It’s sad but true – most businesses are still stuck in the Stone Ages with piles of printed invoices scattered throughout departments. Despite major FinTech advancements, finance departments are still manually processing invoices. Businesses are still hiring dedicated AP specialists to open mailed invoices and manually enter invoice details into the accounting system. They’re still wasting time searching file cabinets to perform audits and requisitions. It’s time for AP departments to face it – the ancient invoice process wastes valuable time and money.
The Purchase Order is the First AP Priority
Every day, the AP department reviews dozens of invoices. Some may be recurring, utility, credit, or even partial payment. The approval processes for these invoices may vary, but there’s an extra step that buyers are taking for financial visibility—the purchase order (PO). As B2B adopts FinTech, decision-makers are getting more visibility into purchases. The purchase order provides detailed information including price, quantity, and product specifics before purchasing. Purchase orders are often helpful for finance departments to understand the order request from a department before a purchase is made. Requesting the purchase order before the invoice as a best practice controls the purchasing process from start to finish without guessing.
From there, if the purchase order is approved by the finance department, an invoice is sent for approval and payment. The purchase order may seem like an unnecessary step in the payment process, but it’s the best practice for evaluating spend and cost before purchasing goods and services.
Ancient invoicing doesn’t give finance departments this visibility. Before you know it, your business will receive invoices for dozens of purchases that your company may not have planned for. The cost or quantity of the goods may change. Putting the purchase order first reduces this confusion and provides clarity for expectations from both the buyer and supplier.
Manual Entry is AP’s Worst Enemy
Most suppliers send buyers invoices through fax, email, or snail mail. According to a recent Paystream Advisors report, the biggest problem with invoices across all business sizes is manual entry. Hiring full-time employees (FTE) to enter invoice details one by one is a waste of valuable time and resources. What’s even more inefficient is the lack of standardized invoice entry processes.
There are ways to gather invoice information faster and without paper. Businesses have a few electronic options. Some companies find it easy to use online formatted invoice templates that suppliers can fill out. One of the more trending options is EDI (Electronic Data Interchange (EDI). EDI invoices are true electronic invoices that can be sent via network connections. They’re not to be confused with PDFs or scanned (OCR) invoices that still require manual entry. With EDI invoices, all invoices are sent and stored electronically, making it simple for both buyers and suppliers.
Regardless of how the invoice is sent, businesses can take advantage of electronic invoices with SaaS – otherwise known as e-Invoicing. Your AP staff will thank you because all invoices will be housed in one hub and, they’ll spend less time with manual entry and checking for duplicate invoice entries.
Adding Up the Costs of the Ancient Invoice
Processing invoices from start to finish can take quite a bit of time. Let’s consider a few of the most common steps. According to recent AP automation benchmark metrics, it takes an average of 10 days to process a single invoice.
To add to the list of wasted resources, companies are paying more than $22 to process one invoice for payment. That doesn’t include the hours full-time employees spend reviewing invoices, comparing purchase orders, knocking on managers’ doors for approval, or entering every amount and vendor detail into their trusted invoice management system. Think about the piles of envelopes and paper wasted in the process. The AP staff must go through all of this and more just to make a single payment to a supplier.
The #1 Problem with Ancient Invoice Processes
The good thing about your current internal invoice process is that it works. But, just because the process works doesn’t mean that it’s working to the best of its abilities. With manual invoice processes, there are a number of risks that outweigh the rewards.
The big problem with manual processes is time. Think about the time spent coding invoices, approvals, updating invoices, reviewing, and selecting for payment. Manually handling this process can be a daily burden for any AP specialist. According to the 2017 Ardent Partners report, 51.1 percent of Best-in-Class suppliers submit electronic invoices, only costing $2.74 per invoice.The time to fully process one electronic invoice is only 3.5 days. Their costs are 82 percent lower and 71 percent faster than others surveyed. That’s pretty cheap in comparison to other buyers that spend $15.02 and take twelve days to process one invoice.
