Maximize efficiency with invoice processing: A guide to AP automation and best practices

Invoice processing: definition and guide

Invoice processing is a critical aspect of accounts payable, involving the receipt, verification, and payment of supplier invoices. 

It ensures that businesses can fulfil their financial obligations accurately on time. A broken invoice processing system leads late payments, which not only incurs penalties and disrupts cash flow but can also harm relationships with your suppliers. They may lose trust your organization’s reliability, potentially leading to strained partnerships, disrupted supply chains, downgrades to your credit agreements with your suppliers, and a damaged reputation. Efficient invoice processing there essential to maintaining smooth business operations and strong supplier relationships. In this article, we’re going back to basics to explain what it is and how to do it in a way that maximize its strategic value to your business (and that optimizes your working capital availability and throughput).

What is invoice processing?

Invoice processing is a multi-step workflow that handles supplier invoices from receipt to payment. It ensures you’re meeting all your financial obligations accurately and that invoices are validated to prevent fraud, vendor-side errors, and to ensure compliance. 

When done correctly, invoice processing ensures that you make payments on time, avoid late fees, and maintain strong relationships. It also improves cash flow management and financial planning by helping you maintain an accurate picture of your current and upcoming obligations and present cash reserves. 

Efficient invoice processing is vital for maintaining business operations and fostering trust with suppliers.

What is the invoice processing workflow?

The invoice approval workflow typically involves several key steps:

 1.    Invoice receipt: your AP department receives the invoice, either electronically in one of a number of different formats, or in paper form.

 2.    Invoice verification: AP checks the invoice for accuracy, ensuring it matches the purchase order and goods or services received. This includes verifying quantities, prices, and any applicable taxes.
       2a. Fraud prevention: any discrepancies between invoice and existing records will usually be flagged for a check with the supplier, or as an indication of potential fraud.

 3.    Posting: Your AP team “posts” the invoice to your accounting system and codes it with the appropriate account numbers, cost centers, and project codes to ensure correct allocation.
      3a. Conversion: if necessary, AP will convert invoices in non-standard formats to match the requirements of your systems.

 4.    Approval routing: AP sends the invoice to the relevant managers or authorized personnel for approval. This step may involve multiple levels of approval depending on the amount or type of expense.

 5.    Approval: The relevant authorized people confirm that the goods or services were received as expected and that the invoice is accurate.

 6.    Payment scheduling: Once approved, the invoice is scheduled for payment according to the company's payment terms and supplier agreements.

 7.    Payment processing: Your AP teams process the transaction, either through electronic transfer, check, or other means, and mark the invoice as paid in the accounting system.

 8.    Recording: The invoice is filed for record-keeping and future reference, ensuring compliance with audit requirements and company policies.

What is automated invoice processing?

The above might sound like a straightforward set of actions. But in reality, it can be anything but. 

If your AP team processes invoices manually, almost every step in this process allows simple keying errors to create huge delays and costs later on. Especially in a world where everyone’s producing their own invoices (in printed letters, PDFs, Word documents, Excel sheets, plain text emails, HTML files, specialized accounting portals and so on). The need to manually enter and re-enter data, send invoices out for approval via multiple emails or messages, and then ensure correct data’s entered into payment files and archived properly all represent a cost in terms of time and resource that could be spent more productively elsewhere. When you factor in the possibility for paper trails to go cold, or simply get overlooked in the face of hundreds of other requests for payment, the situation only gets bleaker. And when you consider the implications of all this on fraud detection, it becomes downright dangerous. A simple slip up in your AP team – or by any of your approvers – can be the difference between catching a fake invoice and letting it through. And when you’re handling thousands of inbound invoices through dozens of separate processing steps over the course of a financial period, slip ups are something you can’t really avoid.

Fortunately, most of the steps in the invoice processing workflow are simple yes/no operations. The kind of task automation software is perfectly suited to pick up so your teams can worry about other things.

Automating invoice processing the benefits and how it works

Automating your invoice processing workflows can revolutionize your accounts payable department by eliminating the majority of the work your teams have to do to get a single invoice over the line. At Serrala, we’ve found that our customers can achieve auto-posting rates close to 100%, and straight-through invoice processing in over half of cases. This translates to cutting around 80% of the manual work out of the process, and also cuts the cost of processing each individual invoice by anywhere from 50% to 60%.

This is made possible thanks to a unified, standardized process through which all invoices pass on their journey to payment – based on a centralized system for data storage, tagging, and retrieval. Automated checks and flagging also make for better fraud prevention (because unlike humans, AI never gets tired). Automatic data scraping and categorization makes the process of preparing data for reporting, auditing, and analysis completely “hands-free” from the point of view of the user. 

There’s no need for paper (unless you’re using your phone to capture a paper invoice for automatic tagging and posting) and no need to staff up rapidly to meet invoice processing demand. Meaning your organization can scale more rapidly without costing you more for people, and without costing your people more.

How invoice processing software enables automation

There are two things software can do to enable automation:

 1.    Simplifying data structures: the fewer times your teams have to manually enter the same data into different systems, documents, emails, and the like, the smoother their workflow will be. By providing a single platform in which all invoice data can be viewed and modified – and all steps of the process actioned or sent out for action – you eliminate most of the manual work your teams have to do. This is the first step of automation and often the least appreciated, because to an outside observer, not much is actually being “done”. But to the end-user, and the whole organization, the benefits are quickly felt in terms of saved time, reduced costs, and improved productivity.

 2.    Handling tasks: most invoice processing tasks are simple, logical, and performed according to “yes/no” rules. These can easily be taken over by computers, which are perfect for performing simple, logical operations according to “yes/no” rules. Invoice processing software (like our own AP automation solutions) can be adjusted to perform most of the relevant workflow according to an organization-wide set of rules dictated by all the stakeholders in your procure-to-pay (P2P) cycle. And what’s more, these rules can even include automatically flagging individual cases for human oversight – such as exception handling (like out-of-policy approval) or fraud checks. 

Okay – but where does e-invoicing fit into this?

“E-invoicing” is exactly what it sounds like – generating and sending invoices in particular electronic formats so as to make them more easily machine read (and suitable for automated processing). 

There are dozens of different ways to do this, but e-invoicing has become more relevant in recent years as governments worldwide impose “mandates” to standardize e-invoices for compliance with tax regimes. This represents another layer of complication for your AR and AP teams, who will both have to skill up to (a) generate appropriate invoices for you and (b) be able to manage e-invoices correctly to stay compliant.

Fortunately, mature AP automation and invoice processing software solutions have been working to address these changes for some time. Helping you manage the transition seamlessly and without undue stress or increases to your teams’ workloads. 

How can Serrala help you with invoice processing automation?

Serrala AI-powered solutions are designed to create a coherent, end-to-end ecosystem for your procure-to-pay processes that simplifies your accounting workflows and allows for full working capital optimization. Our AP automation platforms help to eliminate as much as 85% of manual work from the invoice processing workflow, have helped organizations achieve high rates of straight-through automated processing, and reduced their overall costs per invoice by as much as 60%.

To learn more about how we can help you navigate AP digital transformation and revolutionize your approach to accounts payable – and how our solutions can streamline and automate every part of the process for greater efficiency, transparency, and decision velocity, check out our resource pages  or book a demo.