Organizing invoices and payments can be a daunting task if done manually. Find out how to keep track of invoices and payments through automation...
How automated invoice processing software can help save time and money
Businesses don't need to be stuck with manual data entry when it comes to preparing invoices. Choose the best automated invoice processing software to save time and money.
Especially as a small or medium-sized business, invoicing can cause quite a headache. Complex and manual invoice processing increase the risk of manual human errors and corrections, which result in delays in payments.
In these situations, late payments not only risk causing financial (and mental) stress, but also lead to a waste of time and resources directed to follow-ups and chasers for finance teams. Chasing a late payment is often another time-consuming and tricky process in itself, as your team has to be careful not to let this negatively impact the customer relationship.
In today’s article, we demystify invoices, invoice processing, and share more about automated invoice processing software and why an automation solution might be the thing you need to streamline your accounting processes.
What is an invoice?
As defined by Investopedia, an invoice is a time-stamped document that records a transaction between a buyer and seller.
Invoices record what product or service a business is providing, the unit cost, the total quantity of units purchased, payment terms, available payment methods, handling, tax changes, and other financial information such as early payment discounts, or additional charges for late payments.
Because they track the sale of your company’s goods and services, invoices help finance teams keep track of accounts payable.
They can come in the form of paper invoices such as receipts, or, in recent decades, in electronic form. To make invoicing more convenient, businesses tend to use invoice templates, with fixed fields to populate each time the need arises.
When should businesses issue invoices?
The short answer – invoices can be issued after the service has been provided, or the product has been delivered to your client. However, the long answer is: there are several options!
As a business, depending on the scope of product or service offered, and the standard protocols of your client, you can choose from invoicing in advance, invoicing on the spot at point of sale/business, or invoicing after your company has finished the job.
For businesses providing a regular, repeated service (such as, if you’re selling a subscription product), then you can invoice at specific intervals, setting up recurring monthly invoices for example.
In larger, expensive long-term projects, invoicing can be broken up into various milestones, where you invoice the client when you have completed different sections of the larger project.
According to IRAS, a good rule of thumb is to issue a tax invoice within 30 days from the time of supply of goods and/or services.
Receipt VS Credit note VS Debit note: Which should I issue?
In issuing an invoice, how do you tell which format suits your needs best? Here’s a breakdown of three key types, with more information on this IRAS page if you need it.
- Receipt: You issue a receipt instead of a tax invoice to non-GST registered customers. Read more about managing business receipts in our blog post.
- Credit note: You issue a credit note to correct a mistake such as invoicing goods at a standard rate when they should have been exempt, or to give your client credit in situations where goods were not supplied, charges were waived, or if goods and services were issued but terms of the contract were not fully met (i.e. defective goods your client accepts but wants a discount)
- Debit note: According to IRAS, you issue a debit note when you want to request payments for transactions where you do not charge GST, or to your suppliers from whom credit is due.
What is automated invoice processing?
Automated invoice processing involves getting the help of computers (leveraging machine learning and artificial intelligence) to automate manual data entry and other menial tasks in the invoicing process.
Also known as AP automation or e-invoicing (or electronic invoicing), this paperless process involves using invoice automation software to help you process your invoice data, extracting and filling in invoice data into an accounts payable system, saving your team the manual hours needed for data entry or matching price and purchase orders.
Manual VS automated invoice processing software
How different are manual and automated invoice processing? We outline the two different workflows below.
Manual Invoice Processing
- Invoice receipt and collection: Supplier manually generates an invoice for the work done or product sold, and sends it out to the customer.
- Data capture: Customer enters invoice data manually into the ERP system (accounting system). At this stage, a copy of the supplier’s invoice will also be scanned into the customer’s filing system for backup and audit purposes. The invoice will then be manually tagged in the system, matching it with the right supplier details.
- Customer reviews invoice data. It is often at this stage where bottlenecks appear, as if your customer is from a big company, the approval process may take longer due to more approvers and more complex approval workflows.
- With the invoice reviewed, scanned into the system and safely filed, the customer then approves the invoice.
- Once approved, the invoice is then paid by the customer
- Supplier uploads the invoice into invoice management software. Invoice capture scans and extracts data for validation, integration with your current procurement and accounting processes and systems, and matching of purchase orders and matching against goods and services provided. This uses technology like optical character recognition (OCR).
- Supplier sends out invoice
- The customer receives the invoice and confirms. With automation, at this stage, customers save time entering vendor details as automation software typically comes with auto-matching features. Approvers are also automatically notified that they have invoices to review and approve.
- Customer pays. Automate even this step for greater time savings. Automatic payments can be enabled through online payment platforms or expense management platforms like Spenmo, to ensure payment is made on time.
Why should businesses use automated invoice processing software?
You save time spent on manual processes.
Multiple rounds of approvals often require multiple emails and calls to involved approvers to remind them of their task at hand and also require potential retyping or rewriting of invoices when manual human errors are spotted.
With automation, the margin for human error drastically decreases, saving you time spent remedying it too.
Cut out unnecessary expenses incurred
Error checks and automatic matching helps to ensure money is sent to the correct supplier or vendor, and also helps to detect potential overpaying in cases where the invoice does not match the purchase order for example.
With automation, duplicate invoices can be spotted too, which prevents your business from double-paying due to a careless slip in cross-checking against the ERP system.
Increase employee efficiency
Agility is the name of the game.
Automaton brings you a smoother workflow, less headache for your finance teams, and an overall more competitive business. Employees can focus their time and resources on other parts of the business, helping to aid more growth and innovation.
With greater AP processing efficiency also means that your customers and vendors have a better experience in doing business with you, with timely payments and seamless processes leading to an overall stellar quality of service provided – which could go a long way in establishing and maintaining good customer relationships!
Compliance becomes a less complicated affair.
Automation software also helps ensure that backups of invoices are stored safely in the cloud, meaning that the seasonal scramble to locate documents for audits can be avoided. Being able to have real-time access to your finances also helps with the early detection of potential discrepancies.
How does automated invoice processing software help save time and money?
Prevent delay in payments
With accounts payable automation, you can access real-time visibility on your business’ cash flow, which allows you to track the status of the various pending invoices on your end. Automated payments also help ensure timely payment, saving you late payment penalties.
Prevents printing costs
Save money spent on paper and ink, and save the earth while you’re at it!
Reduce time spent by employees in preparing an invoice.
If you run a small business and are currently processing a couple of invoices a day, it might not be apparent how automating invoice processing helps you save time. However, taking a mid-to-long-term view, should your business scale and take on more clients, and/or expand in services/products, you may soon find your finance team faced with several hundred invoices to process, which would amount to a rather time-intensive task.
Why digitize your AP processes?
In today’s fast-paced, technology-driven world, automation enables you to keep up with the times and increase your team’s agility. As we’ve outlined, the benefits are aplenty, and the potential for pains eased too. In deciding on the best e-invoicing software for your business, be sure to research on costs, but also integrations with your existing software used.