Invoice Processing

Invoice processing manually

In medium and large-sized companies, invoice processing is part of the Accounts Payable (AP) process. The process of invoice management is important not only for cash flow forecasting, but also for identifying good supply chains, cost-effective purchasing and ensuring timely supplier payments

Manual Invoice Process and Journey

An invoice is received into the business in paper, email, pdf or another digital format. The information from the invoice, generally just header information, includes the following:

Supplier Details Date Purchase Order Number Invoice Number Net Amount VAT Amount Total Amount

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How does it work?

This data is manually entered into a payment system, excel spreadsheet, or finance system in preparation for approval for payment

Approvals depend on multiple factors but usually begin with confirmation the goods/services were ordered, and confirmation they have been received. This is called 3-way matching. (Check our Pain Point page on 3-way matching here) 2-way matching is also used when the invoice is matched to the order or the GRN. This often involves a copy of the invoice or the report that was created on receipt, being sent around the business for approval signatures. It is good practice to scan or make a copy of the invoice for electronic filing as a backup for retrieval by the AP team or Auditors.

Once a match has been confirmed, depending on business rules, it may require a second or additional signatory before being passed back to the AP team for payment.

This process is filled with potential ‘potholes’. From the point of arrival of the invoice, these are the ‘holes’ that start to appear…

Then once arrived, these invoices need to be copied, scanned and logged and then filed. This introduces the ‘Human Error pothole’.

Potholes

Invoices sent to the wrong email addresses

Invoices going to junk boxes

Paper invoices not arriving at the correct address

Human Error Pothole

Data input is a dull, monotonous job and extremely time-consuming and prone to mistakes, meaning invoices are recorded incorrectly

Scanning, copying and filing are far from fail-safe and invoices go missing, get lost, are misfiled

Drawbacks…

When the invoice has been entered into a finance system or digital report, it is then sent around the business for matching and/or approvals. Here is the next pothole in the process.

Drawbacks...

Physical invoices requiring a signature can get lost in in-trays,

Invoices sent to the wrong person

Invoices put in a drawer/in-tray and forgotten about

Passed on to another person, without letting the AP Team know

Ignored because the signatory is on annual leave or away from the business.

The AP team spend time chasing the invoice around the business, whilst dealing with calls from suppliers asking for updates on payment dates.

Finally, an approved invoice arrives back with the AP team and can be put forward for payment. Final checks on supplier name, bank account details, etc are made. They are coded and the amounts checked along with the taxes due. Budgets are updated internally and the invoices are added to the next payment run. The information is entered for reporting on payment practices, activity reports and invoice data reporting.