If money makes the world go round, invoice processing is the lubricant that keeps it moving smoothly.
Invoicing is an essential part of business and has been for centuries. In fact the oldest invoices discovered date back to 3000 BC and were written on clay tablets.
Invoices allow buyers and sellers of goods and services to keep an accurate record of transactions. How invoices are processed by organisations therefore directly affects cash flow and financial management.
Well-managed invoice processing is a vital component of any successful business – get it right from the outset and you will be in good shape for future growth.
What is an invoice?
To understand invoice processing fully, it’s good to know the key elements included in the document. These are:
- Seller information
- Buyer information
- Purchase order number
- Invoice number
- Date
- Due date
- Description
- Total amount due
- Payment terms
This crucial information gives you the when, what, who and how of the transaction: when the invoice was issued and the deadline for payment; what the invoice is for (goods or services) and how much is due; who the invoice has been sent by; how it should be paid (for example Bacs or other electronic transfer).
The detailed information on an invoice is central to accurate record keeping and timely billing and payment. For every trader, multinational to freelancer, this is important to keep you from getting into hot water with HMRC. For many organisations it is also a legal requirement and can be included within statutory compliance protocols.
What is invoice processing?
Invoice processing refers to the strict procedures an organisation follows upon receiving an invoice from a supplier. The steps in invoice processing ensure that the invoice is recorded, validated and paid accurately – this is the central function of an accounts payable department and is crucial to sound financial management.
There are several important steps in processing an invoice from the moment it arrives to the moment it is paid and recorded. These steps not only ensure the invoices are recorded accurately, they also ensure the procurement of said goods and services have been authorised internally, and for the agreed amount.
Steps involved in invoice processing
Here’s a useful guide to the main steps of invoice processing:
Receipt: The invoice is received from a vendor or supplier, either electronically (via email or invoicing software) or as a physical letter.
Recording: The recipient records the invoice details. This may involve manual data entry, scanning, or automatic data extraction using specialist software.
Verification: The invoice details are checked to ensure all critical information is included and the amount payable is correct. In many cases, it will be married-up with a purchase order or delivery note to ensure that the goods or services were ordered and received.
Approval: Once the business has validated the invoice, it will need approval from the relevant person(s) responsible for authorising payments.
Payment: The total is then scheduled to be paid in accordance with the invoice instructions.
Recording: The paid invoice is recorded in the accounting system for financial tracking, reporting and audit purposes, and the invoice is archived.
The benefits of effective invoice processing
A logical, thorough and strict invoice processing strategy not only removes reporting and auditing headaches, it also improves business efficiency by making invoice details easily traceable and accessible.
Whether using automated processes to improve accuracy and efficiency (which we highly recommend) or ensuring your accounts team follow strict processing protocols, the benefits of effective invoice processing are tangible from the outset.
Without strict invoice processing procedures, a business could find itself paying invoices late, missing them entirely or even overpaying on ones that have been incorrectly issued.
The knock-on effects of any of the above will impact the organisation’s bottom line, so it’s best to invest in getting the invoice processing procedure correct from the start to allow for a smooth, high-performing and accurate accounts department.
Our What are the benefits of automated invoice processing? blog will give you more insights into how automated invoice processing systems can boost efficiency within your organisation.
Best practices for invoice processing
Invoice processing has become a key area for successful organisations to invest in as part of their digital transformation journeys. Playing such a vital role, both in terms of the day-to-day running of a business and as a statutory requirement for precise record keeping, invoice processing must be done accurately and efficiently.
Here is a useful guide to best practice when it comes to invoice processing:
Centralising invoice receipt will ensure that no invoices are misplaced or ignored, however they arrive.
Automated invoicing processing can improve efficiency and accuracy, moving invoices through the system and recording them in the correct manner without the risk of human error. Read more about how to automate invoice processing.
Planning for the future will help to ensure that the systems you put in place today will be able to handle the demands of your business in one, five, ten or 50 years’ time. When considering your invoice processing options, you’ll want a solution that can scale up as your business grows.
Approval processes should be established to ensure invoices are ratified by the correct team member in a timely manner. This will help to keep the overall invoice processing procedure moving.
Keeping your staff up to date with your invoice process, and monitoring and reviewing performance, will help to maintain well-thought-out and standardised procedures in your workplace.
Maintaining good relationships with suppliers and vendors and keeping lines of communication open can bring a range of benefits from securing discounts for early payment to negotiating terms favourable to your business or organisation.
Keeping accurate records will remove any last-minute headaches when it comes to compliance, auditing and reporting. Being able to trace an invoice at every step of the process will allow you to get hold of the information you need, whenever you need it.
Reviewing invoice processing will allow you to ensure your accounts payable department continues to perform efficiently and accurately, and will help to make further improvements down the line.
Interested in finding out more about invoice processing solutions?
There are various options when it comes to invoice processing, but the bottom line is that having no invoice process will have a detrimental effect on your business.
If you’re looking to drive efficiency and accuracy within your accounts department through an automated invoice processing solution, then the team at Parseq can provide you with all of the details you need to make a fully informed decision.
Get in touch today to start your invoice processing automation journey.
