Invoice Workflow

No matter how much AP automation you employ, unanticipated supplier invoices will always enter the fray, particularly as a company grows or looks to expand its supplier base. Maintaining a flexible, intelligent, and robust invoice workflow is key to getting transaction information correct and reducing the accounts payable workload.

An invoice workflow, simply put, is the process by which invoices are routed and approved. An Invoice workflow can vary from organization to organization, but certain challenges are universally felt.

Challenges to Invoice Management Workflow

The goal of an invoice workflow is to accept invoices and enable them to enter the system in an efficient manner. Ideally, invoices would be processed with as little human touch is necessary. However, there are many challenges that impede a 100% straight-through process (STP) rate.

  • Delivery mechanisms vary – Paper invoices are the biggest culprit to slowing the process. They must be received, scanned, and verified before approvals start. At the same time, invoices may come from a variety of sources (from the buyers, from the supplier/vendor, over email, etc.). Then the AP staff needs to centralize the invoices so they can be processed.
  • Invoice formats vary – Even if an invoice is in a PDF format, data around the layout must be translated. What are the payment terms? Which line items affect which billing codes? There almost always needs to be some human assisted translation.
  • Invoice handling point solutions – Invoice management often falls into one category of product, for example, document management, rather than being a part of the holistic supplier payment process. As a result, invoices enter the system through one mechanism, then make their way into the ERP, then AP has to send it out for approvals and finally payment. That means multiple steps and systems where some amount of error can occur.
  • Limited payment visibility – Because of the use of disparate systems, payment results are rarely associated with an invoice. The reporting loop is left open until someone manually reconciles payments. This not only impacts financial close, it hinders insight into cash flow.

How to Automate Invoice Management

There are some fundamental aspects towards bring a successful invoice workflow automation process into the organization:

  • Accept inbound invoices digitally – Create a central repository for inbound invoices regardless of type (e.g. PDF, JPG/PNG, Text) or delivery mechanism (e.g. scanned document, email, supplier portal).
  • Employ machine-learning OCR – Optical character recognition is becoming more effective, particularly cloud-based OCRs which have the benefit of learning at scale. This improves the accuracy rate faster over time, with some systems even able to recognize specific line items tagged to department codes.
  • Enable easier digital approvals – Requiring someone to log into a system in order to approve invoices and payments slows down the process. Email approvals that are automatically sent and accepted are the most frictionless approach as they work anywhere.
  • Connect directly to payment cycle – The end of the invoice workflow process should not be an invoice approval, but the actual payment. Tying invoices directly to payment status and any issues is key to a streamlined accounts payable and supplier payments effort. This also has the benefit to reduce the payment reconciliation effort.

A Note about PO Matching

Purchase order matching with invoices is a prescribed best practice for larger organizations with many levels of budgeting and tracking. However, for smaller organizations (and even some mid-sized) the purchase requisition process is rarely employed or works in a limited fashion. Growing companies are accustomed to moving quickly, and PR/PO procedures – while important for larger purchases – hinder the agility during smaller purchases unless they can be streamlined as well.

A Note about EDI e-Invoices

Similar to PO matching, EDI (electronic data interchange) is a “large enterprise” concept that is suitable for repeatable invoicing of purchases. However, smaller and mid-size organizations that don’t have the clout to pressure suppliers into e-invoicing over an EDI network will still be faced with major, ad-hoc invoicing processing challenges.

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Invoice Workflow