Improving the invoice management process
Effective invoice management is the foundation of an organization’s financial health and efficiency. As a crucial component of the accounts payable (AP) workflow, the invoice management process ensures that invoices are accurately and promptly recorded, approved, and paid, directly impacting cash flow and supplier relationships.
By digitizing and automating tasks such as invoice capture and payment scheduling, finance teams can streamline their AP operations while minimizing errors and gaining visibility into their financial health.
Key takeaways
- The invoice management process typically includes four steps: invoice receipt and capture, invoice approval, payment authorization, and payment execution.
- Effective invoice management can help organizations gain visibility into cash flow, maintain strong relationships with suppliers, and boost efficiency in the finance department.
- Digitizing and automating the entire AP process enhances an organization’s invoice management process by improving efficiency, visibility, and accuracy.
What is invoice management?
Invoice management refers to an organization’s approach to handling incoming invoices from suppliers. It covers the entire life cycle of an invoice, from receipt and capture to approval and payment. An effective invoice management process helps organizations record, approve, and pay invoices on time, which supports financial health and supplier relationships.
What is traditional invoice management?
Traditional invoice management involves manual processes, including receiving and filing paper invoices. Teams must also ensure that invoice data is accurate and follow up with decision-makers to get approval for these purchases.
Traditional invoice management is time-consuming and costly. The accounting shortage can further exacerbate this challenge if companies don’t invest in digital workflows.
The challenges with traditional invoice management
There are several challenges that are associated with traditional invoice management, including:
- Manual processes: Manual processes become a roadblock for companies looking to productivity in their finance department. These processes can also reduce visibility into payment status, resulting in duplicate payments or frustrated suppliers.
- Human error: Manual processes are more prone to human error, which can lead to security issues, late payments, and strained vendor relationships. These mistakes can be costly for organizations to address and fix.
- The accounting shortage: The US is facing an accounting shortage, so companies are forced to do more with less. However, 58% of organizations that have embraced AP automation noted that they have been able to increase or maintain the amount of invoices processed without additional staff.
What is automated invoice management?
Automated invoice management is the process of digitizing processes associated with paying invoices. Automation reduces errors made in the invoice payment process while streamlining workflows for employees. As a result, companies can better allocate company resources to more strategic tasks.
What steps are involved in invoice management?
The main steps in the invoice management process include:
1. Invoice receipt and capture
The first step in the invoice management process involves receiving and capturing invoice data. You can do this manually or through automated invoice capture solutions that extract data from invoices and input it into your AP system.
2. Invoice approval
After capturing invoice data, it needs to be routed to the appropriate reviewers for approval. The invoice approval workflow typically involves multiple stakeholders but can be streamlined through automation for more timely reviews and approvals.
3. Payment authorization
After approval, the invoice moves to the payment authorization stage. Here, you can verify the invoice details and authorize the payment, ensuring compliance with internal controls and budgetary constraints.
4. Payment execution
The final step in the invoice management process is the execution of the payment. You can make payments using various methods, such as electronic funds transfer, checks, or your suppliers’ preferred payment options. Automating this step is crucial for ensuring payments are timely and accurate.
Why invoice management is important
Effective invoice management is crucial for several reasons, from gaining insights into cash flow to improving efficiency across your financial operations. Successfully managing invoices can make employees more productive while reducing mistakes.
Additionally, many CFOs are prioritizing digital transformation across their organizations, with many companies noting accounts payable as their number one priority to automate due to its manual nature.
Benefits of automated invoice management
There are several benefits to automating invoice management. Keep scrolling to find out what they are.
Better insights into cash flow and forecasting
A streamlined invoice management process provides better visibility into your cash flow. By accurately tracking invoices and payments, you can forecast your financial needs more effectively, avoid cash shortages, and optimize working capital.
Stronger relationships with suppliers
Timely and accurate payments foster trust and reliability in supplier relationships. According to MineralTree’s 8th Annual State of AP Report, 86% of finance leaders believe vendor relationships have grown in importance over the past year. Consistently delivering on-time payments to suppliers helps strengthen these partnerships, which can lead to better terms and cooperation in the future.
Increase efficiency
Streamlining the invoice management process reduces manual errors and administrative burdens, allowing team members to focus on more strategic tasks. Efficiency gains in accounts payable can also lead to faster processing times and reduced operational costs.
Reduce fraud
The right invoice management system will automatically cross-check invoice information against vendor data. This extra layer of control can help protect companies from various payment schemes, such as invoice fraud and vendor fraud.
Bad actors are getting increasingly sophisticated and leverage different fraud schemes to steal funds from companies. In fact, 80% of organizations noted that they experienced fraud attacks or attempts in 2023, which is 15% higher than the previous year. In cases where fraud is successful, 30% of organizations said that they couldn’t recover lost funds. Invoice management tools can make internal controls stronger, while mitigating loss related to fraud attempts.
Improve audit readiness
Audits are a time-consuming and expensive endeavor. The more prepared organizations are for these processes, the more quickly they can be facilitated. Invoice management systems make it easy to access important information without manually sifting through files and emails.
Enhance scalability
Automated invoice management makes it easier for businesses to scale their accounts payable workflow. As a result, team members can spend more time on strategic initiatives such as payment optimization and AP analytics.
6 best practices for improving invoice management
You can significantly improve your organization’s invoice management process by digitizing and automating key tasks. Below are six best practices you can implement today.
