Running a business is hard enough. Don’t let invoicing and processing slow you down. Creating efficient invoice processing procedures ensures you make the most of your time and money. So, where do you start? Understanding the top 5 invoice processing best practices and the importance of automation will create a solid foundation for your business.
What Is an Invoice Processing Cycle?
This refers to the steps your accounts payable team follows to process and pay invoices received from suppliers or vendors. Invoice processing must follow specific steps to ensure the following:
- Confirmation that the invoice is legitimate
- Confirmation that the accounts payable team did not already pay the invoice
- Confirmation of the deadline of the invoice and the intended pay date
- Confirmation that the company has enough cash in hand to pay the bill
- Accurate recording of the expense and payment
What Is a Typical Workflow for the Processing Cycle?
Efficient invoice processing is critical to keeping your cash flow healthy. It also ensures that you make the most of your time. Follow these three main steps to reduce costly errors.
- Invoice Collection: When the accounting department receives the invoice, the accounts payable team confirms whether it ordered and received the product or service. The team then compares the invoice bill to the purchase order. In instances where the numbers or other details don’t line up, resolve this with the vendor or supplier before moving forward.
- Invoice Approval: Company policy determines the approval process. If you don’t already have one, now is the time to change that. Usually, it goes to the manager of the A/P team, who then forwards it to the financial controller, CFO or business owner for final approval.
- Invoice Payment: Once approved, the accounts payable team can move forward with remitting payment. Sometimes, the team might wait until the deadline to hold on to cash for emergencies. However, when companies provide discounts or other perks for early payments, the team will likely pay ahead of schedule. Once paid, the A/P team records the transaction.
What Are the Top 5 Invoice Processing Best Practices?
Now that you know what the invoice processing cycle is and how it works, it’s time to focus on best practices. Applying these will keep your accounts payable team on the right track.
1. Establish a Process
Having an efficient invoicing process in place is key to keeping your business running smoothly. Make sure everyone who needs access to the process receives proper training. The financial controller should then complete routine checks for compliance.
2. Leverage Automation
Automating your invoice processing can save you a lot of time and money. Bots can handle almost the entire AP process: from invoice confirmation to recording the payment entries. This makes it easier to scale operations.
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3. Organize Invoices
Determine what criteria you will use to sort physical invoices. If you automate or digitize your invoices, they become much easier to find in the cloud. However, you still need identifying characteristics to make them searchable. Here are some examples:
- Invoice numbers
- Purchase order period
- Payment deadline period
- Customer information
- Product(s) or service(s) ordered
4. Verify Information
No matter how legitimate an invoice looks at a first glance, never skip the verification process. Even a legitimate invoice could have already been paid, especially when two people end up handling the same task.
5. Pay Invoices on Time
One of the best ways you can build lasting relationships is to pay your invoices on time. Even with no formal arrangements explicitly stating this, suppliers and vendors will often prioritize your orders ahead of others when they know you pay on time.
Why Are Best Practices for Invoice Processing So Important?
Companies often focus more on the efforts of the accounts receivable team. However, it is just as important to monitor money leaving the business as it is to monitor the money coming in. Invoice details and resulting payments must be accurate to ensure this.
Proper invoice processing also reduces the risk of running out of money and ensures that invoice payments are sent on time. Best practices look beyond the short-term goal and look at the longevity of the business. CFOs or financial controllers can then plan accordingly to meet financial obligations.
How Gaviti Can Make It Easier To Use the Proper Invoicing Procedures?
Gaviti is a cloud-based accounts receivable invoice automation tool that can help you streamline your invoice procedures. Our software improves your company’s ability to ensure customers pay their bills in full and on time. In fact, one client reduced overdue invoices by 60%. Automated accounts receivable invoice processing generates the cash you need to meet your accounts payable obligations.
What will you achieve with Gaviti on your accounting team? Book your free demo to get started.