What is invoice management?

Without the proper invoice management tools in your business, you could miss vendor payments and make mistakes, both of which impact your relationships and overall financial health. In addition, effective invoice management opens the door to other value-added activities, like early payment discounts, contract negotiations, and lower costs.

Why is Invoice Management Important?

Invoice management is important for a variety of reasons. Let’s cover a few of these items in more detail.

Cash Flow Management

Improving the financial health of your business involves managing your cash inflows and outflows. Your invoice management function handles your cash outflows, ensuring you have enough cash on hand to make vendor payments. Additionally, if you are short on cash, you can delay paying invoices until the last possible date to preserve your checking account balance.

Fast and efficient insights into your payables allow for stronger resource allocation and cash control, helping your organization grow and make more informed payment decisions. Failure to have the proper invoice management controls can lead to costly late payment fees, interest, and penalties.

Compliance

Certain laws dictate how your business sends, receives, and documents cross-border invoices. Maintaining compliance with different regulations can be a challenge for global companies. Good invoice management processes ensure your business is compliant with applicable regulations, making inquiries and audits stress-free.

Accurate Data

When your team pays close attention to invoice processing, you generate accurate data. This could be an up-to-date aging schedule, or invoices remitted for the correct amount. Whatever the case, vendor invoice management prioritizes accuracy and eliminates many mistakes associated with an overlooked payable function.

Lower Fraud Risks

Your invoice function is one of the top targets for fraud. From an employee creating a fictitious vendor to a supplier overcharging you, fraud can go undetected for months or years without the right invoice management protocols in place. Your invoice management is more secure with defined processes and the right invoice management system working in the background.

The Typical Invoice Management Process

In recent years, traditional invoice management processes have converted to e-invoicing, which is the electronic issuance and payment of invoices. This eliminates the wait time associated with invoicing, giving you the ability to better time payments and strengthen your vendor relationships. Since e-invoicing is still a relatively new process, many companies haven’t fully converted over. Nevertheless, here is the typical invoice management process:

1. Receive Invoice – After goods or services have been provided, your company will receive a formal invoice. This document will outline the payment terms, due date, amount, and any early payment discount.
2. Enter Invoice – Next, a team member will enter the invoice into your payable schedule with all of the applicable terms. If you receive the invoice electronically and use automated invoice management software, the details of the invoice might flow into your accounting system.
3. Validation – Now, a member of your payables department will receive the invoice for authenticity and accuracy.
4. Approval – Upper management will then approve the invoice and payment date.
5. Payment – Your accounts payable team will issue the payment.
6. Archive – The invoice will be removed from your accounts payable ledger and remain archived in your records.

Although each business will have a slightly different process, these are the general steps you can expect.

Challenges of Invoice Management

The invoice management process is susceptible to errors and mistakes, especially if you don’t have defined processes and procedures. Here are some common challenges.

Manual Processing

If you follow manual invoice management processes, there is a heightened risk of errors and mistakes. From transposing numbers to mixing up the payment date, manual invoice entry opens the door to errors. In addition, manual processing drains time and resources that can be put to better use elsewhere in your company. Making the transition to invoice management software, like Eftsure, helps you avoid the inefficiencies of manual processing.

Vendor Difficulties

Each vendor will have different due dates, payment terms, and conditions, which makes it difficult to streamline your invoice management. This issue also leads to poor insights, consistency, and accuracy in your invoice processing. In addition, each vendor has a different invoice style, making it difficult to match payments, verify invoices, and take advantage of early payment discounts.

Staff Turnover

Staff turnover is a major challenge business owners face in their invoice management function. If your new staff member isn’t used to your processes and systems, it can lead to missed payment deadlines, duplicated invoices, and poor transparency in cash flow. This makes it important to have numerous team members in your accounts payable function. For many small businesses, this isn’t ideal. If you don’t have the resources for multiple invoice management employees, leverage invoice management systems.

How to Create an Effective Invoice Management System

Creating an effective invoice management system is important to scale your business, lower your mistakes, and implement efficiency. Here are some ways to create an effective invoice management platform.

• Automate Invoices – Automation reduces manual data entry, eliminates mistakes, and speeds up your invoice function.
• Standardize Invoicing – Creating standardized processes for all team members to follow generates comparability and transparency in your invoice function.
• Optimize Cash Flow – Invoices don’t need to be paid the day they are received. In fact, by delaying payments, you can improve your cash flow.
• Follow Payment Terms – Paying just one day late can hinder your vendor relationship. Make it a priority to pay on time every time.
• Monitor and Adjust – The most effective invoice management systems are constantly adjusting processes to maximize efficiency.

Summary

• Invoice management involves the receiving, authorization, and issuance of payments to external parties.
• Proper invoice management can help your organization reduce fraud, reach growth goals, and maximize efficiency.
• Invoice management tools are most effective when partnering with a robust invoice management platform like Eftsure.