Businesses are always looking for ways to improve the accounts payable process. It’s all about saving time and money without sacrificing attention to details and data. With manual, paper-based processes, finance departments spend too much on fixing manual mistakes and completing mundane, repetitive tasks that drain the workday.
Thankfully, FinTech advancements have made accounts payable processes more efficient and secure—all thanks to automation. With AP automation, businesses have more visibility into payables and data to make well-informed decisions on investments and spend.
The best way to get on board with AP automation is with invoice management software, as the invoice cycle is known to be the most painful part of the accounts payable process. Luckily, there’s technology that transforms the invoice process without paper or headaches.
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The Electronic Invoicing Journey
Evolution of the Invoice Process
Manually processing a single invoice can mean wasted hours and much frustration. Most companies receive invoices different ways. Some are sent via snail mail, while others are emailed, or sent electronically. Once the accounts payable department receives the invoice from the supplier, it must be entered into the financial or bookkeeping system manually. This method eats up a lot of time and labor resources and is prone to human error. Manually handling this process for every individual invoice can lead to many entry errors, compliance risks, and late payments.
After extracting details from the invoice, it must be approved, which often takes more than one approver or department. After the invoice is approved, payment can be disbursed to the vendor. Depending on when the invoice is approved, finance departments must make well-informed decisions about when to pay certain invoices to support the cash flow for other payments.
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With manual invoice approval processes, AP staff are spending a lot of their time chasing down managers for approval, answering vendors’ follow-up requests, and sifting through piles of paper to complete one invoice. Let’s not forget fixing the same errors over and over. Before you know it, your business has stacked up late payments and lack of updated spend.
As FinTech continues to evolve, finance departments are considering technologies like automation to work smarter, not harder, and eliminate repetitive tasks. Ardent Partners pointed out that the top focus for finance leaders is increasing efficiency and visibility while reducing the costs of invoices. This goal begs the tricky question—how can finance departments save money without sacrificing small details and critical processes? Most finance departments start their automation journey with invoice process issues, and ultimately end up landing on e invoicing solutions.
How Do e Invoicing Solutions Work?
e-Invoicing is a SaaS (software as a service) that electronically imports invoices into a portal or accounting system.
Simply put, managing an electronic invoice allows businesses to manage and streamline invoices that are scanned, emailed, or faxed to one centralized location for easy management and organization. The software digitally extracts and stores all invoice data in one cloud-based hub without any paper or manual help from the finance department. After you create rules within the SaaS that best align with your current invoice process, the e-Invoicing will handle the rest.
True e-Invoicing should not be confused with other electronic invoice attempts. Some companies scan and use optical character recognition (OCR) of paper-based invoices. Others send PDF invoices via email. These methods may digitize storage of invoices, but the accounts payable department still has to capture data from the PDF, either by OCR or by manually keying in data from a PDF image—still spending unnecessary time and money on steps that e-Invoicing could handle.
E invoicing soultions also allows your company to set up internal rules and compliance that reflect your current accounts payable processes. With e-Invoicing, there’s less worry about correcting coding errors, losing printed invoices, or duplicating invoice entries that can lead to duplicate payments.
e-Invoicing is the first step of the accounts payable automation journey. After electronic invoices have been approved, they’re ready for payment. Integrating e-Invoicing with AP automation solutions streamlines payable workflows from start to finish, which saves your finance department time and money. In short, e-Invoicing makes sending and receiving electronic invoices more efficient, accurate, convenient, and ultimately, simpler.
The Security and Speed of e-Invoicing
A recently conducted research shows that 9% more invoices are paid on time when using e-Invoicing. Why? According to the piece, e-Invoicing security makes it easier and safer for buyers to pay verified vendors and suppliers. There’s less worry about bogus invoices and paying duplicates because e-Invoicing is organized to easily search for copies or unverified vendors.
Electronic invoicing gives businesses solutions to security problems that paper processes are the cause of. Paper-based processes bring the fear of catching manual mistakes when it’s too late. When paired with data encryption and firewalls, e-Invoicing provides the security for sensitive vendor and payment information that a file cabinet cannot 100% guarantee. With invoicing software, organizations have control over the security of their data because the system includes many internal safety features such as validation requirements, duplicate scans, and various degrees of approval requirements based on your company’s current processes.