Bogus Invoices are Costing Buyers Big Bucks
The biggest risk of relying on scattered invoice processes is the possibility of paying a fake invoice. Phishers attack businesses by mailing or emailing invoices that seem real. The Federal Trade Commission (FTC) points out that scammers target businesses by sending the invoice for products or services and asking you to click the link for more information if the purchases are unauthorized. Don’t click the link. It’s used to capture your information for fraud or to install ransomware.
The FTC suggests a few ways to keep you safe from fake invoices during your payment process. Be careful when opening links, attachments, or emails. As a tip, consult with your IT department for security software and best practices for opening emails and verifying senders. If you’ve received an invoice from a suspicious supplier, always call instead of responding via email to verify any information. The FTC also suggests that if you are relying on internal software or widely-used software, always backup everything to a hard drive or cloud storage. Lastly, if your business has received suspicious messages or invoices, file a report with the FTC.
If you’re looking at a printed invoice that seems fraudulent, take time to pay close attention to the details. Examine the paper type, logo, account and vendor information. CFO.com also recommends paying attention to Benford’s Law. What’s that?
“According to Benford’s Law — aka, the first-digit law — invoice data follows a certain sequence of numbers. When numbers appear more often than they should, that’s a red flag you may have a questionable invoice. So:
- The number 1 should show up 30% of the time
- The number 2 should show up 17% of the time, while
- The number 9 should only show up 4.5% of the time.
Most fraudsters don’t know about Benford’s Law. So, often they use the same numbers over and over.”
When your invoice process doesn’t follow a standard entry process with an automated solution, it’s easy to overlook these small details, whether the invoice comes through snail mail or email. Before you know it, your company has paid thousands of dollars, and proprietary information is at the mercy of phishers.
The ancient invoice process cannot provide your payables the protection needed from start to finish. Instead of wasting time double-checking every invoice, businesses rely on electronic invoices to handle the dirty work of checking for fraud. For example, with AvidXchange, duplicate electronic invoices are flagged without the extra set of eyes from your AP staff.
Seeing Ancient Invoicing from the Supplier’s Lens
Benchmarks show that less than 26 percent of vendors send invoices electronically. That leaves your AP staff manually entering the other three-fourths on average. Ardent Partners points out that getting suppliers on board with submitting electronic invoices is a top priority for AP departments. Why? It’s the first step to a paperless payment process and electronic payments. There’s less time spent manually entering paper invoices that are sent. This goal begs the question: How can buyers get suppliers on board with electronic invoicing?
“Ardent believes that AP organizations should utilize a “portfolio approach” in their initial efforts to connect with their suppliers electronically since a complete migration will not happen overnight and some one-off suppliers will only ever submit paper invoices.”
Recently, businesses that switched to electronic invoices saw a 35 percent vendor adoption rate. Showing your suppliers the potential ROI of the electronic approach could be good buy-in. As a tip, give your supplier’s visibility into your AP department’s goals and priorities. For example, the goal of streamlined accounts payable processes could lead to your vendors receiving fewer late payments and giving them increased visibility into their receivables from your business.
How to Improve the Invoice Process
It’s simple. The most effective way to save time and money during the invoicing process is to shred the paper. Most companies in the beginning stages of AP automation start with e-Invoicing.
e-Invoicing is a cloud-based solution that houses all invoices in one hub regardless of how suppliers send them. Once a supplier sends the invoice, details are electronically extracted and organized for easy access and routing. When it’s time for auditing or reporting, you’ll have easy electronic access to all your organized invoices without searching through filing cabinets.
If your decision-makers aren’t quite sold on investing in e-Invoicing solutions, there are a few points to offer decision-makers.
- Evaluate the current invoice process. Does every invoice come to the AP department before going to others? Figure out where all your invoices are. If there’s not a centralized, secure hub, it’s time to create that safe place.
- Calculate the true cost of an invoice for your business. Add up all the financial costs. To paint a true picture of the monthly invoice processing costs, consider the number of monthly payments the AP department is responsible for.
- Invest in your FTE. Find out how much time the AP department is spending managing invoices. Make sure you add correcting errors, approvals, and exceptions. Ask them what would expedite the invoice process to improve efficiency and accuracy.
- The level of trust in internal security and fraud protection. Speak with your IT department about technology capabilities within your business. Is the security of computer files and file cabinet folders enough to protect your payables and vendors?