1. Focus on accurate data and invoice capture
Accurate invoice capture lays the groundwork for effective invoice management. Implementing automated solutions enables you to extract invoice data accurately, reducing errors and speeding up the process.
By eliminating manual data entry during invoice capture, these solutions increase efficiency and allow your team to focus on higher-value tasks. Additionally, automated invoice capture provides real-time visibility into the status of invoices, enhancing your ability to manage cash flow and make informed financial decisions.
Did you know? MineralTree’s invoice capture tool combines optical character recognition (OCR) with human review to achieve an accuracy rate of over 99%. This dual approach is far more accurate than using OCR alone while still faster than relying solely on human reviews.
2. Digitize the process
Moving from manual, paper-based processes to digital invoice management significantly enhances efficiency. Digital invoices are easier to store, track, and process, reducing physical storage needs and minimizing the risk of lost documents. Digitization also improves accessibility, allowing your team to retrieve and manage invoices from anywhere. As a result, you can foster a more flexible and responsive AP process.
3. Integrate with your ERP system
Integrating your invoice management system with your ERP system creates a more seamless workflow by eliminating data silos. Bi-directional sync supports a seamless data flow between the two systems, maintaining a single source of truth and reducing data discrepancies.
This integration also improves data accuracy and provides real-time visibility into your financial operations, enabling better decision-making and more efficient resource management. Additionally, it simplifies reporting and compliance efforts, ensuring all financial data is up-to-date and readily accessible.
4. Make documents easily accessible
An effective document management system stores files in a centralized location, enabling authorized personnel to easily access the documents they need to complete their jobs. These systems improve transparency and allow quick resolution of any disputes or queries related to invoices.
By centralizing document storage and enabling secure access, document management systems enhance collaboration across departments and ensure compliance with regulatory requirements. These benefits ultimately cultivate a more efficient and accountable AP process.
5. Schedule payments in advance
Certain tools allow you to schedule payments in advance, making it easier to pay vendors on time and in their preferred format. This proactive approach helps maintain good supplier relationships and avoid late payment penalties. Scheduling payments in advance also aids in better cash flow management by allowing you to plan and allocate funds more effectively, ensuring financial stability and predictability.
6. Invest in AP automation
End-to-end AP automation streamlines invoice management, from invoice capture to payment execution. Automation reduces manual intervention, minimizing human error and enhancing efficiency.
AP automation provides real-time insights into your financial status, enabling more accurate forecasting and strategic financial planning. Strategic investments in AP automation solutions ultimately free up your team’s time to focus on value-added tasks, driving productivity and growth.
Case study: Simple Mills supports high invoice volume with automation
Simple Mills, a company known for its clean and nutrient-dense snack foods, experienced significant growth in 2020. However, as the organization scaled, its legacy AP system could no longer support its growing volume of invoices.
A lack of invoice approval hierarchies necessitated tedious manual work. Meanwhile, the company’s AP system could not integrate with its ERP system, leading to challenges with bill syncing.
By implementing MineralTree’s AP automation solution, Simple Mills streamlined its AP processes, reduced manual work, and improved payment accuracy and timeliness. The adoption of MineralTree alleviated the burden on Simple Mills’ finance team and enhanced the organization’s financial efficiency and productivity through automation and seamless ERP integration.
Final thoughts
Improving your invoice management process is crucial for maintaining financial health and operational efficiency. You can transform your AP operations by prioritizing best practices such as accurate data capture, digitization, ERP integration, and automation. MineralTree’s comprehensive AP automation solution can help you achieve a seamless and efficient invoice management process with the flexibility to scale as your business grows. Learn how MineralTree can help. Request a demo today!
Invoice management FAQs
Tl;dr? If you’re short on time the frequently asked questions below provide a quick snapshot of what you need to know about invoice management.
1. What challenges exist in invoice management?
Invoice management introduces several challenges, including manual data entry errors, delays in approvals, a lack of visibility, and compliance issues. These obstacles often result in late payments, strained supplier relationships, and inaccuracies in financial reporting.
2. How does invoice management work?
Invoice management involves several key steps: receipt and capture of invoices, approval routing, payment authorization, and execution. First, an organization receives invoices and captures the data, either manually or through automated systems. The organization then routes the captured invoices to the appropriate personnel for approval, ensuring all necessary checks are completed.
Once approved, the invoices are authorized for payment so the organization can execute the payment through its chosen method, such as electronic funds transfer or checks. Automation and ERP system integration streamline these steps, enhancing accuracy, efficiency, and overall control of the process.
3. What is invoice management software?
Invoice management software automates the entire process of handling invoices. Most solutions include features for invoice capture, workflow automation, payment processing, and integration with other financial systems. The right invoice management software helps organizations reduce manual efforts, improve accuracy, and ensure timely payments.
4. How long does it take to implement an automated invoice management system?
Invoice management tools should be able to be easily implemented with minimal support required. In fact, some MineralTree clients have implemented TotalAP in as little as 12 days.
5. How does the system integrate with existing financial software?
When choosing an AP automation or invoice management tool, it’s important to understand the solution’s integration capabilities. Each tool will offer different integration options.
Many invoice management tools, such as MineralTree, offer direct API integration with ERP systems, such as Sage Intacct and NetSuite. However, not all integrations are created equally. It’s important to look for a solution that offers a true bi-directional sync so that both systems remain up-to-date with the latest information and data.
6. What kind of training is required for employees?
Training will be dependent on the invoice management system chosen. Due to MineralTree’s inutitive design, very minimal training is required for end users.
