6 Invoice Processing Best Practices to Consider for Your Organization

Processing invoices is one of the most challenging aspects of an accounts payable (AP) team’s job.

Manual data entry, approval delays, misplaced invoices, and the pressure to avoid errors while ensuring timely payments can overwhelm even the most seasoned AP teams.  At a time when AP is being asked to do more with less, it’s critical to find ways to optimize invoice processing workflows. 

This article explores the biggest challenges that AP faces and best practices for overcoming them. 

The Biggest Challenges with the Invoice Processing Cycle
Traditional approaches to processing supplier invoices create major challenges for AP departments. 

• Manual data entry.  Manually entering the header and line-item details from invoices is time-consuming, error-prone, and labor-intensive.  With each keystroke, there’s a risk of mis-keying important details like the due date, the invoice amount, or the purchase order (PO) number, leading to duplicate payments, overpayments, missed discounts and other errors.
  
• Inadequate visibility.  Without real-time visibility into the status of invoices, AP teams struggle to track where invoices are in the approval process.  This lack of transparency can cause bottlenecks, potentially delaying payments and damaging vendor relationships.
  
• Approval delays.  In a manual or semi-automated environment, invoices often get stuck in approval queues due to misrouted documents, slow response times from approvers, or lack of clear approval or escalation paths.  These delays slow down the entire process, leading to missed payment deadlines and lost opportunities to capture early payment discounts.
  
• Compliance risks.  AP departments must comply with internal policies, tax regulations, audit standards, and other rules.  Manual invoice processes can make it difficult to maintain a consistent, auditable trail for each invoice, increasing the risk of compliance issues.
• Paper-heavy processes.  Many AP departments still receive paper invoices, which creates inefficiencies in data entry, storage, and retrieval.  Paper processes also increase the risk of lost or misplaced invoices, leading to payment delays and potential disputes with suppliers.

Traditional invoice processing methods present significant hurdles for AP departments, often resulting in inefficiencies, delays, and increased risks.  Overcoming these obstacles requires a shift towards automation and better control to streamline processes and reduce the burden on AP teams.

Invoice Processing Best Practices to Follow
Optimizing your invoice processing is essential for reducing inefficiencies, minimizing errors, and ensuring timely payments.  Implementing automation and refining key processes are crucial steps in elevating the performance of your AP department.  Here are six best practices to consider:

1. Automate invoice data capture.  One of the most effective ways to reduce manual entry errors and speed up the invoice processing cycle is to automate the capture of invoice data.  Intelligent data capture solutions can scan and extract key details from invoices – including the supplier’s name, the invoice amount, and line-item details – without the need for manual input.  These technologies not only minimize errors but also significantly reduce the time spent on data entry.  Automating this process enables your AP team to process a larger volume of invoices in less time, improving overall efficiency.  Moreover, automation helps maintain data accuracy, reducing the risk of duplicate payments or mismatched invoices.
2. Implement digital workflows.  Transitioning from manual, paper-based workflows to digital ones can drastically cut down processing times and reduce human error.  With digital workflows, invoices are automatically routed to the appropriate approvers based on your pre-defined business rules.  This ensures that invoices are handled promptly and follow a consistent approval path, without getting lost or misrouted.  AP departments can also implement automatic escalations to ensure that overdue approvals are pushed through faster.  Additionally, digital workflows provide audit trails that track every step of the invoice approval process, ensuring compliance with company policies and external regulations.  By digitizing invoice approval workflows, AP departments gain better control over processing times and approvals, ensuring a smoother, more efficient process from start to finish.
3. Centralize invoice receipt and storage.  One of the common pain points for AP departments is dealing with invoices that come from multiple sources and in various formats (email, paper, electronic data interchange, supplier portal, etc.).  Centralizing the invoice receipt process ensures that all incoming invoices are aggregated in a single platform, regardless of the format in which they arrive.  This practice reduces the likelihood of misplaced or duplicate invoices and creates a single, unified repository for all documents.  A centralized, cloud-based storage system also makes it easy to search for and retrieve invoices during audits or vendor inquiries, saving time and increasing productivity.  When all invoices are captured and stored digitally in a centralized platform, AP departments gain better visibility over the entire invoice lifecycle and can track the status of invoices more easily.
4. Monitor and optimize KPIs.  Tracking and monitoring Key Performance Indicators (KPIs) such as invoice cycle times and exception rates is critical to identifying inefficiencies in your invoice-to-pay processes.  Regularly reviewing these metrics can provide valuable insights into bottlenecks or areas where improvements can be made.  For instance, if invoice approval times are consistently slow, it may indicate a need to streamline workflows or improve communication with approvers.  If invoice exceptions rate is high, you may need to revisit your purchase order (PO) matching rules or vendor data management practices.  Continuous monitoring of KPIs allows AP departments to take a proactive approach to optimization, ensuring that processes remain efficient and responsive to the needs of the organization.
5. Improve supplier communication.  Delays and vendor disputes often arise when suppliers are unaware of invoice submission guidelines or the status of payments.  By improving communication with your suppliers, you can prevent many of these issues from occurring in the first place.  A best practice is to implement a self-service supplier portal where vendors can check the status of their invoices and payments in real-time.  This reduces the number of inquiries and follow-up calls your AP team receives, freeing up their time to focus on more value-added tasks such as data analysis.  Clear, consistent communication with suppliers regarding the status of invoices and payments also helps maintain stronger supplier relationships and ensures that your organization remains a preferred customer.
6. Strengthen your internal controls.  It’s up to AP to maintain tight internal controls to prevent fraud and ensure compliance with company policies and regulatory requirements.  Automated invoice processing systems can strengthen internal controls with automated segregation of duties, systematic approval workflows, role-based access controls, complete audit logging, and advanced data encryption.  This ensures that only authorized personnel can approve invoices and payments, and that segregation of duties is enforced, minimizing the risk of fraud.  In addition, automated systems generate detailed audit trails for each invoice, making it easier to demonstrate compliance during audits and reducing the risk of non-compliance penalties.  Setting up these controls in an automated system also allows for more consistent application of approval policies and reduces the reliance on manual oversight.

By automating data capture, digitizing workflows, centralizing invoice storage, and monitoring KPIs, AP departments can improve their operational efficiency.  Strengthening communication with suppliers and enhancing internal controls further ensures a smooth and secure invoice processing experience.  Implementing these best practices will allow your AP team to process invoices faster, reduce errors, and focus on strategic initiatives that drive long-term success for your organization.

Introducing ibml’s Invoice Processing Software
ibml’s invoice processing software can help AP departments tackle the biggest challenges in the invoice processing cycle.  Here’s how ibml helps AP teams improve their operational performance:

• Automated data capture.  ibml leverages intelligent data capture technology to extract key data from invoices.  By automating the capture of the supplier’s name, the invoice amount, and other details, ibml reduces errors, saves time, and frees up staff for strategic activities.
• Configurable digital workflows.  With ibml, invoices are routed automatically based on an organization’s business rules, ensuring they reach the right approvers at the right time.  Customizable approval hierarchies and automatic escalations eliminate approval bottlenecks.
• Centralized invoice management.  All invoices are stored on a single, digital platform, providing real-time visibility into the status of each invoice.  AP teams can easily track where invoices are in the approval process, identify and resolve bottlenecks, and ensure timely payments, improving vendor relationships and capturing early payment discounts.
• Real-time analytics and reporting.  ibml’s reporting and analytics tools enable organizations to monitor metrics like cycle times and invoice exceptions.  These insights enable AP leaders to continuously optimize processes and drive improvements.
• Enhanced security and compliance.  ibml’s software includes built-in security features such as role-based access controls, automated segregation of duties, systematic workflows, and advanced data encryption to protect your sensitive financial data.  Additionally, complete audit trails ensure compliance with regulatory requirements and internal controls.

With ibml’s invoice processing software, AP departments can streamline their operations, reduce manual errors, and ensure more efficient workflows.  By automating data capture, routing invoices through configurable workflows, and providing real-time visibility and analytics, ibml enables AP teams to tackle their biggest challenges while maintaining full control over their financial data.

Conclusion
Manually processing the invoices submitted by suppliers can create inefficiencies, increase errors, and expose your AP department to compliance risks – all of which put a strain on your team.  By adopting best practices like automating data capture, digitizing workflows, centralizing invoice management, and tracking KPIs, you can address these challenges and optimize your processes.