How to Process an Invoice: A Guide for Small Business Owners

Cashflow is one of the major factors that run the company; even if you are a small or big organization keeping track of cash inflow and outflow is important. The methods of keeping track of all the transactions were to have it noticed somewhere. But if you look at the modern methods, it basically includes keeping a record of all invoices. Having processed invoice helps in to keep track of all the cash flow happening in a company. As the topic of the article depicts, we will be talking about invoice processing and how anyone’s business can adapt to it. So read till the end to have knowledge about the topic.

What is invoice processing?

Invoice processing is done by the accounts payable department, which is understandable from the term itself. There is software to perform invoice processing. This is also known as automated invoice processing or invoice automation. This includes some mandatory steps which took place in order to manage invoices which include basic things like receipt of payment, etc. It is a massive part of online payment processing.

Mandatory/important invoice processing steps:

The first step is to match the submitted documents to the following matching supporting document as per the following rule. Under it, you will apply the general ledger (GL) code.
The next step is about sending these invoices to the authority for approval or rejection of such invoices.
After the result of the approval, now submit such invoices to the financial system for payment and follow formalities.
Some common payment methods like checks, wire transfers, and ACH will help you process invoices for the following payments.
The last step includes archiving invoices and payment-related information in the general ledger; this data helps in the audits.

What is automated invoice processing?

You read about invoice processing in the above section and now gain knowledge about automated invoice processing. The term “automated” itself means non-manual, which means the following work gets done with the help of any software. Business uses invoice processing automation in order to help streamline accounts to pay for all the related supplier’s invoices. Payments can be completed in a matter of minutes by retrieving invoice data as it enters a system and automatically transferring it to your accounts payable or ERP system.

Benefits of automated invoice processing

You have learned definitions and accounts payable invoice processing yet, and you might be wondering about the benefits of such. So here are some benefits of it:

Saves times

One of the reasons to use any automated software or devices is to save time. Automated processing handles all the workload related to incoming invoices, meaning the same work takes less time than it used to take manually. This gives the account payable staff more time to devote to other tasks.

Cost-effective

Automated invoice processing not only saves but also is cost-effective. When you reduce the manual need along with streamlining the process, it also reduces the cost, which means extra saving/saving in the account payable department. With its help of it, you can also spot events like payment discounts, reducing the chances of missing invoices. This way, you will be able to avoid late payment fees.

Error reduction

with automated processing, you can generate accurate results. It reduces the chances of all the errors that might be possible if done manually. This also avoids overpayments and duplicate payments.

Security against fraud

Traditional method of invoice processing includes the constant risk of payment fraud, but it’s not the same with automated invoice processing. Access is granted to only certain people with authority, like approving invoices or payments. This reduces the chances of fraud or any such methods. So Secure payment link and all other measures make sure to keep the security up-tight.

Effortless auditing

With the help of automated invoice processing, you can backed-up and secure all AP activities. This further helps when audits and process reviews take place. Things like invoices, documents, messages, receipts, etc., get linked together. This way, it is easy to track and audit and continue likewise.

Automated Invoice Processing Guide

Once you receive an invoice, you need to pass through it through some formalities followed by keeping financial records regarding it. Companies opt to automate this part due to some of its perks that you have already read about in the above section. Read about some of the mandatory steps included in the account payable department:

Tracking information:

Under this process, the purchasing company needs to verify the following purchasing, followed by correct payment, etc., on the agreed terms. Invoices include information that helps the vendor and purchasers. Here are things that you generally find in an invoice:

Date when the vendor sent the invoice or created it.
Contact details of the vendor and the purchaser; you will also find billing information and address details in the same place.
Details regarding purchase which will include service details and price-related information.
At last, payment information.

Data entry:

The AP staff needs to enter the data manually; it is possible by using an automation tool, which leads to the code invoice part. This is important for accounting reasons; now, with the help of general ledger coding, you can track debits and credits easily. The possibility of human error and the amount of staff time required to manually enter this data make it risky for a company’s financial records. The cost of processing invoices can be decreased by 75% to 85% by using an automated system, while errors are also decreased. Having the right tools makes retrieving invoice data easier, enhancing the service provided to vendors and speeding up payment processing.

Approval:

Before sending a payment, an AP department must submit the invoice for approval after verifying the details of the invoice. A delayed approval process can significantly impact payment turnaround times and income. Paper invoices may get lost while being carried from desk to desk by an active employee. An AP department can save time searching for lost documents or getting invoice copies from the vendor by implementing an automated invoice processing system.

Final Thoughts:

In the above article, as you read about the definition and how to invoice work, etc. Hope after reading it all; you got the knowledge you might be looking for. Further, if you go deep into the topic of invoice processing, then widen your research area. Processing invoice is indeed an innovative process that, along with saving time and money, gives multiple other benefits.

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