In this article, we will explore what invoice processing is and its benefits for your business. We will also share our 8 step process for implementing invoicing systems. Read on to learn more.
Invoice processing is the series of actions a business undertakes to handle incoming invoices, from receipt to payment. This process includes verifying invoice details, approving payments, and recording transactions in the financial system.
Example: Every time Studio Creations Inc receives an invoice, their accounts departments follows their Invoice Processing SOP to accurately record the data from the invoice.
Use our 8 step processing system for invoices to streamline your workflow and improve efficiency. Simply follow the steps below.
The system receives invoices from various sources such as email, uploads, or direct integrations with vendor systems. These invoices are then queued for processing.
Example: An invoice for 50 units of Product A123 is received via email and uploaded to the system for processing.
The system extracts key data such as invoice number, date, vendor information, line items, quantities, and totals from the received invoices. This can be done using OCR (Optical Character Recognition) technology or integrated data formats.
Example: The system extracts data from an invoice for 200 units of batteries, identifying the vendor as "Tech Supply Co." and the total amount as $5,000.
The extracted data is validated against predefined rules and existing records to ensure accuracy and consistency. This step checks for errors such as mismatched totals or missing information.
Example: The system checks the extracted data from an invoice for 100 units of Airpods, confirming that the total matches the sum of the line items and that the vendor details are correct.
The system classifies the invoice data into appropriate categories such as expense type, department, or project code. This helps in organizing and streamlining the subsequent approval process.
Example: An invoice for 30 units of tarpaulin is classified under the "Marketing" department and assigned to the "Advertising" expense category.
The system routes the invoice to the appropriate personnel for review and approval based on predefined workflows. Approvers can view, comment, and approve or reject invoices within the system.
Example: An invoice for 80 units of envelopes is sent to the finance manager for approval, who reviews and approves it for payment.
Once approved, the system schedules and processes payments according to the company's payment terms and schedules. Payment details are recorded, and the vendor is notified.
Example: After approval, the system schedules a payment of $7,200 for 150 units of gadgets, to be processed within the next business cycle.
The system stores all processed invoices and related data for future reference and auditing purposes. This ensures compliance with regulatory requirements and internal policies.
Example: The system archives an invoice for 40 units of bottles, making it available for future audits and financial reviews.
The system generates reports and analytics on invoice processing metrics such as processing time, payment status, and expense categorization. These insights help in optimizing the process and managing cash flow.
Example: A report is generated showing that the average processing time for invoices like the one for 60 units of bags is three days, highlighting areas for potential efficiency improvements.
FreshFoods, a popular organic grocery store, wants to streamline its invoice processing to improve efficiency. Here’s how FreshFoods implemented our invoicing system for a shipment of Organic Honey:
The system receives invoices from various sources such as email, uploads, or direct integrations with vendor systems. For instance, FreshFoods receives an invoice for 300 units of Organic Honey via email and uploads it to the system for processing.
The system extracts key data such as invoice number, date, vendor information, line items, quantities, and totals from the received invoices. Using OCR (Optical Character Recognition) technology, the system extracts data from the FreshFoods invoice, identifying the vendor as "NutriHarvest Co." and the total amount as $1,800.
The extracted data is validated against predefined rules and existing records to ensure accuracy and consistency. For example, the system checks the extracted data from the invoice, confirming that the total matches the sum of the line items and that the vendor details are correct.
The system classifies the invoice data into appropriate categories such as expense type, department, or project code. The invoice for 300 units of Organic Honey is classified under the "Inventory" department and assigned to the "Food Products" expense category.
The system routes the invoice to the appropriate personnel for review and approval based on predefined workflows. For instance, the invoice for 300 units of Organic Honey is sent to the finance manager for approval, who reviews and approves it for payment.
Once approved, the system schedules and processes payments according to the company's payment terms and schedules. After approval, the system schedules a payment of $1,800 for 300 units of Organic Honey, to be processed within the next business cycle.
The system stores all processed invoices and related data for future reference and auditing purposes. For example, the system archives the invoice for 300 units of Organic Honey, making it available for future audits and financial reviews.
A report is generated for FreshFoods showing that the average processing time for the invoice of 300 units of Organic Honey is three days, highlighting areas for potential efficiency improvements.
Implementing a system for processing invoices is beneficial for businesses for a number of reasons. Some of the most common benefits include:
An invoice system automates the manual tasks involved in handling invoices, reducing the time and effort required. This leads to quicker approvals and payments, improving cash flow and vendor relationships.
By automating data entry and validation, a processing system minimizes human errors. This ensures that all invoices are correctly processed, preventing overpayments and duplicate payments.
Automating invoice processing reduces the need for extensive manual labor, lowering operational costs. Additionally, it can help avoid late payment penalties and take advantage of early payment discounts.
This system provides real-time tracking and reporting of invoice statuses. This improves financial transparency and allows better management of company expenditures.
Such systems ensure that all invoices are processed in compliance with company policies and legal requirements. They also maintain accurate and accessible records for audits and financial reporting.
We hope that you now have a better understanding of what invoice processing is, its benefits for your business, and how to use our invoicing system.