Invoice Processing Software: What it is and Why Use it
If there’s one lesson that businesses of all sizes have learned over the past several years, it’s that their supply chain matters. Processing the invoices submitted by suppliers on-time and accurately is crucial to strengthening supplier relationships and avoiding potential supply chain issues.
But many businesses manually process supplier invoices, leading to delays in payment processing.
Invoice processing software streamlines the accounts payable (AP) process, automating routine tasks, and improving efficiency. In this article, we will explore what invoice processing software is, the benefits it provides, and how to choose the right invoice processing software for your business.
Challenges with manual invoice processing
Manually processing supplier invoices creates significant challenges for businesses of all sizes.
- Time consuming: Manually processing invoices can be a time-consuming process, potentially resulting in late payments, missed opportunities to capture early payment discounts, and calls and emails from suppliers inquiring about the status of their payment.
- Duplicate or erroneous payments: Manual data entry can lead to errors, such as transposing numbers or entering incorrect information. These errors can cause delays in processing invoices and result in incorrect payments to suppliers. Manual processes also make it harder to catch duplicate payments – cases where the same invoice was paid twice.
- Poor tracking: Manually tracking the status of invoices can be difficult, particularly if invoices are submitted through different channels or to recipients working remotely.
- Inadequate visibility: Manual invoice processing cannot provide real-time visibility into invoice data, which can make it difficult to manage cash flow and predict future expenses.
- Lack of standardization: Paper invoices can be submitted in different formats and with different levels of detail, which can make it challenging to optimize the invoicing process.
- Increased risk of payment fraud: Manual invoice processing does not provide the controls or tracking required to prevent fraudulent invoices from being submitted and processed.
These are some of the reasons that more organizations are deploying invoice processing software.
What is invoice processing software?
Invoice processing software is a technology that automates the AP process by electronically capturing, processing, and posting the invoices submitted by suppliers. The software extracts relevant header and line-item information from the invoices, such as the supplier’s name, the remittance address, the invoice due date, the total amount due, and unit prices. The software then matches the captured invoice data with any corresponding purchase order and receipt data residing in the buyer’s enterprise resource planning (ERP) application or accounting software. Matched invoices are posted directly to the buyer’s ERP or accounting software, while unmatched invoices are digitally routed for approval.
Invoice processing software can be an on-premises or cloud-based solution, depending on a buyer’s business requirements. On-premises solutions are installed on a buyer’s servers and require IT staff to maintain and update the software. Cloud-based solutions, on the other hand, are hosted on the solutions provider’s servers, and users can access them through a web browser or mobile application.
What technologies does invoice processing software use?
Invoice processing software uses a combination of technologies to automate AP.
Some of the most common technologies used in invoice processing software include:
- Optical character recognition (OCR): OCR technology is used to extract text from scanned or digital invoices. This allows the software to automatically recognize key information such as invoice number, due date, the amount due, and supplier name.
- Machine learning (ML): ML algorithms are used to learn patterns and rules from large sets of invoice data. This enables the software to automate the capture of invoice header and line-item information, identify errors, and categorize invoices by supplier or expense type.
- Robotic Process Automation (RPA): RPA tools are used to automate repetitive manual tasks such as data entry, invoice matching, and approval routing. For instance, RPA can help bridge systems that are not connected, accelerating the invoice processing workflow.
- Electronic Data Interchange (EDI): EDI is a standardized format for exchanging business documents electronically. Many invoice-processing software solutions support EDI, allowing invoices to be exchanged seamlessly between different systems and partners.
- Cloud computing: Modern invoice processing software solutions are offered as cloud-based or cloud-native services, which provide scalability, flexibility, and cost savings compared to traditional on-premises software. Cloud-based and cloud-native solutions also offer real-time visibility into invoice status and payment processing, no matter where staff works.
Together, these technologies digitize and simplify the invoice processing workflow.
What benefits does invoice processing software provide?
Automating the processing of supplier invoices provides tremendous benefits to AP departments.
- Improved efficiency: Invoice processing software automates many of the manual tasks involved in accounts payable, such as keying invoice data, shuffling paper and emails, fixing errors and mistakes, chasing down information, and responding to inquiries from suppliers.
- Cost savings: By eliminating time-consuming manual tasks, AP departments can reduce their operating costs and free up staff to spend more time on strategic activities.
- Increased accuracy: Automating the capture of invoice header and line-item data reduces the risk of errors that can create downstream exceptions and skew financial reporting.
- Enhanced visibility: Invoice processing software provides real-time visibility into the status of invoices, allowing users to quickly respond to inquiries and act on potential bottlenecks.
- Improved security: Invoice processing software safeguards sensitive data through audit trails, user permissions, a chain of custody assurance, and automated separation of duties.
It’s no wonder that automated invoice processing is a top priority of AP departments.
How to choose the best invoice processing software
There are lots of invoice processing solutions out there. Choosing the wrong one could set your AP department back. Here are some strategies for choosing the best invoice-processing software.
- Assess your needs: Selecting the best invoice processing software starts with evaluating your current process and identifying areas of improvement. Consider factors such as the volume of invoices, the number of suppliers, and the complexity of your purchase orders.
- Demand modern technology: Look for invoice processing software that has features such as OCR, ML, and digital workflows. Also, consider features such as mobile access and multi-currency support. And give extra weight to solutions that are cloud-based or cloud-native.
- Consider integration: Your ERP or accounting software is the financial nerve center of your business. Choose invoice processing software that can integrate with your existing systems seamlessly, to accelerate the delivery of information and improve reporting.
- Think user experience: Choose invoice processing software that is easy to use and intuitive. User-friendly software can help reduce training time and improve adoption rates.
- Evaluate security and compliance: Ensure that the invoice processing software you choose meets security standards such as SSL encryption, data backup, and access control.
These considerations will help ensure your AP departments achieves the full benefits of automation.
Now is the time to automate your invoice processing
Invoice processing software is an essential tool for AP departments that want to reduce overhead, improve efficiency, enhance visibility, and mitigate the risk of payment fraud. By assessing your business needs, looking for modern technology, ensuring integration, finding easy-to-use software, and evaluating the software’s security and compliance, a department can choose the best software.
If you are ready to learn more about automating your invoice processing, click here.