On top of security, it’s the speed that’s making e-Invoicing increasingly popular for finance departments. The 2017 Ardent Partners study shows that the Best-In-Class buyers only spend 3.5 days and $2.74 per invoice—all thanks to e-Invoicing software. They’re spending less time manually managing printed invoices and are, instead, automating the process with electronic invoices. On the other hand, paper-based invoice processing can cost up to $22 to process one invoice. The average buyer spends $15.02 and 12 days processing one invoice.
To evaluate invoice costs, the finance department must identify the most time-consuming part of the invoice process. For most, paper is the root of the problem. The process is slowed down when AP staff must individually enter the details of each invoice instead of batch accounts payable invoice processing.
e-Invoicing vs. e-Billing
Both e-Invoicing and e-Billing are both popular systems used to expedite the accounts payable process. However, there’s a big difference between the two. e-Invoicing only manages and stores the invoice electronically—that doesn’t include payment. With e-billing, payment systems are included with e-Invoicing. The buyer will have the ability to review the invoice and pay within one portal that’s specialized for billing.
Paper Invoice Trials and Tribulations
Solving Tax Season Prep Problems
Preparing for year-end closing and tax season with paper-based processes often leads to headaches and extra hours for the finance department. Between gathering 1099s, verifying vendors, and compliance, finding every single invoice within the business can be time-consuming and tedious. Adding to the burden are outstanding last-minute invoices that hinder tax prep processes and accurate spend reporting which leads to confusion of which invoices should be included for tax filing.
Businesses that use e-Invoicing are pushing their payments to the front of their payment processes to improve visibility into spend and data. During tax time, finance departments can easily check the status of unpaid invoices and have a clear picture of all invoices paid from the previous year. If there are any errors, duplicate payments, or accounts payable reconciliations, e-Invoicing makes it easy to pinpoint the problem before closing the books—all without sifting through piles of paper.
Running the Risk of Fraud Without e-Invoicing
Without centralized e-Invoicing, businesses run the high risk of accounts payable fraud. Scammers attack companies a few ways, including Business Email Compromise (BEC). The finance department is the top target for scammers by targeting invoices. Fraudsters mail or email fake invoices to obtain payment and proprietary information from organizations. The scary thing is that these invoices seem real at first glance. Without going through a centralized invoice entry process, it’s likely your company will pay the invoice and future invoices from the same scammer.
With e-Invoicing, security measures are automatically in place to protect your payables. When partnering e-Invoicing with AP automation, fraud protection automatically double-checks each invoice for duplicates and vendors that have not been verified by your business.
Weighing the Cost of Invoice Inefficiency
While there is a cost associated with invoice automation, the most expensive line item for any company is inefficiency. Determining how much paper really costs your company will help you accurately compare your current process with an automated process. To get started, take a look at the following:
- The time it takes to process and mail invoices, including sorting, categorizing, and manually entering invoices into your accounting system
- Time spent trying to find and fix data entry errors
- Shipping costs if invoices must be sent to a corporate office or for outsourced scanning
- Time spent responding to vendor calls regarding the status of payment
- Missed early-pay discounts while invoices were being processed manually
- Late fees when invoices are not processed timely
- The cost of storing paper invoices, including the room, cabinets, folders, and other furniture and supplies
When evaluating each task, businesses find that they are spending more time and money on accounts payable invoice processing than necessary. Indeed, the cost of inefficiency is more expensive than implementation.
The Supplier’s Biggest Headache: Late Payments
The bottom line is late payments are a headache for suppliers. In fact, “13% of all invoices to small and medium-small enterprises are paid late, with 10% of businesses written off as bad debt.” When invoices are not processed on time, they often lead to late payments and poor relationships with vendors. When manually managing invoices, staff must know the invoice payment due date to rush approvers and departments to move the invoice forward in the payment process. From a supplier’s point of view, late payments impact the budget and expected return from sales. They risk debt and loss of future opportunities at the expense of the buyer.
e-Invoicing supports both ends of the buyer-supplier relationship. Most AP solutions include a supplier portal, where suppliers can check the status of the invoice and send automatic payment reminders. There’s less worry about follow-up phone calls and lost files. The supplier also has visibility into their receivable and the buyer’s payment process.
Adopting Invoice Automation
Handling Approvals with e-Invoicing
When manually managing invoices, finance departments are left wondering where the invoice is in the invoice approval process, especially when handing off printed invoices from one approver to another. Invoices processed through e-Invoicing speed up the approval routing process. All vendor and purchasing details are extracted from the imported invoice to fill in the right blanks for approvers. Invoice automation, paired with AP automation, makes it easy to route invoices to the correct approver.
