Many businesses have invoice management practices that make the process longer, more difficult, and more prone to error.
But with the right workflows backed by the right technologies, you can fix all the issues associated with poor invoice management relatively easily.
What is invoice management and processing?
Invoice management, also known as invoice processing, is the way businesses track, approve, and pay invoices from their vendors, suppliers, and contractors. That process looks something like this:
- You receive an invoice from a supplier or contractor
- Your accounts receivable team validate the invoice and input the key details into your system
- You make the payment
- You archive the invoice for your financial records
In large and established businesses, the accounts payable team is usually responsible for invoice processing. They should pay suppliers, vendors, and contractors on time or sooner, to make use of any early payment discounts that are available.
In smaller businesses, the office manager or finance team are typically responsible for invoice management. However, they already have plenty of other things to worry about, which is why the relatively simple task of invoice processing can go wrong.
Why is invoice management important?
Invoice management is a back-office function that often takes a backseat to the competing priorities of businesses. As a result, there can be errors and delays that damage relationships with suppliers and increase the costs of the business. It’s small enough to slip through the cracks, but then big enough to cause long, critical damage to your organization.
If you leave them unchecked, accounts payable issues can even be enough to cause a company to fail, driving your cost per invoice up and causing key suppliers to go elsewhere. So, when it comes to capital optimization, increasing the efficiency of your invoice management must be a core concern.
Good invoice management helps to make sure that vendors, suppliers, and contractors are paid on time. That increases goodwill, leads to faster delivery times, and increases their willingness to fix defects. It can also yield benefits in terms of discounts from suppliers and rebates for early payments.
Good invoice management is also important for internal teams. It helps reduce errors related to data entry and the time-consuming payment queries and complaints that result. It also helps cut the cost per invoice and gives you a more accurate view of your cash flow position, so you can make smart payment and growth decisions.
What are the different types of invoices?
There are as many as 26 different types of invoices. You don’t need to know what each of those is for, but you should be familiar with the most common invoices that you’re likely to encounter, including:
- Proposal invoice: This is an estimate of how much a business will charge for a transaction at an early stage in the negotiations.
- Interim invoice: Interim invoices can be sent during longer projects to give customers an update of the current charges as they stand.
- Recurring invoice: Businesses use recurring invoices to charge their customers on a weekly, monthly, or subscription basis.
- Final invoice: This is the invoice a business will receive upon the completion of a transaction or project.
- Past due invoice: A past due invoice acts as a reminder that a payment is overdue. It can also include any additional late payment charges.
- Debit invoice: A debit memo or debit invoice can be issued when an undercharge occurs, usually due to the buyer adding extra items. The purpose of the invoice is to record the adjustment in the buyer’s and seller’s bookkeeping.
- Credit invoice: Like a debit invoice, a credit invoice records an adjustment made to a transaction. In this case, the credit invoice shows the sum of money that will be added to the buyer’s account, usually resulting from a service not being delivered or a product being returned.
If a business operates internationally, it may also receive a commercial or customs invoice. That includes shipping information, details of the goods being transported, and the country of manufacture. It makes sure that the right amounts of tax and duty are paid.
How do companies manage invoices?
The days of paper invoices arriving in the post are now firmly behind us. Digitization has taken over, with the majority of invoices now sent as email attachments. But that hasn’t necessarily reduced the amount of data entry and double handling.
It’s often the case that invoices are sent to a vendor’s, supplier’s, or a contractor’s point of contact within a business rather than to the finance or accounts payable department. That means the invoice has to be forwarded to the right team. There can also be issues with the invoice that means it has to go back to the supplier for changes before being resubmitted for payment.
Even if the invoice arrives flawlessly and with the right person within the accounts payable team, there can still be lots of manual tasks. You must enter the details of the invoice into a spreadsheet, get validation from the manager who commissioned the work, make the payment, and enter all of the relevant information into accounting ledgers.
It’s little wonder that invoice management is seen as a laborious and time-consuming task, but it doesn’t have to be that way.
How can you improve your invoice processing?
Every business must customize its approach to invoice management to suit its particular processes and needs. However, there are some standardized best practice steps that you can take to reduce your cost per invoice.
Centralize your accounts payable function
The first step is to make invoice processing and reporting the role of a single and centralized team. Within that team, there must be common standards and practices that formalize the processing of invoices. The performance of the function and the people who manage it should also be measured against established business metrics.
Automate your invoice management
Invoice management software helps companies to automate tasks related to invoice processing. It can eliminate the need for paper records and manual data by scanning invoices and pulling data into the system before transferring payment electronically. Some solutions also provide a mobile app so you can view, approve, and pay invoices remotely. Once the invoices are processed, they can be stored securely in the cloud.
Measure accounts payable efficiency
You can’t improve what you can’t measure, so always set specific goals and KPIs to measure the impact of the changes you make. The key metrics to track include are:
- Payment accuracy rate
- Days payable outstanding (DPO)
- Cost per invoice
- Early payment discount capture rate
- Time spent handling supplier disputes
Invoice management software will help you to track many of these metrics and give you a snapshot of your invoice processing performance in real time.
Create a supplier portal
Setting up a supplier portal will enable your suppliers to track the status of their invoices, payment due dates, and the payments they’ve received electronically without having to contact you with their queries. It can also help to reduce the number of manual errors and cut down on processing time.
Standardize payment terms
Standardizing your payment terms across the business can simplify the processing and payment of invoices and give you more visibility and control of your cash flow. This is particularly important if you buy from numerous suppliers. Standardizing your terms can also help to improve your workflow efficiency and prevent negotiations that may negatively impact your days payable outstanding (DPO).
Resolve disputes effectively
Resolving invoice inquiries and disputes quickly is key to making payments on time and maintaining positive relationships with your suppliers. An automated invoice approval process will send invoices that are attached to valid purchase orders directly for payment. It will also identify any exceptions. Those can then be flagged and resolved quickly by your accounts payable team.
Tracking disputes will also help you to identify if there are suppliers that you consistently have problems with. That could lead to a change in how you work with them or motivate you to look elsewhere.
How can you move beyond bad invoice management?
It’s not always easy to overcome bad processes, but fixing your invoice management could be as simple as getting a new piece of software.
ManagerPlus® is cloud-based enterprise management software that helps organizations to manage PM schedules, assets, work orders, inventory, inspections, reporting, and invoices.
Invoice management, also known as invoice processing, is the method that you use to track, approve, and pay invoices from your suppliers. Improving the efficiency of that process protects your relationships with suppliers, gives you an accurate view of your cash flow position, and reduces your cost per invoice. There are lots of steps that you can take to improve your invoice management process. That includes replacing your paper-based system with enterprise management software that has invoice management functionality.