Challenges in the Invoice Management
Many companies still use paper-based or unorganized invoice management systems to track and pay invoices that are not only inefficient, but time-consuming as well. Here are 8 challenges that companies face that can be solved with automated invoice management:
- Slow Process
A manual invoice management system takes a considerable amount of time to be approved and undergo all the steps. The documents that need to be transferred from one department to another can slow the payment. Usually, the step that takes the longest is getting invoices approved by the correct team.
If the invoice management system enters the cycle of late payment, it can result in delayed delivery of products and services in the next cycle. Along with hindering the basic processes of the business, it can also damage the credit rating of the company. It also affects the relationship of the company with the supplier.
- Manual Matching
When the invoice is received by the company, before approval, it is ensured that the information provided on the invoice is correct as per the records of the company. The invoice is first matched with the purchase order that the company generated to order goods and services from a particular supplier formally.
The invoice is also matched with the records of the delivery. The amount of product shipped and received should match the figures mentioned in the invoice. Manual errors such as wrong delivery date, incorrect billing information, etc., can cause discrepancies in this process. Along with that, manually checking every detail that could be available in different forms and in different systems can cause the process to lengthen.
- Exception Invoices
There are various cases when the information in invoices is incorrect, incomplete, or does not match the records that the company holds. The AP clerk and department have to provide enough time to these invoices to correct the information, resolve the issues, and track the cause of all discrepancies.
- Unauthorized Purchases
The AP department also has to investigate and approve the invoices that were generated for goods and services for which no purchase order was created. These purchases are classified as unauthorized as the process of purchasing was not controlled or approved formally by the respective department. These cases occurred when the business card was used without permission or when the goods and services were acquired from unauthorized suppliers.
As per the Association of Certified Fraud Examiners (ACFE), an organization typically loses around 5% of the revenue to frauds every year. Email scams, check frauds, etc., are the major causes of this loss. Criminals use authorized-looking emails to send the invoices to the company or request payment through other methods.
- Paying Invoices for Undelivered Products and Services
When the AP department gets invoices from suppliers at regular intervals, there can be cases when they accidentally pay the invoice without checking whether the goods mentioned in the invoice have been delivered or not. There can be discrepancies in the records of the company, or the data entered can be wrong. Such practice can cause problems if the goods and services delivered are found to be faulty, unsatisfactory, or if in case the delivery has failed to arrive altogether.
Along with this, paying the invoices before delivery or due date can reduce the liquidity of the company as it hinders the cash flow.
- Misplaced Invoices
Especially when the invoices are managed and recorded in paper format, it is possible that the invoices get misplaced or even disappear. An invoice that is lost causes the company to miss the due date of paying the supplier, thereby affecting the supplier’s relationship with the company.
The liability recorded in the invoice is recorded in the accounts at a later date, causing the expenses to be missing from the current income statement. The inaccuracy in the accounting can provide wrong information to the management regarding the financial position of the company.
- Repeated Payment
Double or duplicate payment can occur when the data of the invoices are stored manually, thereby being prone to errors. If the amount present in the invoices, information about the supplier, delivery date, the due date of invoice payment, etc., are entered wrong, then there can be a possibility of an invoice being paid twice. It can also occur when the AP department or the invoice management system of the company is not streamlined or does not follow a single integrated process.
How can Automated Invoice Management Address these Challenges?
With the use of automation software to extract, record, and process the invoice data, one can automate the invoice management system. Such software and tools can save the time of the AP department while also ensuring that the data recorded and processed is accurate.
Once the invoice arrives in the automation software system, the information in the invoice is scanned and stored in the digital accounting system. This process of extracting data from the invoice is called invoice capture and saves hours that would have been spent in manually entering and updating the data.
The data entered is stored in a text-searchable document by the software for easier access. Once recorded, the invoices are then sent to the appropriate parties so that they can be approved after review.
Here are different ways automation software can help the companies over the problems faced in the traditional invoice management practices.
- Reduction in Process Time
Through automated invoice management, one can effectively eliminate the need to record and manage paper invoices while also saving time that would have been otherwise spent in manual data entry. The invoice management software, along with the accounting software, can track and manage the information provided in the invoices.
Not only the time to manage the invoices can be reduced but also the time spent to find and correct any errors or discrepancies present in the invoices can be reduced. It also ensures that the employees that are working remotely can collaborate and ensure that the invoice is approved within the due date.
