February 3, 2023
What is Invoice Management Automation (And How to Get Started)
It doesn’t matter if you’re self-employed, a startup, or an established company; invoice management is an essential part of business. When it’s done manually, it can also be a time-consuming part. That’s why many businesses and professionals are turning to invoice automation.
We’ve put together this guide so that you can get to grips with invoice management and start automating your processes. Let’s start by explaining what we mean when we say invoice management.
What is invoice management?
Invoice management is the way businesses create, send, and track invoices. It’s a crucial aspect of financial management for companies and professionals. It helps ensure timely and efficient payment for your business and its suppliers. It’s also important for financial record-keeping.
Common invoice management tasks include; creating and formatting invoices, tracking payment status, issuing reminders and late fees, and resolving disputes or discrepancies. It’s usually handled by a company’s AP department, but it will also involve other parts of your business.
Good invoice management means keeping track of payments going into and out of your business. It means matching goods to purchases, chasing payments, and determining the cause of discrepancies. You can make all this considerably easier with invoice automation.
What is an invoice automation system?
As you might expect, it’s software that helps businesses automate various tasks related to invoice management. You can automate many of the common tasks we mentioned above to streamline your invoicing process.
Invoice automation systems are often integrated with other financial tools like accounting software. You can customize them to fit your business's specific needs and workflow. That makes them accessible for small and large brands alike.
Manual and automated invoicing compared
Before invoice automation systems, businesses had to rely on manual processes for invoicing. This often included manually entering data into spreadsheets, or printing and mailing invoices. As well as tracking payments and disputes through manual records and phone calls.
In contrast, invoice automation systems let businesses automate many of these tasks and functions. This can save time and reduce the risk of errors. Automated invoicing systems can create and send invoices online and track payment status in real-time.
They can also simplify the resolution of disputes through online communication and document management tools. Plus, they can issue automated reminders and late fees as needed. Let’s take a more detailed look.
What are the main problems with manual invoice processing?
The main issue with processing invoices manually is the time it takes. Matching purchase orders to invoices and receipts, then manually entering data is a time-consuming task. When surveyed by Levvel research, users of manual invoicing systems cited four main problems with them:
- Manual data entry
- Manual routing of invoices for approval
- Lost or missing invoices
- Large volumes of paper, invoices, receipts, and POs
Yet, the problems weren’t limited to those using manual systems. Many users who had older ERP systems in place reported issues, too. These users reported that their systems did not have a coherent invoicing integration. This meant their process was still paper intensive.
The benefits of automated invoice processing
There are several key benefits to using an invoice automation system which we detail below.
Faster payments and improved cash flow
Automated invoicing systems can help you get paid faster by allowing you to send invoices online. You can also track payment status in real-time and issue automated payment reminders.
This can improve your cash flow by reducing the time it takes to send and receive payments. Your financial forecasting will also improve with the benefit of real-time cash flow analysis.
You can reduce your reliance on paper, by creating invoices and sending them electronically. This can lower your costs and your environmental impact compared to paper-based invoicing. On top of that, you can improve efficiency by eliminating the need for manual data entry.
Using cloud-based accounting software that integrates invoicing can amplify this benefit. Not only do you eliminate paper across your accounts process, but you can also do away with the need for on-site server infrastructure. You can also turn the accounting services proposal into a cloud based process. If you want to know more about cloud-based accounting software, click here.
You can use your invoice automation system to streamline the process of tracking hours and paying employees. This makes payroll management easier and more efficient. You can save time and reduce the risk of errors, improving your financial management.
What AP automation users say
The aforementioned study Levvel Research, also surveyed multiple businesses using invoice automation. They found that the most commonly reported benefits of invoice management automation were:
- Accelerated approval cycles
- The elimination of paper
- Improved employee productivity
Users also cited a number of secondary benefits to their wider operations, including:
- Improved supplier relationships
- Simplified audits
- Reduced fraud and duplicate payments
Levvel concluded that businesses understand the benefits that automated invoicing can offer. They also noted that businesses generally view invoice automation as a chance to modernize their AP processes.
Emergent technologies supporting AP automation
Many organizations are putting new technologies like AI and machine learning to work in their back-end processes. Along with other innovations, these technologies are also developing in invoice management automation.
AI and machine learning (ML)
Artificial intelligence is already behind most invoicing management automation. Basic AIs are capable of processing and categorizing large amounts of data, so it’s this technology that invoicing systems rely on.
Machine learning is a component of AI technology that makes AI interactions more efficient. Modern AIs can learn a process, iterate, and improve their own performance. This is useful for error detection and means learning AIs can adapt to different business requirements.
Big data analytics involves processing datasets that are too large for humans to analyze. Learning AIs can extract trend data from these large datasets and provide unique business insights.
For accounts automation, this means you can make use of large sets of financial data. You can use this to improve your analytics and forecasting efforts.
Blockchain is yet to be fully utilized in invoicing. However, analysts expect it to become a large part of the ePayment landscape. This new technology may increase the security of online payment systems, among other benefits.
How do you create an automated invoice management workflow?
If you’re new to invoice automation, you might wonder how to set up an appropriate workflow. To get started with invoice management automation, you can follow these five basic steps.
1. Analyze your invoicing process
The first step in creating an automated workflow is to assess your current process and identify areas you want to automate. This will involve analyzing the types of invoices created, and the information needed in each one. You’ll also need to look at the workflow for tracking payments and resolving disputes.
2. Centralize your invoice management
After understanding your invoicing process, centralize all invoicing-related functions in a single platform. This means either integrating your invoicing system with your financial software or using a standalone platform.
3. Choose the right software
There are many different invoice automation systems available. So, it's important to choose one that meets the specific needs of your business. Consider factors such as pricing, features, and integration capabilities when selecting your software solution.
Your location is another consideration when choosing the right software. As digitized tax systems become more prevalent, you may want to consider software options that can integrate with other financial tools and that are compliant with your region.
Do your research and make sure any software you choose meets all requirements for your location. If you’re based in the UK this guide on the HMRC’s Making Tax Digital initiative is a good place to start for more information on upcoming changes.
If you file your taxes with the IRS then learn more about their E-file system here.
This can help you automate your invoicing and make sure you don’t have any problems come tax season.
4. Optimize the Process of Discrepancy Resolution
Automated three-way matching will save you a lot of time and manpower. You’ll be able to immediately see discrepancies if invoices, receipts, and purchase orders don’t match. Having said that, you can’t fully automate the process of discrepancy resolution.
That means you’ll need to work out a process for highlighting discrepancies to the right team members. That way, you can activate human intervention as soon as discrepancies occur.
With the right system, team members can access electronic copies of your invoices, POs, and receipts This makes finding the information to resolve disputes faster and more efficient.
5. Automate All Possible Functions
Once you have implemented your invoice automation system, take advantage of all the features and tools it offers. Automate as many tasks and functions as possible. You’ll have access to functions like automated payment reminders and late fees, and dispute resolution.
You’ll also be able to generate reports and track metrics automatically. You can also automate other financial reporting functions like tax liability calculation, for a fully optimized digital accounting process.
Invoice management automation is a valuable tool for businesses of all sizes. It can streamline and optimize the process of creating, sending, and tracking invoices. By using an invoice automation system, you can improve your financial management.
There are multiple accessible software options out there. That means that every business should look at what parts of their invoicing process they can automate. It has the potential to save time and money, as well as reduce your error rates.
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