How to Streamline Your Invoice Management Process

What is invoice matching, what are the types, and why is it performed?

Invoice matching, also known as purchase order matching, is the process of comparing an invoice’s details to the purchase order to ensure accuracy before payment. It is a crucial step in the accounts payable procedure that guarantees accurate and proper journaling of vendor payments.

There are 4 different types of accounts payable invoice matching.

• Invoice totals matching: Verify that the totals on the purchase order and the invoice match. You can set up controls with this type of invoice matching to reduce the amount of staff time needed to analyze invoice-matching data because it includes the least amount of detail.
• Two-way matching: Compare the invoice’s pricing information with the purchase order’s price information.
• Three-way matching: This is the process of comparing the purchase order and invoice’s prices. Additionally, confirm that the price information on the product receipts that are chosen for the invoice matches the price information on the invoice.
• Charges matching: Match the charges information (amounts) on the invoice to the charges information (amounts) on the purchase order.

The purpose of invoice matching is to identify purchase anomalies or certain details that do not meet expectations. These are called “deviations” or “exceptions.” Deviations can usually occur in two different ways:

• Price deviation occurs when the price on the invoice for an order does not match the price of other documents typically the purchase order.
• Quantity deviations occur when the order quantity stated on the invoice does not match the amount stated in other documents.

Essential components of an efficient invoice management system.

A streamlined and efficient invoice processing management system plays a pivotal role in the intricate world of finance. A well-structured invoice management system ensures timely payments to vendors, minimizes costly errors, and fosters overall financial health.

Invoice receipt and capture: Digitizing the flow.

• Invoice management systems must effectively capture and handle supplier invoices. Most will offer a vendor portal where vendors can submit invoices directly to the system or an email inbox that serves as a repository of all invoices.
• OCR enables software to identify and extract important data from invoices such as the invoice number, date, supplier name, and amount due, which is a crucial component of invoice automation. As a result, less manual data entry is required, and the billing process is more accurate.
• It extracts data from printed or written text in a scanned document or image, such as a PDF, TIFF, or JPEG, then converts it to machine-readable data. Once digitized, the data is searchable, editable, easily stored, and able to be repurposed.

Validation and approval processes: Speeding up the flow.

• Predefined workflows: Design clear and efficient approval workflows based on specific criteria. This could involve factors like invoice amount (small purchases needing only one approval, large purchases requiring multiple), vendor category (trusted vendors having a faster track), or specific purchase types (requiring additional departmental approvals).
• Automated routing: Automate the process of routing invoices to the appropriate approvers based on predefined workflows. This eliminates delays and frees up staff for more strategic tasks.
• Exception handling: Anticipate potential issues. Set up rules to identify and flag suspect invoices containing inconsistencies or exceeding pre-set thresholds. This allows for immediate review and prevents errors from slipping through the cracks.
• Digital approvals: Utilize electronic approvals for faster processing times. Secure digital signatures can be incorporated for validation and auditability.

Efficient payment processing: Keeping the flow moving.

• Early payment discounts: Leverage early payment discounts offered by vendors to optimize cash flow. Your IMS can highlight invoices eligible for discounts and streamline the early payment process.
• Automated payments: Automate recurring payments to reliable vendors. This eliminates manual tasks, ensures on-time payments, and minimizes errors associated with manual data entry.
• Multiple payment methods: Accommodate different payment methods. Beyond that, wherever possible, pay by virtual card to earn cash back.

Compliance and record keeping: Keeping it safe and sound.

• Regulatory compliance: Direct spend management is critical for ensuring compliance with regulatory requirements, industry standards, and ethical sourcing practices. Monitor vendor compliance to mitigate legal and reputational risks associated with non-compliance and unethical practices.
• Tax compliance: Before settling an invoice, be sure the vendor has, if applicable, issued a W-9. Airbase auto-fills the tax details using AI technology, validates the tax IDs of domestic and international vendors, and flags invalid vendors before payment.
• Audit-ready records: Maintain a secure digital archive of all invoices and relevant documentation for easy access during audits. This includes purchase orders, contracts, receipts, and communication logs.
• Data security: Implement robust data security measures, such as encryption and access controls to protect sensitive data like vendor bank details and financial transactions. Regular security audits are crucial to maintaining a secure environment.
• Retention policies: Establish clear policies for invoice data retention based on legal and regulatory requirements. These policies should dictate how long invoices and related records need to be stored before secure disposal.

Strategic tips for streamlining invoice management.

An efficient invoice management system is more than just the sum of its parts. To truly unlock its potential and achieve optimal efficiency, consider these tips:

Implementing automation solutions: Unleashing the power of technology.

