If you’re like most accounts payable (AP) departments, you receive invoices from hundreds or even thousands of vendors on a regular basis — which can lead to a problem for your business and its cash flow when not managed properly. Some of the biggest challenges of invoice management include dealing with missing, confusing, or incorrect invoices.
Your AP team undoubtedly knows the pain of this frustrating situation. In fact, 82% of finance departments report being overwhelmed by the number of invoices they have on their plate to process on a daily basis and are further exhausted by the variety of formats these invoices are received in.
Now they’re burdened with reaching out to people in several departments to try and nail down approvals, get to the bottom of who purchased what, determine if these products were actually received, figuring out whether or not the orders were authorized, and if the invoices should be paid.
It’s challenging, to say the least, and it’s time to move beyond manual invoice management and all the aspects that slow your business down and move toward a system of automated invoice management.
What is Invoice Management?
Simply put, invoice management — also known as invoice processing — is the method companies use to track and pay supplier invoices. At a basic level, that process involves receiving an invoice from a third party, certifying it as legitimate by obtaining the necessary internal approvals, paying the supplier, and documenting the payment in the company’s accounting system.
However, issues can arise when invoices are received in multiple formats (mail, PDF, email, etc.), line by line comparisons must be made between invoices and POs, and department heads need to be scoped out to make approvals. These inefficiencies are compounded by the manual nature of traditional invoice management and tend to cause challenges for AP teams.
4 Challenges of Traditional Invoice Management
It may not sound that complicated, but traditional invoice management provides numerous opportunities for error. The challenges below are all-too-common in many organizations.
1. The Manual Process is Labor Intensive
Manually inputting, coding, and verifying invoices is an extremely labor-intensive process. In fact, it’s been shown that the industry-average AP employee can only process five manual invoices per hour, and it costs between $2.07 and $10 per invoice.
First, the AP team has to receive invoices in a variety of formats (paper, email, PDF) before manually keying them in and coding them to the ERP or accounting system. If your company uses purchase orders (POs) then the AP department needs to manually compare each invoice to its associated PO, line by line, to ensure that the price, date of order, and other agreed upon terms and conditions match up. This verification process gets even more complex if the business uses receipts to track received quantity against ordered quantity, introducing a third reference to check against.
Invoices also need to be approved by department heads, whether that means an AP clerk shuffling paper invoices from desk to desk or sending off a series of emails and subsequent reminders to these department heads until approvals are granted. If you’re working for a large company, this could mean hundreds of invoices might be sent around, which unnecessarily wastes time and resources.
Let’s not forget about the payment side of things. The AP department also needs to print checks, chase signatures, stuff envelopes, and mail them off. If teams are working remotely, there might be the additional steps of having to mail batches of checks to the CFO to sign and waiting for them to be mailed back. This excess of manual and laborious tasks constantly prevents your AP team from focusing their efforts on more value-added work.
2. Prone to Human Error
Some of the biggest problems plaguing AP processes that haven’t yet been automated are data entry errors and the potential for missing or incorrect data. It’s time-consuming and mistake-prone to manually enter data from invoices into the computer, and while unintentional, even a simple mix-up when transferring numbers can result in an expensive error for your business.
And if you’re using Excel or a similar program for your accounting, it’s been shown that there are likely errors in your spreadsheets. In fact, one study found that 90% of all spreadsheets have errors that affect their results — and the bottom line.
3. Delays in Processing
Manual invoice approvals take a considerable amount of time. Your AP team has to first confirm the invoice approval with the necessary personnel, and they run the risk of delays if those invoices are sent in the mail or printed out. Once complete, next comes the manual process of following up through emails and calls to make sure things are getting approved, getting resubmitted, etc. — all of which takes additional time and effort and delays processing times.
4. Potential for Duplicate — or Disappearing — Invoices
When invoice processing is done manually, you run the risk of either processing duplicate invoices or losing track of invoices altogether. Whether it’s through fraud or a genuine mistake, if you fail to keep track of the information, you fail to efficiently — and professionally — process the invoices. Not only does this paper-based invoice processing process cost you additional time as you work out these errors, but it can also lead to higher costs and potentially damage relationships with key suppliers.
The Solution: Automating Invoice Management
Automated invoice management is a method of using AP automation software to capture and code invoice data, route invoices for approval, execute and record payments, and then sync this information back to your ERP system. All of the challenges mentioned above build a strong case for adopting invoice management software. The benefits of automating invoice management include:
1. Saved Time and Money
First and foremost, automating AP processing can decrease both manual tasks and labor costs. Automating cuts through delays like manually keying invoice data or having a pile of invoices stuck on someone’s desk for approval. According to the Aberdeen Group, AP automation translates to about 18% fewer days payable outstanding (DPO), which equates to a savings of about 5.55 days. And data from APP2P Network found that while the average monthly cost to process 5,000 invoices manually is $64,500, automating that process would cost about $8,850 — roughly an 85% savings. With the time savings created by invoice automation, you are able to reallocate AP resources to higher value activities – like spend analysis.
2. Improved Accuracy
AP automation software is designed to protect you from some of the most common errors that can occur when you’re manually entering data. Instead of keying in invoice headers or individual line-items manually, it will automatically capture this data with a high level of accuracy. Regardless of whether a new invoice is captured automatically or created manually, the AP automation system should compare it with existing invoices to automatically flag any duplicates and prevent it from being paid twice.
3. Better Invoice Storage
Without automated invoice management, AP teams would store invoices in various inboxes or file share systems, often using complex folder structures to indicate stages. Some businesses even maintain physical copies of invoices, which takes up expensive office space. When preparing for an audit, searching for these invoices and approval dates can be a nightmare. With AP automation, all invoices are stored in a single location and organized by date, vendor, amount, approval status, and payment status. This means that when preparing for an audit or responding to a vendor, businesses can easily look up a payment by its invoice number and view where it is in its lifecycle. Improving your business’s invoice storage will lead to enhanced visibility and optimized cash flow.
4. Early Payment Discounts
Many vendors offer discounts for early payments, and yet according to PayStream Advisors’ AP & Working Capital Report, 31% of respondents said, manual invoice routing got in the way of early payment discounts. Automated invoicing provides you with the speed and payment accuracy necessary to take advantage of any available discounts as well as cash-back rebates from making virtual card payments.
Ready to Automate Your AP Processing?
Automating your invoice management process saves you time, money, and the headaches that are associated with doing it in a traditional, manual manner. It not only improves supplier relationships and cash flow, but also enhances your business processes and provides more visibility and centralized control over the whole AP process.
With MineralTree, we can streamline your entire AP workflow— from invoice capture to payment execution. Get in touch with us today to see if MineralTree’s industry-leading automation solution is right for your business!