People have sent invoices since the earliest days of recorded history. In fact, there may not have been a recorded history without invoices and other accounting records. The earliest writing is found on cuneiform tablets made by Mesopotamian scribes in the 3rd millennium BCE to record payments—the ancient world’s equivalent of manually entering invoice details into accounting software.
Invoices have evolved in the last 4000 years. Ink replaced marks made by sticks. Parchment, and then paper, replaced clay. In the 20th century, many organizations—although not all—replaced physical invoices sent through the mail with PDFs and Word documents sent by email. However, until recently, the fundamentals of invoice processing—manually recording, verifying, approving, and paying invoices—remained largely untouched by technology.
In the 21st century, a revolution in invoice processing technology has made invoice automation a reality. The accounts payable process traditionally carried out by clerks and bookkeepers can today be streamlined by invoice automation software, eliminating data entry errors associated with manual work while expediting invoice processing and payment.
This article explores how invoices were traditionally processed and still are in many businesses. Then, we’ll examine how invoice automation transforms processing invoices and the benefits of an automated invoice system.
Understanding Traditional Invoice Processing
Traditional invoice processing relies on manual workflows to receive, verify, and pay invoices, which is often time-consuming and expensive. Before the advent of digital technology, it was the only way to manage invoices, and the associated staffing costs and time delays were unavoidable.
Let’s have a look at how the traditional invoice processing workflow works.
Incoming Invoices
Invoices are received from various physical and electronic sources and in potentially thousands of different formats. In the past, paper-based invoices were the only option, and they had to be physically mailed to the company.
Some businesses still use paper invoices today, although electronic invoices sent by email are more common. However, even though the invoice documents are delivered digitally, they are rarely available to the company’s financial software without manual intervention.
Once received, invoices undergo sorting and organizing to ensure they are directed to the correct department and personnel. The manual nature of this process, especially with paper invoices, introduces challenges such as misplacement, delayed processing, and the accumulation of physical documents.
Manual Data Entry
Information from each invoice, including vendor details, invoice amounts, dates, invoice numbers, and item descriptions, are entered into the company’s financial software.
The potential for human error is a significant pitfall of manual data entry. Mistakes can lead to incorrect payments, disputes with suppliers, and discrepancies in financial records. Plus, manual data entry consumes a lot of time and resources, requiring dedicated staff to spend hours manually entering data from hundreds or thousands of invoices.
Verification and Matching
Once the data entry is complete, the next step is to verify and validate the invoice details. Information on the invoice is cross-checked—or matched— with purchase orders and delivery receipts to ensure accuracy.
Discrepancies or exceptions are identified and handled, which might involve contacting suppliers for clarification or rectifying errors in the invoice details. The accounts payable department plays a critical role in the verification process, ensuring that all invoices are legitimate and accurate before they are approved for payment.
Approval Workflow
Invoice approval adheres to a defined sequence within the organization. The steps differ based on the company’s size and structure. In smaller organizations, the approval procedure might be simple and involve a single individual, while in larger organizations, it may require multiple tiers of authorization.
Manually routing invoices to approvers and waiting for their response is frequently the most time-consuming aspect of invoice processing. Tracking the status of each invoice and maintaining accountability throughout the approval process can be complex and often lead to payment delays.
Payment Processing
Approved invoices are scheduled for payment in line with the terms agreed with vendors. Payments are made either by preparing and issuing checks or through electronic transfers.
The Challenges of Traditional Invoice Processing
Every invoice a business receives costs between $15 and $40 to process manually, and the lower estimate is achievable only with the most efficient manual processes.
The bulk of invoicing costs are for staffing. An accounts payable clerk or bookkeeper might be able to manually process four of five invoices an hour, or fewer if there are issues to handle. Then, you must allocate additional time to manually route and approve invoices.
Although professional AP teams are often reliable, even well-managed traditional invoicing workflows are fraught with inefficiencies, risks, and limitations, including:
- Significant potential for human error
- Limited ability to track and retrieve information such as accounting, approvers, spend classification, price, quantities, and service confirmation.
- Challenges in maintaining accurate and timely financial records
Effective spend management depends on comprehensive and up-to-date spending data, which in turn depends on accurate data entry. Processing delays and inaccurate invoice data deny businesses the spend visibility they need for strategic sourcing and spend management.
An Introduction to Invoice Processing Automation
AP invoice automation increases invoice processing speed, accuracy, and efficiency. A modern AP invoice automation solution will take over time-consuming manual tasks, reduce human error, and increase data accuracy and spend visibility.
Ardent Partners estimates that best-in-class invoice automation reduces the cost of invoice processing from $15-$40 to an average all-inclusive cost of $2.25 per invoice.
The technological backbone of invoice automation includes Optical Character Recognition (OCR) for data extraction, machine learning for improved accuracy, and integration with enterprise resource planning (ERP) and accounting software.
Integration facilitates seamless data flow and real-time visibility into spending, marking a significant improvement on manual invoice processing and the siloed digital systems of the past.
Automated Capture and Coding
Automated data capture is the heart of invoice automation. OCR technology extracts data from invoices, regardless of their format. Machine learning algorithms continuously learn and improve data extraction accuracy, adapting to different invoice layouts and formats.
