For a company’s cash flow management, invoice processing is crucial. An accounts payable specialist has some specific duties, including preventing invoice fraud, inaccuracies, and managing timely payment. Businesses can increase their cash flow by processing invoices correctly and this allows them to obtain more favorable payment terms, better pricing, or even better discounts.
Many suppliers offer discounts for businesses that pay invoices by the due date. Invoice processing requires group organization and knowledge of payment terms.
How does the procure-to-pay system work?
The accounts payable process is also known as procure-to-pay. It involves a number of steps. The first step is when you receive the invoice. And after that, Invoices are input into Enterprise Resource Planning (ERP systems) for storage. Although it is not standard practice for accounts payable, it is the most common way it works.
- The purchase order serves as a communication tool with vendors. The vendor will receive a copy of the purchase order.
- To record the goods’ receipt, the receiving company will create a shipping document.
- After the vendor has received and completed the purchase order and shipping documents, the vendor will send an invoice to the company that received the goods. An invoice may contain different information. An invoice to payment (AR & AP) must include the following information.
- Contact information for the vendor and purchasing company.
- The buyer and seller agree on all prices and terms after purchasing the goods.
- The invoice’s payment method, along with the date of creation.
- A clerk or accounts payable specialist performs a two-way match, which compares the invoice to the purchase order, or a three-way matching, which compares the two documents to the shipping document. A specialist in accounts payable will correct back-ordered items and track their delivery date.
- Following their checking, invoices go to the accounts payable manager or team for payment and review.
- The accounts payable manager enters an invoice and schedules payment into the company’s general ledger system (typically an E-Reporting System). Invoices are usually labelled “Net 30 Days,” which indicates that goods must be paid within 30 days of the invoice date. Suppliers might offer an early payment discount such as “2/10 Net 30”, which gives a 2% discount on payments received within ten working days.
- The chief financial officer approves the payment requests and cash flow forecasts submitted by the accounts payable manager. This is often a Chief Financial Officer or Controller.
- After that, the vendor will get the payment.
- Many accounts payable departments still process invoices manually. The associated costs of manual invoice processing vary greatly. Paper, postage, and staffing are just a few of the factors that can affect the invoice’s true cost.
- It does not take into account hidden fees or late payments, nor accounting errors that are likely to occur during invoice processing.
Invoice processing is broken
The problem will get worse as the company grows in size. And an increased invoice volume can overwhelm accounts payable departments. Account payable departments are often understaffed, which can lead to lengthy data entry sessions.
Even if there are alternatives to manual invoice processing, IT teams will hesitate to implement them instead of legacy software or other processes. It is not uncommon for IT departments to be too busy and not have enough resources to complete technical projects on time.
Some purchasers believe that electronic data interchange software (EDI) can solve all of these problems. For a variety of reasons, EDI does not significantly lower the cost of invoice processing. So these businesses lose thousands of dollars every year without making significant improvements to their business processes.
ERP Factor
Any department responsible for accounts payable success needs accounting software. Many companies base their AP automation strategies on the ability of their ERP systems to work with their AP automation systems.
ERP systems have a central repository that stores all accounts payable documents. This includes open purchase orders, shipping documents, and invoices. To improve business processes, the best invoice processing software can make use of data from an ERP. But not all automation solutions will work with every ERP system. Even worse is when invoice processing software exports a file that doesn’t match the ERP.
Conclusion
These issues are unlikely to solve the problems of the accounts payable team. With the ability to integrate data smoothly, it’s possible to have an overall view of the accounting department.
