What is Invoice Processing & What Key Steps are Involved? - Zeus Exports
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What is Invoice Processing & What Key Steps are Involved?

What is Invoice Processing & What Key Steps are Involved?

The number one chink in the chain of invoice processing is losing important documents you need to pay the vendor. This typically becomes an issue when a business is growing rapidly and has several different suppliers to pay, in a variety of ways. There must be a means of consolidating all of the paper copies, PDFs, word files, etc.

  1. In this article, we’ll look at the very basic system of invoice processing, what’s involved, benefits, pitfalls, and how to improve your entire accounts payable lifecycle.
  2. By some estimates, the average cost and time to process an invoice from start to finish is $10.18 and 10.9 days.
  3. Despite their differences, these two types of invoices require some form of approval or verification before being approved.
  4. During this stage, they can also generate and send an invoice to the buyer for the amount indicated on the purchase order.

Automation is encouraged here as 67% of accountants prefer to work through the cloud, meaning companies with remote workers also expect a smooth invoice approval workflow. An invoice approval workflow consists of all the steps that you need to follow to pay out, i.e., clear an invoice. A 2022 Webinar Care report shows that approximately 80% of companies that use an automated invoice system expect increased investments in the next three years. The workflow acts as a useful checklist that is used to ensure that you’ve done the necessary tasks before you can request a payable or payout on an invoice.

Who Is Involved in the Process

Precoro Blog is where Finance and Procurement professionals get advice, tips and news to streamline the business purchasing process. Choose thresholds above or below which https://business-accounting.net/ specific procurement procedures can be applied. After they’re identified, the invoice is sent to the relevant parties for resolution/correction of the discrepancy.

How long do you have to pay an invoice?

By some estimates, the average cost and time to process an invoice from start to finish is $10.18 and 10.9 days. By other estimates, that average is as high as $15 to $40 (per invoice!) and 45 days. An invoice approval includes reviewing and approving invoices before the payment is processed against them. Usually, the invoice approval process starts when the company receives a supplier invoice, which is then checked by the person in the organization who is responsible for buying that particular product or service. After verifying the invoice details, it is then forwarded to the accounting department.

What Are Some Common Mistakes Made in the Invoice Approval Process?

Automated invoicing software allows companies to sort its accounts payable according to the due date and generates report known as the aging accounts payable. Now that you have all the relevant information, it is time to do the formula to find out your cost per invoice. Multiply the number of people by the amount of time spent on each task by their salary to come up with a dollar value for how much the process cost per invoice. The following are steps an Accounts Payable department follows to process an invoice. Once you get an invoice, there’s a specific process that’s crucial to maintaining accurate financial records.

What is an invoice approval?

For companies, which are due a tax credit from its taxing agency, the amount of income tax payable will decrease. Income tax payable is a type of account in the current liabilities section of a company’s balance sheet. In this step, it is essential to establish a standardized system for handling and organizing invoices, such as creating designated folders or categories in your accounting software. This organization ensures that invoices can be easily located and tracked throughout the payment process, reducing the risk of misplaced or lost invoices. Delayed approvals can lead to a slew of financial issues, including missed discounts, penalties, and tarnished buyer reputations.

Small businesses might have one person handling the entire system while bigger businesses have dedicated accounting departments to look after invoicing. The important thing is to ensure there are no mistakes or discrepancies in numbers, even if you have a flexible workforce system. While SMBs use their finance person or a member of the admin team to process invoices, enterprises have a specific department called the accounts payable (AP) department to take care of the invoice approval process. In the past, the invoice approval process was sluggish, resulting in penalties and late payments. Then came email; where invoices are attached as a digital document and sent to a virtual inbox. Neither of these approaches is very productive, and both leave a lot of room for documents to get lost, misunderstandings to occur, or people to drag their feet.

These operational expense savings come from reduced labor costs, lower error rates, and improved cash flow management. To maintain strong vendor relationships and ensure the smooth functioning of business, finance teams must diligently manage the accurate and timely processing of invoices for payment. The invoice payment process involves the systematic steps followed to settle financial obligations by paying the amount specified in an invoice received for goods or services. The invoice approval process is used to ensure that all AP department staff follow the proper steps to get an invoice approved. Three-way matching ensures that all your relevant documents, i.e., the purchase order, receipts, and invoice have matching details. This saves you from fraudulent invoices and saves a lot of precious hours for the accounting department.

How to Improve Your Invoice Processing: Automation is the Key

For many companies, too many in fact in this day and age of digital transformation, the whole invoice approvals workflow process is still mired in email and paper handling. That puts a lot of unnecessary time and distance between invoices coming into a company, approvers finally reviewing them, and an invoice approval (or query) coming back down the line. Ultimately, effective invoice processing practices not only affect the bottom line, but they also play an instrumental role in shaping the strategic direction of a business. The resulting improved cash flows, reduced costs and enhanced vendor relationships come together to benefit all aspects of an organisation, positioning it for sustained success in an ever-evolving marketplace.

A well-functioning invoicing process can mean the difference between maintaining a healthy cash flow and dealing with the frustrations of late payments. Implementing a streamlined, automated invoice processing system mitigates the risks of manual errors and late payments, and it can also offer valuable insights into your business’s financial health. The calculation of income tax payable is according to the prevailing tax law in the company’s home country.

Cor360 Approval Workflow accelerates invoice processing by automatically routing every invoice electronically to the correct approver, significantly cutting the often massive delays of manual and paper-based processes. Faster invoice processing lets companies make invoice payments what steps should you take before approving an invoice for payment faster so they can seize early payment discounts, generate better payment terms, and lower the cost of doing business. A manual invoice approval process is not only time-consuming, it’s also expensive. High invoice processing costs are among the top challenges affecting AP teams.

Learn more about Tipalti’s invoice management and bill processing system for AP. If a business is still processing invoices manually, an orderly file system should be set up that makes it easy to retrieve bills. Always have several copies of the invoice in case there are any vendor discrepancies down the road.

When that happens, you lose the opportunity to take advantage of early payment discounts. In many cases, an invoice can be three-way matched and routed for approval within a day or two, only to spend the next two weeks in the approver’s in-basket. This is particularly important in departments where managers are responsible for ordering items and services. Invoices can arrive in your organisation through the postal system, email attachments or even still through fax. Invoices can be compiled in a document management system from multiple sources by importing directly from a scanner, storing directly from an email client or automatically pulling the invoices from a file folder. Storing invoices and receipts as digital files instead of hard copies saves you a lot of space.

A complete guide on purchase order process steps, the best optimization practices, and ways POs make a difference in your business operations and expenditures. For example, a user can approve all invoices in the Sales department and invoices up to $1000 in the IT department. But as mentioned before, there is a way to avoid these annoying pain points — by investing in invoice automation software. You can read more about how to choose the best solution for your business processes and overcome its adoption challenges in our blog post on SpendMatters. You can also set up monetary thresholds and smart notifications and assign backup approvers to ensure no document goes unnoticed while you’re away. This step applies only to non-original invoices, e.g., created from purchase orders.

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