With e-Invoicing, the finance department can easily keep track of approvals. The staff has full visibility into the approval process by being able to see who has the invoice and for how long. The best part is, with invoice automation, invoices can be approved anywhere there’s a network connection.
Giving Paper-Based Invoice Processes the Boot
Most finance departments are still relying on paper to process their payables. From printed invoices to printing paper checks, the piles often lead to problems. Studies have found that paper results in lost invoices, stacks of printed invoices scattered throughout departments, and hours of manual work that leads to mistakes. Despite findings, both buyers and suppliers are still relying on manual, paper-based invoice processes. According to the most recent PayStream Advisors invoice findings, most companies still receive paper invoices—whether they use e-Invoicing solutions or not.
When business owners and financial executives think of the cost of sending paper invoices, they often think solely about tangible costs such as paper and postage. While those costs can be significant, the real cost of paper is time. Time spent issuing, reviewing, scanning, approving, handling, and processing paper invoices is extensive and expensive.
Sterling Commerce commissioned a study on electronic invoices of 169 accounts payable departments in eight countries. The study found that by moving from manual, paper-based invoice processes to fully automated accounts payable invoice processing, companies can expect:
- Cost savings of 90% on the AP side
- Cost savings of 44% in accounts receivable (AR) departments
- Error reduction of 37% on all types of invoices
- Storage cost saving of up to 67% for AP and 32% for AR
Controlling Invoice Cloud-Based Centralization
Nearly half of surveyed businesses lack a centralized, cloud-based hub to store, manage, and streamline invoices for payment. For most companies, it’s challenging to keep invoices in one spot because they must be reviewed and approved by different departments. When handing off paper invoices from one approver to another, it’s easy for the invoice to get lost in the shuffle. In fact, according to PayStream Advisor’s survey, almost half – 49 percent – of survey respondents lack a complete centralized hub for invoices and payments.
With e-Invoicing, regardless of how the supplier sends the invoice, all invoices land in the same hub for approval. A recent study shows that top-performing organizations are 67% more likely to have a centralized invoice management solution.
With invoice automation, centralization and organization ease other finance functions. For example, during auditing, random invoices and payments are selected to be reviewed in-depth. Having auditors to search through filing cabinets to find an invoice from months ago can be a hassle. Instead, invoice automation, allows finance leaders to grant read-only access for auditors to easily see all invoices that are organized with all payment details.
Building the Case for e-Invoicing
e-Invoicing Implementation Costs
To compare the cost of an electronic invoicing solution to your current processes, you first have to determine how much your current system costs. Often, paper-based processes make it difficult to accurately calculate costs. What may not be so apparent at first thought is the many manual tasks that are “buried in paper.”
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For example, how much time does it take people in your organization to manually enter invoice data? How much does your company pay in late fees every year, because invoices get lost or take an exorbitant amount of time circulating through snail mail for approval and payment? These questions make an accurate cost-estimation extremely challenging.
In the end, most AvidXchange clients find that they save over 60% on accounts payable invoice processing costs every year. They also feel that they have a competitive advantage now that they’ve adopted a process that’s scalable for growth.
The Scary Side of e-Invoicing Implementation
Smooth and straightforward implementation is a common concern for both buyers and suppliers. Businesses are often dissuaded from adopting new technology due to the unknown ROI and the time it takes to implement automated solutions.
The e-Invoicing transition is not a process that usually takes years to complete. Most companies will start by focusing first on a group of vendors who have the largest volume of invoices. Letters are sent to those vendors explaining the process change and providing information on how to set up their account online, with help desk contact information should any questions arise.
Those letters are followed by emails and phone calls from the adoption team to ensure vendor participation. Vendors are typically open to converting to electronic invoice submission because it helps them get paid faster, reduces their invoicing costs, and provides visibility into the invoicing process. Furthermore, there is never a charge for vendors to use the AvidXchange platform. It’s a massive benefit for decision-makers and to get on board with the new process.
Accounts Payable Invoice Processing from the Supplier’s Lens
From a suppliers’ lens, e-Invoicing supports their current accounts receivable processes. With e-Invoicing, suppliers still have the flexibility to send invoices to buyers the way that works best for them. Regardless of the supplier’s preferred method, your business has control and visibility into all invoices in one spot.