• Embrace technology as your ally: Modern automation tools can streamline repetitive tasks that consume valuable staff time. An automated invoice processing software automates data entry, invoice routing for approvals, and even basic approval workflows for low-risk invoices. This frees up your team to focus on more strategic tasks like analyzing spending patterns, identifying vendor performance trends, and managing exceptions.
• Reduce human error and improve accuracy: Manual data entry is a breeding ground for errors. Automation significantly minimizes these errors by eliminating the human element during data input. This leads to greater accuracy in your financial records, improved reporting, and ultimately, better financial decision-making.
• Enhance processing speed and vendor satisfaction: Automated workflows can significantly accelerate invoice processing times. This translates to faster payments for vendors, improved cash flow management for your company, and ultimately, stronger vendor relationships through timely payments.

Establishing clear policies: Setting the stage for efficiency.

• Standardization is key: Develop and enforce clear internal policies regarding invoice formats, submission methods, and approval hierarchies. Standardize invoice formats (electronic or paper) by providing vendors with templates or clear guidelines. Define accepted submission methods (email, online portal, etc.) and establish a well-defined approval hierarchy based on invoice value, vendor category, or other relevant criteria. This consistency simplifies the process for both internal staff and vendors, minimizing confusion and delays.
• Define roles and responsibilities for clear accountability: Clearly outline roles and responsibilities for each step of the invoice processing cycle. This includes tasks such as invoice receipt, data entry, approvals, and exception handling. Define who owns each step, ensuring accountability and preventing bottlenecks that can slow down the process.
• Automation of policies: Automate the intake process as part of your automation system. AP automation helps in tracking vendors’ and suppliers’ environmental policies to ensure compliance. Airbase automates the routing of purchase requests to all stakeholders in alignment with an organization’s policies.
• Set expectations and deadlines for a smooth flow: Establish clear expectations around invoice approval timelines, communication protocols, and escalation procedures. This could involve defining expected turnaround times for approvals at each level and clear communication channels for inquiries or discrepancies. By setting these expectations, you foster a culture of efficiency and reduce the need for follow-up tasks and delays.

Enhancing vendor communication: Building stronger partnerships.

• Onboarding vendors and integration: In this stage, integrate new vendors into your business’s procurement system. This could entail setting up payment conditions, creating a secure vendor portal and communication channels, and training vendors on the company’s policies and procedures.
• Open communication channels are essential: Maintain open communication channels with vendors to address questions promptly and resolve any discrepancies efficiently. This could involve establishing dedicated communication points (email, phone), or even online collaboration platforms for real-time communication.
• Encourage e-invoicing for faster processing: Promote the use of electronic invoicing (e-invoicing) with your vendors whenever possible. This eliminates paper handling, reduces processing time due to automatic data extraction, and minimizes errors associated with manual data entry. This ultimately benefits both parties by streamlining the process and freeing up resources.
• Early communication of purchase orders sets the tone: Provide vendors with purchase orders well in advance, including clear details of products or services, quantities, pricing, and expected delivery dates. This ensures accurate invoicing from the outset and avoids potential disputes later in the process. Early communication also demonstrates respect for your vendors’ time and planning needs.

Conducting regular audits: Maintaining control and ensuring compliance.

• Schedule regular internal audits for continuous improvement: Conduct regular internal audits of your IMS to identify potential weaknesses in your processes and ensure adherence to established policies and procedures. This could involve reviewing a sample of invoices for accuracy and adherence to approval workflows. Regular audits help identify areas for improvement and ensure your IMS is operating at peak efficiency.
• External audits offer an independent perspective: Consider periodic external audits to maintain the highest standards of financial control and mitigate compliance risks. External auditors can provide an objective assessment of your IMS and identify areas where your processes may not align with industry best practices or regulatory requirements.
• Data analysis is key to continuous optimization: Regularly analyze IMS data to identify trends and areas for improvement. This could involve analyzing invoice processing times by vendor, identifying common errors, or evaluating vendor performance metrics. By taking a data-driven approach, you can continuously optimize your invoice management processes and ensure long-term efficiency.

Conclusion: Key takeaways for enhancing invoice management.

An invoice is a demand for payment, and effective management is required to ensure that all invoices are processed efficiently and accurately. This involves the collection, validation, timely payments, and meticulous recording of transactions. The benefits are significant: preventing delays in payments to vendors, avoiding unnecessary waste and delays in operations, optimizing inventory control, and providing valuable data for financial planning and performance analysis. And, streamlined invoice management simplifies tax documentation and audits, saving time and resources across the organization.

Modern spend orchestration tools like Airbase can be a game-changer for state-of-the-art invoice management. Airbase offers a comprehensive suite of features that go beyond basic AP automation, streamlining your entire purchase-to-pay (P2P) process.

Airbase uses AI to capture data and categorize transactions automatically. And each sync makes it wiser. Based on previous general ledger entries, auto-categorization modifies the GL fields of physical card transactions.

Airbase’s AI-powered invoice processing software makes invoice capture easier with cutting-edge AI and OCR, matches invoices to purchase orders, uses approval protocols to make sure that an invoice is approved by all parties before it is paid, provides a variety of payment methods such as automated payment scheduling and foreign payments, and has a secure vendor portal where vendors can manage payment details and monitor the status of payments.

Schedule a demo today and see how powerful AP automation from Airbase can streamline your vendor invoice management strategy.