Eliminating manual data entry is a significant benefit, removing the risks associated with human error. Additionally, automation provides instant validation of invoice data against predefined company rules and parameters, ensuring compliance and accuracy from the outset.
Automated invoice coding is another helpful feature. Instead of manually sorting invoice data into different accounts, categories, or cost centers, the software does it for you. It figures out the correct codes based on what’s in the invoice and pre-set guidelines.
Automated coding makes invoice processing faster and ensures your business has accurate and correctly categorized spending data.
Two- and Three-Way Matching
When invoice automation is used as part of a procure-to-pay software solution, it can streamline the validation process by automatically matching invoices with purchase orders (two-way matching) or with both POs and goods received or service confirmations (three-way matching).
Invoice discrepancies are quickly identified, stakeholders are notified with automated alerts, and intuitive workflows facilitate prompt issue resolution. Automatic invoice matching enhances accuracy, leading to fewer payment delays and disputes.
Invoice Approval Workflows
Customizable, rule-based workflows allow for a tailored approval process suited to each business’s needs and structure. Expedited approval reduces processing time through efficient routing and notification systems.
Invoices reach approvers immediately and they can make quick one-click approvals on any device. Additionally, AI-augmented invoice workflows can suggest or define approval routing based on historical routing data.
Straight-Through Processing
Straight-through invoice processing—also known as touchless invoice processing—automates the entire invoice processing cycle, eliminating the need for human intervention.
Touchless processing operates within predefined financial rules, matching rules, and tolerances, allowing for the seamless and automatic handling of invoices from receipt to automatically paying supplier invoices.
Modern AI-supported invoice-order matching allows more invoices to process straight through than earlier, less adaptable solutions.
ERP and Financial Software Integration
Integrating invoice automation with Enterprise Resource Planning (ERP) and financial software streamlines digital payment and ensures all spending data is available for analysis. It also simplifies conformity with accounting standards and ensures valid accounting strings, as well as easing the audit process by providing accurate and accessible financial data.
6 Benefits of Invoice Automation
The move to automated invoice processing software brings many benefits that impacts many aspect of a business’s operations. Among other benefits, it streamlines expensive and time-consuming processes, enhances data accuracy, improves supplier relationships and working capital, and provides valuable spending insights.
Efficiency and Time Savings
One of invoice automation’s most immediate benefits is its significant time savings. By reducing the reliance on manual tasks, businesses experience a faster processing cycle from receiving an invoice to payment.
In addition to reduced staffing costs due to the drastic decrease in the time taken to process each invoice, faster payment cycles empower businesses to take advantage of early payment discounts while avoiding late payment penalties, providing more opportunities for companies to manage and increase their working capital.
Reduction in Errors and Improved Data Accuracy
Automated invoice processing eliminates data entry errors. The precision of automated data capture leads to increased accuracy in every stage of invoice processing, including coding, matching, verification, and payment calculations.
Improved data volume and accuracy impact spend visibility and management, allowing for more informed decision-making, strategic procurement, and financial planning.
Improved Vendor Relationships
Automated invoicing results in more consistent and timely payments, which is essential for building and maintaining strong supplier relationships. Additionally, quick access to invoice data allows for efficient handling of supplier inquiries and expedited issue resolution, helping businesses build collaborative relationships with their suppliers. In fact, supplier self-service access to data reduces the AP overhead resulting from supplier inquiries.
Better Compliance and Reporting
Invoice automation helps ensure compliance with regulatory requirements and internal procurement policies. In a changing regulatory environment, automation reduces the burden of complying with evolving country-specific eInvoicing regulations and mitigates the risk of non-compliance penalties. This is particularly important for businesses facing complex regulatory environments.
Strategic Insights and Enhanced Decision Making
The accurate and comprehensive spending data provided by invoice automation systems supports strategic decision-making for sourcing, procurement, and financial management. Businesses gain increased visibility into spending patterns, vendor performance, and potential areas for cost savings, allowing them to align sourcing and spending strategies with their business objectives.
Scalability and Flexibility
As businesses grow, the automated system handles increased invoice volumes without the need for additional resources. Scalability ensures that invoice processing and payments aren’t a bottleneck preventing the company from achieving its objectives.
Increased invoice fraud is often a problem for growing businesses as they process more invoices and deal with more suppliers. Automation ensures potential fraud is detected and flagged without inflating resource use and staffing budgets.
AP Invoice Automation with Vroozi
Vroozi’s intelligent invoice automation solution reduces the cost of invoicing, shortens cycle times, and ensures businesses have accurate and comprehensive spending information.
Our SaaS invoicing software is part of a comprehensive procure-to-pay system that includes:
- A digital supplier marketplace
- eProcurement with ERP integration
- Purchase order automation that increases spend under PO, facilitating straight-through invoice processing.
- Invoice automation with cognitive scan and capture, order matching, coding for non-PO invoices, and spend detail for every invoice.
- Digital payments
To see Vroozi in action, experience a live version of the app or request a personalized walkthrough from one of our team members.