Ardent Partners shared the top challenge that companies face when considering e-Invoicing.
One consistent challenge is the ability to enable suppliers onto the electronic platforms. For an AP automation initiative to be successful, it is critical to get as many suppliers onboard as quickly as possible.
Supplier adoption is key to a successful transition to electronic invoicing. The average company that transitions to an electronic invoicing system realizes a 35 percent vendor adoption rate. That number is expected to increase as more companies recognize the cost and time-saving benefits of invoice automation.
Some e-Invoicing solutions offer only two ways for suppliers to send electronic invoices. High-volume suppliers are typically asked to send an XML, EDI, or similar document straight from their billing system. Smaller suppliers are typically asked to create and send invoices through an online portal. Both of these methods require suppliers to change their billing processes, costing your supplier time and money. When your E-Invoicing tool allows customers more options, more of your suppliers will move away from paper.
There are two keys to improving supplier adoption: education and ease of use. The AvidXchange Supplier team, for example, will help educate your suppliers on why it makes sense to convert to e-Invoicing submission. Once your suppliers understand that submitting invoices electronically won’t require an overhaul to their existing processes, won’t cost them any money, and can be done in a way that easily integrates with their existing systems and processes, you’ll remove the natural resistance to change.
When your suppliers find out that they’ll get paid faster and have total visibility into the status of an invoice, they’ll encourage more of their customers to implement e-Invoicing as well.
Case Study: McKenna & Company
Mckenna & Company, a small California-based real estate business, implemented e-Invoicing for ease and efficiency. They were motivated by a few of the common challenges that SMBs hope to find solutions for. Mckenna & Company wanted to reduce costs, get rid of paper, and improve current processes. They were also motivated to grow without hiring additional headcount.
After implementing AvidXchange Invoice, they’ve scaled for growth, improved controls and visibility into spending—all while saving time. Overall, they reduced their invoice and payment processing costs by more than 20%.
AvidXchange has enabled professional growth for some of our employees by removing the need to receive, open, and process invoices. AvidXchange has also made our annual audits easier through electronic storage of invoices by enabling us to create user IDs for the auditors.
Getting the “Go-Ahead” for e-Invoicing Implementation
As companies find that invoice automation saves time and money, more plan to implement e-Invoicing. The PayStream study shows that over half of surveyed businesses currently use e-Invoicing or plan to in the near future.
e-Invoicing doesn’t seem to have many drawbacks, so why are businesses reluctant to change? For most companies, it’s the lack of available budget and a belief that their current processes are working just fine. Other reasons include the fear of lack of ROI, not enough technical knowledge, or not enough buy-in from executives.
To get the ‘go-ahead’ from finance executives, look at e-Invoicing is an investment in the future of your company’s finance department. e-Invoicing is the top solution for decision-makers looking to increase efficiency and visibility while decreasing accounts payable invoice processing costs. Showing your leadership team that e-Invoicing is a strategic solution that gives staff more time to focus on analyzing data and strategies is a win. They’ll appreciate the in-depth data and reporting to make wise investing and spending decisions.
Tips for Managing Your Electronic Invoices Efficiently
Even after you implement electronic invoices, it’s essential to work effectively. We’ve outlined a few tips to take full advantage of the benefits of electronic invoices.
- Every invoice should go straight to the finance department.
Even if a different department receives an invoice, it should go directly to the finance department. Then, it’s the finance department’s responsibility to route the invoice to the correct department for approval. Finance leaders should be aware of all spend to effectively manage the organization’s budget.
- Set terms and conditions that work best for your business.
Communicating with your supplier is key. For example, establishing specific dates to receive invoices and appointing one point of contact from your company creates a simplified process. Be clear on terms and conditions and provide your vendors with visibility into your standard payment process. Setting the stage for electronic invoice and payment processes ahead of time leads to clarity that both you and your vendors can appreciate.
- Set early deadlines.
Planning invoice processing and approving deadlines ahead of the deadline keeps your business ahead of payment due dates without worrying about late fees. There’s also the bonus of early payment discounts that could save your company a lot of money over time.
Interested in learning more about e-invoicing for your business?
We’re here to help! Learn how invoice automation software enhances your bookkeeping or financial system experience by handling all electronic invoices for a streamlined accounts payable workflow that saves you time and money. Click the link below to book a demo of our suite of accounts payable automation tools.