What is Automated Invoice Processing? - A Complete Guide

Anyone who has dealt with manual invoice processing knows how time-consuming and error-prone it can be. In addition to being inefficient, manual invoice handling can also lead to delayed payments, strained vendor relationships, and financial inaccuracies.

Any business looking to streamline its accounts payable (AP) processes needs to consider invoice automation. However, the process of selecting and implementing the right solution can be confusing. Small businesses, in particular (that may not have the resources to research the options thoroughly), may have tried to automate their invoicing but encountered challenges. Or you may not be using invoice automation today but want to start and are unsure about the best approach.

If you're in either of these situations, we've put together this guide to help you navigate the world of automated invoice processing.

What is automated invoice processing?

Automated invoice processing is a technology-driven solution that streamlines and optimizes the entire invoice management lifecycle, from receipt to approval to payment. It eliminates manual tasks, reduces errors, and ensures compliance with financial controls and regulations. 

Automated invoice processing uses advanced technologies like optical character recognition (OCR), artificial intelligence (AI), and machine learning (ML) to capture, extract, and validate invoice data accurately.

Why is automated invoice processing necessary – The Benefits?

Automated invoice processing is necessary because it significantly reduces the time, costs, and errors associated with manual invoice handling. When you automate the entire invoice lifecycle, from receipt to payment, it helps businesses to improve efficiency, enhance visibility, strengthen financial controls, and ultimately save money.

Some important benefits are listed below:

Growing volume of invoices: 

As businesses expand and engage with more suppliers, the volume of invoices they need to process grows exponentially. Manual processing becomes time-consuming, error-prone, and inefficient.

Complexity of invoice formats: 

Invoices come in various formats, including paper, PDF, and electronic formats. Processing these different formats manually is challenging and prone to errors.

Compliance and regulatory requirements: 

Organizations must comply with financial regulations, such as Sarbanes-Oxley (SOX), which require strict controls over financial reporting and invoice management. Automated invoice processing helps ensure compliance by providing audit trails and enforcing business rules.

Need for real-time visibility: 

Finance teams need real-time visibility into invoice status, processing metrics, and spend analytics to make informed decisions and optimize cash flow. Automated invoice processing provides this visibility through dashboards and reports.

Cost reduction: 

Automated invoice processing significantly reduces labor costs associated with manual data entry and invoice handling. It also minimizes errors that could lead to overpayments or late payment fees.

Faster processing times: 

Automation dramatically speeds up invoice processing, reducing the time from receipt to payment. This efficiency can help businesses take advantage of early payment discounts and improve supplier relationships.

Enhanced accuracy: 

By eliminating manual data entry, automated systems reduce human errors in invoice processing. This improved accuracy leads to fewer disputes, smoother audits, and more reliable financial reporting.

Improved supplier relationships: 

Timely and accurate payments, facilitated by automated processing, lead to better supplier relationships. This can result in more favorable terms, priority service, and stronger partnerships.

Fraud prevention: 

Automated systems can detect duplicate invoices, unauthorized purchases, and other red flags that might indicate fraudulent activity. This enhanced control helps protect the organization from financial losses.

How does automated invoice processing work?

Automated invoice processing works by capturing invoice data using OCR, validating it against predefined rules, routing it through digital approval workflows, and seamlessly integrating with existing ERPs or accounting software, all while leveraging technologies like AI and ML to continuously improve accuracy and efficiency.

Automated invoice processing typically involves the following steps:

1. Invoice capture:

Invoices are automatically captured from various sources, such as email inboxes, FTP servers, or web portals. Paper invoices are scanned and digitized using OCR technology.

2. Data extraction: 

OCR, AI, and ML technologies are used to extract relevant data from invoices, such as supplier name, invoice number, amount, and due date. The extracted data is validated against predefined rules and cross-referenced with other relevant documents, such as purchase orders and contracts.

3. Data validation:

The extracted data is validated for accuracy and completeness. Any discrepancies or missing information is flagged for review and correction.

4. Approval workflow: 

Invoices are routed through predefined approval workflows based on business rules and thresholds. Approvers are notified via email or mobile apps and can review and approve invoices electronically.

5. ERP integration: 

Approved invoices are automatically posted to the ERP or accounting system for payment processing. The payment status is updated in real-time, providing visibility into the entire invoice lifecycle.

How to automate invoice processing for your business

Automating invoice processing involves digitizing the entire process, from invoice receipt to payment approval, using specialized software and technologies. This eliminates manual data entry, reduces errors, accelerates the invoice processing cycle, and improves overall efficiency.

To automate invoice processing for your business, follow these steps:

1. Define your requirements: 

Identify the key challenges and pain points in your current invoice processing operations. Define your requirements for an automated solution, including invoice volume, formats, approval workflows, and integration with existing systems.

   - What are the specific bottlenecks in your current invoice processing workflow?

   - How many invoices do you process on a monthly or annual basis?

   - What formats do your invoices typically come in (e.g., paper, PDF, electronic)?

   - What are your current approval workflows, and how complex are they?

   - Which existing systems (e.g., ERP, accounting software) do you need the automated solution to integrate with?

