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Invoice Automation: Process, Benefits, How to Automate Invoice Processing

By Athena Rebello

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Updated on: Dec 11th, 2023

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8 min read

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Navigating the financial operations of a business often involves managing countless paperwork and processes, where efficiency is paramount. Here, automated invoice processing emerges as a game-changer, transforming the old-school accounts payable routine into a smooth, tech-led process. 

What is Automated Invoice Processing?

Automated invoice processing is the use of software to enter, process, and manage invoices received by a company from its suppliers or vendors. Instead of manually entering data, sorting paper trails, and physically routing invoices for approvals, this digital approach takes over the mundane tasks. It's a system where software scans invoices, extracts necessary details, and processes and tracks payments with minimal human input. 

How Does Automated Invoice Processing Work?

The operation of automated invoice processing unfolds in a series of steps:

  • Invoice Receipt: The process begins when an invoice arrives, either electronically or on paper. If it’s a paper invoice, it’s scanned into the system; if it’s electronic, it’s automatically imported.
  • Data Capture and Entry: Using Optical Character Recognition (OCR) technology, the system reads and extracts data such as vendor details, amounts, dates, and purchase order numbers from the invoice.
  • Matching and Verification: The software then compares the invoice data against purchase orders and goods receipt notes to ensure that the charges are accurate and the goods or services were received.
  • Approval Workflow: Once verified, the invoice is routed through a predefined workflow for approvals. Approvers receive notifications to review and approve invoices, with the system tracking every action.
  • Payment Processing: Approved invoices are then queued for payment according to the payment terms agreed upon with each vendor. Automated alerts are sent by the system whenever a payment is approaching the due date, eliminating any chances of late payments and interest fees.
  • Record Keeping: After payment, the invoice information is stored in the company’s financial system for record-keeping and future reference.

How Does Automated Invoice Processing Help in Invoice Management? 

Automated invoice processing streamlines invoice management by leveraging software to handle tasks that would typically require manual effort. This innovation means invoices are received, sorted, tracked, and paid with minimal human intervention. The key benefits include

  • Efficiency and Speed: Automation speeds up the entire invoice management cycle. With data entry and extraction automated, the processing time per invoice is drastically reduced, allowing accounts payable teams to handle a higher volume of invoices without a corresponding increase in errors or staffing.
  • Cost Reduction: By minimising manual tasks, automated invoice processing significantly cuts down on labour costs. The reduced need for physical storage, printing, and paper supplies also contributes to cost savings.
  • Data Accuracy: One of the most compelling advantages is the reduction in human errors. Automated systems ensure that data is accurately captured and recorded, reducing the risks of duplicate payments, overpayments, or incorrect data entry.
  • Enhanced Visibility: Managers gain real-time visibility into the status of invoices and the overall cash flow. This transparency is crucial for financial forecasting and decision-making.
  • Compliance and Control: Automated systems are configured to comply with tax laws and regulatory requirements, reducing the risk of non-compliance. Moreover, the system maintains a detailed audit trail for each invoice, enhancing control and simplifying audits.
  • Supplier Relationships: Prompt and accurate payments improve relationships with suppliers. Automated invoice processing often includes vendor portals, where suppliers can submit invoices, track the status of payments, and communicate with buyers, fostering transparency and trust.
  • Early Payment Discounts: Automation fosters faster invoice processing, thereby also leading to faster payments and the opportunity for leveraging early payment discounts.  
  • Strategic Resource Allocation: With automation handling repetitive tasks, the finance team can focus on more strategic activities like cash management, spend analysis, and identifying cost-saving opportunities.

How To Automate Invoice Processing

Implementing an automated invoice processing system is a multi-step process that requires careful planning and execution:

  • Evaluate Needs and Set Objectives: Understand the specific needs of your invoice management process. Identify the pain points in your current system and set clear objectives for what you want automation to achieve.
  • Choose the Right Software: Pick software that integrates smoothly with the system you have in place and is aligned with what your business does. Consider how many invoices you deal with, the complexity of your workflows, and if you might need to expand later.
  • Plan the Implementation: Create a clear plan that outlines schedules, financial plans, the architecture of the system, and how you'll blend it with current processes. Make sure the important people in your team agree and understand their jobs during the transition. 
  • Customise and Configure: Work with the software provider to customise the system to your company's processes. Set up approval hierarchies, invoice matching rules, and payment terms.
  • Data Migration: Migrate existing invoice data to the new system. Ensure that historical data is accurately transferred and that the new system is fully populated with vendor information and past invoice records.
  • Train Staff: Conduct comprehensive training sessions for all users. Ensure that everyone understands how to use the new system and is comfortable with the automated processes.
  • Go Live and Monitor: Launch the system and monitor its performance closely. Be prepared to address any issues and make adjustments as needed.
  • Continuous Improvement: After implementation, continuously seek feedback and use it to improve the system. Keep an eye on new technology developments that could enhance your invoice processing even further.

Frequently Asked Questions

What is invoice automation, and how does it work?

Automated invoicing software digitally captures, processes, and manages invoices. It works by scanning invoices, extracting data, matching it with purchase orders, and facilitating electronic payments.

What are the benefits of implementing invoice automation?

Benefits include enhanced efficiency, reduced processing costs, fewer errors, faster payment cycles, improved vendor relationships, and better cash flow management.

How can invoice automation improve accuracy in financial processes?

It enhances accuracy by using technology to eliminate human errors in data entry, ensuring consistent processing and validation of invoice information.

What types of invoices can be digitised using invoice automation software?

Most invoice types, including paper-based, PDF, and electronic formats, can be digitised by using invoice automation software, using technologies such as OCR (Optical Character Recognition).

What are the key features to look for in an invoice automation solution?

Key features include OCR for data capture, electronic workflow for approvals, ERP integration, real-time reporting, and compliance management tools.

How can invoice automation help in reducing manual data entry errors?

By automating data capture and validation, invoice automation reduces the risk of typos, duplicates, and misplaced decimal points that can lead to significant discrepancies.

Is invoice automation suitable for businesses of all sizes?

Yes, invoice automation is scalable and can be customised, making it ideal for businesses ranging from small startups to large multinational corporations.

What security measures are in place to protect sensitive financial information with invoice automation?

Most systems include encryption, access controls, audit trails, and adherence to regulatory standards to ensure the protection of financial data.

About the Author

A Chartered Accountant by profession and a writer by passion, my expertise extends to creating insightful content on topics such as GST, accounts payable, and invoice discounting.. Read more

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