Electronic Invoice Processing

DEFINITION

What is Electronic Invoice Processing?

Electronic invoicing, or e-invoicing, involves transmitting a digital invoice between a supplier and a customer in a structured, electronic format. For most businesses, e-invoicing is a faster, more accurate, and less expensive billing practice than older invoicing systems that rely heavily on manual processing. 

Electronic invoicing solutions make it much easier for businesses to automate key processes such as generating digital invoices with no human touch points and using three-way matching to compare invoices against purchase orders and receipts of goods or services.

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Invoice automation software that allows you to process more invoices with fewer human touchpoints and less time managing exceptions.

How Does Electronic Invoicing Work?

Electronic invoicing software makes the billing process more user friendly by allowing an organization to easily integrate invoice processing with their existing accounting or enterprise resource planning (ERP) software systems. An electronic data interchange (EDI) lets the supplier and customer’s systems communicate instantly. That allows your ERP to automatically generate an invoice and send it to the appropriate channels as soon as an invoice is entered into your system. That integration greatly reduces the time your accounts payable team might otherwise spend physically processing PDFs, emails, or paper invoices.

What is an Electronic Data Interchange (EDI)?

An Electronic Data Interchange (EDI) is a computer-to-computer exchange of electronically formatted documents that allows invoices and purchase orders to flow between a buyer’s and a supplier’s internal systems without requiring any human touch points. Documents exchanged via EDI must follow a standard format that allows them to be recognizable and readable by computer systems on both sides of the exchange. (Some common EDI standards include ANSI, EDIFACT, TRADACOMS and ebXML formats.) A business may use an EDI translator to accommodate exchanges from a wider range of partners.

What Are the Problems of Manual Invoice Processing?

Even in an era of increased automation and digitization, there are still many organizations that still rely largely on manual solutions for processing invoices and purchase orders. Even for small businesses, manual invoice processing can create a wide range of problems that could be easily addressed using automated software solutions. Common issues with manual processing include:

Greater risk of human error

People regularly make mistakes that automation does not. That is especially true in a field like accounts payable, which involves a high volume of tedious and repetitive tasks. Every human touch point in an invoicing process represents a chance of human error, and every human error means more time that your AP team needs to spend locating the source of the mistake and correcting it. Considering how easily those errors can result in overpayments, underpayments, and late payments, anything that can be done to avoid them should be done.

Higher processing costs

Manual invoice processing comes with a number of added costs that are not a factor with automation. Printing out physical documents requires your team to pay for paper, toner, equipment maintenance, postage, and envelopes, as well as the employee pay associated with all of those tasks.

Less productivity

Manually processing invoices takes a lot of time and effort, which means there is less of both to go around. The time your AP team spends on manual data entry, routing invoices for approvals, matching data across documents, detecting and correcting errors, and other tasks that go into invoice processing is time that can’t be spent on more productive tasks.

Delayed payments

Processing invoices by hand takes a lot of time and comes with a lot of uncontrollable variables. Waiting for all of the necessary approvals, detecting and correcting mistakes, and entering data manually can lead to delays in payment. That can create cash flow issues for suppliers and cause customers to miss out on valuable discounts for early payment.

Greater risk of fraud and duplicate payments

Fraud is a major concern for all accounts payable teams, and manual processing makes it that much easier for fraudulent behavior to slip by undetected. Intentional overbilling, duplicate invoices, vendor kickbacks, and other common types of fraud are far harder to perpetrate with automated fraud-prevention tools at your disposal.

What are the Benefits of Switching to E-Invoicing?

The downsides of manual processing should be evident by now, but what is the advantage of e-invoicing? Digitizing invoices has a long list of benefits for organizations of all sizes and across all industries. Let’s take a look at a few of the most important ones.

Reducing costs

An automated invoicing process brings down costs on several fronts. Not only does digitizing your invoicing eliminate many of the materials and equipment needs involved with manual processing, it also takes those tasks off of your AP department’s agenda. That cuts down on the work hours required to keep your invoices and payments flowing smoothly.

Eliminating errors

Manual data entry is not only a laborious task for your AP team. It’s also one that invites all manner of human errors. When those mistakes slip through your system, getting them corrected can eat up a lot of time and cause issues like delayed payments, overpayments, underpayments, and duplicate payments. An electronic invoice processing system with optical character recognition (OCR) can automatically pull relevant data from all kinds of documents, including emails, PDFs, Microsoft Word documents, and even scans of physical invoices. That data is then automatically entered into your ERP for processing, eliminating much of the risk of costly and time-consuming errors.

Boosting productivity

With manual data entry and other tedious, time-consuming tasks off of their plates, your AP team is free to focus on more pressing areas that make better use of their training and talents. By leaving the repetitive tasks to your ERP system and automated invoice processing tools, you can boost productivity by a considerable margin.

Automatic 3-way matching

Matching the data contained in an invoice against the corresponding data in purchase orders and receipts of goods and services is an important part of invoice processing, but it can also be the kind of tedious task that leads to low employee engagement and increased human errors. An automated invoice processing solution can automatically pull and compare data from relevant documents and flag any items that do not correspond for further review. That saves considerable time while also boosting accuracy and keeping employees more engaged.

Improving cash flow

E-invoicing moves more quickly and with greater accuracy than a manual invoicing process. That allows suppliers to send invoices faster, which in turn leads to much shorter payment cycles. When invoices are processed and validated faster, that creates quicker payments and improved cash flow for your customers.

Strengthening vendor relationships

Maintaining a strong working relationship with the vendors and suppliers who keep your business supplied with goods and services is crucial to your organization’s well-being. A reliable electronic invoicing system helps to ensure that your communications and transactions with those vendors are as speedy, accurate, and trouble-free as possible. Not only does that make your current vendors more likely to keep working with you in the future, it can also help build a reputation that can attract new suppliers and partnerships.

Smaller environmental footprint

A manual invoicing process generates a lot more waste and uses a lot more energy than an electronic process does. Upgrading your system to e-invoicing allows your team to eliminate paper, ink, and toner from your process while also cutting down on equipment purchases and the transportation required for all of those items. In an increasingly environmentally conscious business world, that lower environmental impact is an important consideration.

Ready to learn more about the electronic invoice processing options available through MHC? Schedule a demonstration today to see how we can help move your business out of the age of manual processing.

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