2. Evaluate solutions: 

Research and evaluate different automated invoice processing solutions based on your requirements. Consider factors such as ease of use, scalability, security, and customer support.

   - Does the solution offer features that align with your specific requirements?

   - Is the solution user-friendly and intuitive for your team to adopt?

   - Can the solution scale to accommodate your future growth and invoice volume?

   - What level of security and data protection does the solution provide?

   - Does the solution provider offer reliable customer support and resources?

3. Select a solution: 

Choose an automated invoice processing solution that best meets your requirements and budget. Look for a solution that offers flexibility, customization, and integration capabilities.

   - Does the solution fit within your allocated budget?

   - Is the solution flexible enough to adapt to your unique business processes?

   - Can the solution be customized to meet your specific needs?

   - Does the solution offer seamless integration with your existing systems?

4. Implement and configure: 

Work with the solution provider to implement and configure the automated invoice processing solution. Set up invoice capture methods, define data extraction rules, configure approval workflows, and integrate with your ERP or accounting system.

   - How will you capture invoices from various sources (e.g., email, scanner, supplier portal)?

   - What specific data fields need to be extracted from your invoices?

   - How will you configure your approval workflows and thresholds?

   - What steps are involved in integrating the solution with your existing systems?

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How to evaluate an automated invoice processing software

When evaluating an automated invoice processing software, consider factors such as invoice capture capabilities, data extraction and validation, approval workflows, ERP integration, reporting and analytics, and security and compliance. Look for a solution that aligns with your specific requirements, offers flexibility and customization, and provides reliable customer support.

When evaluating an automated invoice processing software, consider the following factors:

1. Invoice capture capabilities: 

Look for a solution that can capture invoices from various sources and formats, including paper, PDF, and electronic formats. The solution should have advanced OCR capabilities to accurately extract data from invoices.

   - Can the solution handle the specific formats and sources of your invoices?

   - How accurate and reliable is the solution's OCR technology?

   - Does the solution offer additional capabilities like mobile invoice capture or supplier portal integration?

2. Data extraction and validation: 

Evaluate the solution's data extraction and validation capabilities, including its ability to handle different invoice layouts, languages, and currencies. The solution should use AI and ML technologies to improve data accuracy over time.

   - Can the solution accurately extract data from your specific invoice layouts?

   - Does the solution support the languages and currencies relevant to your business?

   - How does the solution leverage AI and ML to enhance data accuracy and learn from past experiences?

3. Approval workflows: 

Look for a solution that offers flexible and customizable approval workflows based on your organization's business rules and thresholds. The solution should enable electronic approvals and provide real-time notifications to approvers.

   - Can the solution accommodate your specific approval hierarchies and thresholds?

   - Does the solution offer electronic approval capabilities for remote or mobile approvers?

   - How does the solution handle exceptions or non-standard approval scenarios?

4. ERP integration: 

Ensure that the solution can seamlessly integrate with your existing ERP or accounting system for smooth data transfer and payment processing.

   - Is the solution compatible with your specific ERP or accounting system?

   - How easy and reliable is the integration process?

   - Does the solution offer bi-directional data syncing to ensure consistency across systems?

Implementing invoice processing with Spendflo

At Spendflo, our spend management platform is designed to simplify your invoice processing, saving you time and resources while providing greater control over your expenses.

• Reduce manual data entry and minimize errors, freeing up your team to focus on higher-value tasks
• Accelerate invoice approvals and payments, helping you maintain strong vendor relationships
• Gain a clearer picture of your all spending patterns under one dashboard, enabling more strategic decision-making

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To discover how Spendflo can help you streamline your invoice processing and better manage your expenses, reach out to schedule a demo with our team.

Frequently Asked Questions about Invoice Processing

1. What types of invoices can be processed using automated invoice processing?

Automated invoice processing solutions can handle various types of invoices, including paper, PDF, and electronic formats. The solutions use advanced OCR, AI, and ML technologies to accurately capture and extract data from invoices, regardless of their layout or format.

2. Can automated invoice processing handle multi-language and multi-currency invoices?

Yes, most automated invoice processing solutions can handle invoices in multiple languages and currencies. The solutions use intelligent data extraction and validation techniques to accurately process invoices from different countries and regions.

3. How does automated invoice processing ensure data accuracy and completeness?

Automated invoice processing solutions use advanced OCR, AI, and ML technologies to ensure data accuracy and completeness. The solutions validate extracted data against predefined rules and cross-reference it with other relevant documents, such as purchase orders and contracts. Any discrepancies or missing information is flagged for review and correction.

4. How long does it take to implement an automated invoice processing solution?

The implementation time for an automated invoice processing solution varies depending on the complexity of your requirements and the size of your organization. Typically, implementation can take anywhere from a few weeks to a few months. However, most solutions offer flexible deployment options, such as cloud-based or on-premise, to suit your organization's needs and timelines.

5. What are the cost savings associated with automated invoice processing?

Organizations can save up to 60-70% on processing costs by automating their invoice processing operations. Additionally, automated invoice processing enables faster approval cycles and timely payments to suppliers, avoiding late payment penalties and improving supplier relationships.

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