- Centralized System
The automated invoice management software also provides a centralized system that removes the need to manage multiple files and manage spreadsheets. The software can standardize the way invoices are processed from the point they are received to the point when the payment is processed.
With the help of a centralized system, the chances of an invoice getting lost can be eliminated as well. The cases of duplicate payments will also be reduced as the status of payment of each invoice will be automatically updated by the software.
- Streamlined Process
Each stage of the invoice management process can be defined using automation software. Having a definite flow of process ensures that the chances of any discrepancy are decreased. Once the software is enabled, it will ensure that each step of the invoice management, from delivery of the invoice to the payment, is streamlined and occurs in a sequence.
- Accurate and Efficient Matching
Matching the invoice with the present records maintained by the company is a crucial step that takes up most of the time of the AP department. With automation software, one can ensure that the time and effort required to match the information in the invoices.
Once the system is updated with all the required documents, that is, the purchase orders, delivery receipts, and invoices, the software will automatically determine whether the data present in all the documents align with each other. If there are any exceptions present, then the software will raise the flag to inform the AP department.
- System Integration
The automated invoice management system can be integrated with other business systems that are already in use by the company, such as the accounting system, ERP, and the customer relationship management system. With the integration, all the company’s data can be centralized so that comprehensive reports can be created for the analysis of the benefits and the spend analysis of the company.
- Artificial Intelligence (AI)
The automation software keeps enhancing its accuracy by employing AI through which it can recognize the information and characters present in the invoice. Machine learning also ensures that there are no chances of a forged invoice passing the system, thereby eliminating the chances of fraud. The machine learning technology gets faster with time as the system recognizes specific elements of the invoices.
With the rise in digitalization and numerous tools present in the market to ease various processes involved in business management, it has become unavoidable for companies to eliminate manual processes. Automated invoice management can reduce the cost, time, and errors that were otherwise unavoidable in an AP department. It also accelerates the account payable cycle while enhancing visibility, centralizing data, and enabling remote working through a cloud-based system.
Along with that, invoice management software can scale up with the growth of the business and ensure that the business can maintain amicable relationships with its suppliers.
Invoice management is the process through which the businesses track and pay the invoices provided by suppliers. When the complete process of invoice management is carried out with automated software, then it is said to be automated invoice management.
The invoice is received from a third party under the process of invoice management, after which it is validated to prove its authenticity. The respective supplier is paid, and the payment is noted in the company records.
Invoices can be available in various forms such as PDF, email, or even paper invoices. All these formats need to be filed in one place after approval for record-keeping. However, as the size of the company increases, the complexity of the steps involved in invoice management also increases.
Steps Involved in Invoice Management
Before understanding the challenges that one can face during invoice management, it is necessary to know the complete steps involved in the process. The following are the basic steps that an invoice management system consists of in a company of all sizes.
- Step 1: Receive an Invoice
Once the supplier has delivered the product or services that they had agreed to, they will send an invoice to the business. It can be in the form of paper and arrive through the mail, or in the form of a PDF and arrive through email.
The data contained in the invoice needs to be input into the accounting system. Traditionally, this step is done manually by an AP clerk appointed to enter invoice data manually.
- Step 2: Record for Filing System
Along with updating the accounting system with the data in the invoice, a copy of the invoice is also stored in the filing system for record-keeping. It is either done in paper form, or an electronic filing system is used as a backup.
If working in paper format, then all the files need to be arranged so that the auditors and other teams can easily access the information.
- Step 3: Approval of Invoice
Now that the invoice is recorded in the business filing and accounting system, the next step is to validate it. It is the responsibility of the AP clerk to ensure that the respective authority approves the invoice in time. It is possible that more than one person needs to approve the invoice in an organization for it to be processed further.
- Step 4: Invoice Payment
If all the details that are mentioned in the invoice are correct and approved, then it needs to be paid. The invoice will be sent to the respective department or payment.
The time taken to complete the process for each invoice depends on the company’s rules, the size of the company, and how managed and accurate the invoice management system is.
However, it has been observed that companies that follow a paper-based invoice management system face various issues that delay the process. These include papers getting lost or pushed down, authorizing signatures on the invoices being forged, mismanagement of invoices when the clerk has to handle multiple invoices simultaneously, invoices being sent to wrong departments, etc.