Invoice Processing
The best way to make a comparison is to start with a description of how processing invoices usually works now. Certainly, there are variations, but the description below summarizes a traditional process.
- Vendors send invoices through the mail. Someone in your mailroom or Accounts Payable department opens the envelopes, removes the invoice, flattens it and stamps a receive date on it.
- In Accounts Payable, a clerk takes the stack of invoices and wades through files of purchase orders to find a match for the invoice. If a match isn’t found, the clerk keeps a copy of the invoice and forwards it to the appropriate department head for approval. When the approved invoice is returned to AP, it is put into the stack for data entry.
- All matched invoices are entered into the Accounting software or Enterprise Resource Planning system.
- Matching invoices are routed to senior management. The senior manager does whatever final checks are required and authorizes the invoices to be included in a check run.
- The invoices approved for final payment are included in the list of checks to be printed and then the printed checks are folded, put into envelopes, sealed, stamped and sent to the post office.
What a Difference Automation Can Make!
When you automate invoice processing, the first benefit you’ll notice is a huge time savings. You may not think too much about the first three steps in the process above because they’re so familiar, but consider the time that an automated system can save.
- Instead of manually stacking up paper invoices for processing, the invoices would be scanned into an automated system. Information on the invoices would be extracted as necessary to set up the AP process. In the best of all worlds, your vendors would have an automated system as well. This would allow them to just send a digital version of their invoice, which reduces the time to complete this step even further.
- Instead of manually matching invoices, the system would instantly match invoices to purchase orders. If an invoice couldn’t be matched, it could be automatically forwarded to the department head for approval.
- Data entry wouldn’t be required due to the automation in steps one and two.
Senior management review can always be time-consuming. That manager is usually busy and an intimidating stack of paper invoices to be reviewed can strike fear into the most intrepid of executives. In addition, the manager may well be traveling on a regular basis, which introduces a completely new set of problems.
Automated invoice processing changes everything in step four. The manager would receive the matched invoices electronically, whether they’re in the office or not. The final approval process is fast and streamlined.
Step five had usually remained the same, however, payment automation has now become an important step in the payables cycle. Electronic payments via virtual credit cards, for example, will eliminate the manual labor in step five and save a great deal of money on company resources, paper processing and postage.
The Benefits Just Keep on Coming
The most obvious benefits to automating AP are time savings and all that represents. Here is a list of just some of the other benefits you’ll receive:
- Reduced requirements for paper storage, thereby reducing or eliminating the need for offsite document storage and rescuing office space.
- Money saved by taking advantage of early pay discounts and avoiding late payment fees.
- Increased security that discourages or eliminates fraud.
- Better reporting and planning capabilities.