Automated Invoice Processing: How to Reduce Errors and Boost Efficiency

Automated invoice processing is a workflow that uses OCR scanning or supplier-submitted templates, plus 3-way matching, to capture, verify, and approve invoices with minimal manual data entry.

Every smooth-running business needs to process invoices quickly and accurately. Manually submitting everyone, however, is costly and time-consuming.

On average, most companies today will spend between $15 and $40 per invoice.

What pushes an invoice into the upper end of the spectrum? As your payment service provider will remind you, processors always charge transaction fees, but the actual cost is time. After all, it takes time to:

• Verify invoice details
• Input invoice information
• Approve invoices
• Send out payments

Late charges may be added to your already inflated overheads if it takes too long to pay an invoice. On the flip side, clients who are late to pay you put your cash flow at risk.

By automating many invoice processing stages, you can minimize the time it takes to input, process, and approve invoices. This saves you time (and money) and keeps everything in your system squeaky clean if you ever need to check a document or prepare for an audit.

Want to Automate? You Have to Digitize

Automation and AI are today's big business words, but neither can be achieved unless you fully digitize your business. After all, you need more than just a single invoice processing tool. You need it all, from sales enablement software to an invoice processing tool, to an enterprise resource planning framework and beyond. In fact, invoice processing tools work best when part of a wider system. This way, your sales team can onboard new clients and suppliers and set them up using your new digitized invoicing method.

Then, the invoice processing tool can link to your ERP, business process management system (BPM), or robotic process automation tools (RPAs). Together, these tools smooth over invoice ingestion, processing, and payment.

What is Automated Invoice Processing?

Automated invoice processing is a streamlined workflow that uses a built-for-purpose tool to enter, process, and approve invoices automatically. These systems work to:

• Minimize how much data has to be manually entered
• Automatically run 3-way matching checks to verify invoice data
• Automatically sort invoices and send them out for approval
• Keep all your records accurately stored in an electronic document management system (EDMS)
• Streamline invoice processing workflows

Manual vs. Automated Invoice Processing

TaskManual ProcessAutomated ProcessVerify invoice detailsStaff manually check details, part of the $15-$40 average cost per invoice3-way matching checks automatically verify invoice dataInput invoice informationData is keyed in by handOCR or supplier-submitted templates minimize manual data entryApprove invoicesInvoices are routed for sign-off manuallyInvoices are automatically sorted and sent out for approvalRecord keepingPaper files or scattered digital copiesRecords are stored in an electronic document management system (EDMS)

There are two common ways these systems automate your invoice processing workflows.

1. Optical character recognition (OCR) converts scanned invoices into usable data and sorts that info into pre-made templates.
2. Suppliers are asked to create and send invoice details using your template forms.

The information in that template is then verified with 3-way matching, which helps prevent fraud or errors from costing your business dearly. Fraud is costly beyond the initial loss: for every dollar lost to fraud, businesses lose another $3.75 in fees, penalties, and operational costs, according to Statista. As an added benefit, this is how you can easily keep your invoice processing compliant for audit season.

How to Get Started with Automated Invoice Processing

To successfully get started with automated invoice processing, follow these steps:

1. Choose an Automated Invoice System

The first step is to choose an automated invoicing system. There are several brands out there to choose from. To make sure the option you select is right for your brand, however, check that it:

• Is compatible with your existing system
• Includes built-in features that suit your industry
• Looks simple and intuitive to use
• Can be customized
• Tracks KPIs
• Can generate invoices on your behalf (bonus)

2. Create or Customize Templates

Invoice processors scan invoices and populate a file with the relevant data into their designated fields. For example, the name will go into one slot and the date into another. This file is then added to the centralized platform, where it can be processed.

For best results, the designated fields should be customizable via pre-made templates or a drag-and-drop designer. This allows you to adapt your system to suit your industry.

3. Create the Rules

Every system needs rules and conditions to work efficiently. The rest of your system might falter if you don’t manually create and fine-tune these rules to suit your setup.

Examples of rules can include:

• If the Invoice exceeds $10,000: Send it to an executive for approval
• If the invoice is for a new vendor: Send it to the procurement or finance manager for approval
• If the invoice is past due: Send out an automated final payment reminder and flag it for review

4. Integrate Into Your Wider System

You must then properly integrate this invoicing tool with the rest of your accounting, marketing, and inventory system. You could connect your chargeback dispute system with your invoice processing tool so you can keep track of the invoices you have sent out for your records. For example, a chargeback on an invoice you thought had been paid, and the chargeback fees that come with it, must be flagged throughout your network. Mastercard estimates the average dispute costs merchants at least $74, and Stripe charges a further $15 per dispute, costs that add up fast if invoice-linked chargebacks go untracked.

Your invoicing tool must also link to your accounting software and data management system. A reliable accounting software integration helps these tools share financial data smoothly and reduces the need for manual synchronization. That connected data sharing is how you can automate your business beyond OCR scanning and invoice processing.

Tips to Boost Efficiency

Create a Standardized Checklist for New Supplier/Client Onboarding

Creating a standardized invoice format is one of the easiest ways to ensure your invoices, goods, receipts, and purchase orders match. You’ll want to use either a checklist or a sales coach AI to give each one of your sales or onboarding teams access to the information they need to successfully bring all new clients and suppliers/contractors up to speed on the invoicing and payments process.

Remember that on the client side, you’ll discuss your invoice process (e.g., when invoices go out, when you expect payment, if there’s an early repayment discount, etc.).

Integrate SLA Management

Service Level Agreements (SLAs) are the contracts between you and your supplier/client. They must be met for the invoice to be paid. You can keep client and supplier relationships straightforward by integrating SLAs alongside the invoices. If there is a chargeback or payment refusal, you can easily pull up the service level agreement and work from there.

When in Doubt, Invest in an ERP

If you are still digitizing your business, an enterprise resource planning tool is one of the better options today. This works like a shell that wraps around your system. Certain ERPs will have built-in APIs that bridge even older systems to your more comprehensive network with minimal fuss. Getting multiple brands, tools, and software to talk to each other can be challenging. ERPs make integration simpler.

Choose a Cloud-Based System

Your data should be cloud-hosted, as this allows multiple departments and offices access to the same information. Cloud-based systems are also the most up-to-date. For example, if a supplier or client changes their contact details, that update should be sent to your broader system. This, of course, can only happen if you have a single data source rather than multiple silos. Integrating computer inventory software with your cloud-based system ensures that all your hardware and software assets are easily tracked and managed in real time, preventing any discrepancies.

Tips to Reduce Errors

To reduce errors (and, in turn, improve efficiency) even further, you’ll want your system to have:

• Multi-channel support so it can scan and understand multiple file formats.
• A very easy-to-understand and use interface, so minimal training is needed
• A built-in OCR so you can scan and extract data from paper to digital files

You will also want to regularly use KPIs and other analytics data to improve your invoice processing system. Run tests to ensure all essential processes are working flawlessly, and ask team members for input so you can work on adjusting your approach to improve the workflow best.

Frequently Asked Questions

What is automated invoice processing?

Automated invoice processing uses a purpose-built tool to enter, verify, and approve invoices without manual data entry, typically through OCR scanning or supplier-submitted templates, then 3-way matching to confirm the details before payment.

How much does manual invoice processing cost a business?

Most companies spend between $15 and $40 per invoice when processing manually, driven mainly by the time it takes to verify details, input data, route approvals, and send payments, not just transaction fees.

Can automated invoice processing help manage invoice disputes?

Yes. When your invoicing tool is linked to your wider system, a chargeback or payment dispute on an already-paid invoice gets flagged automatically, so your team can respond with the right records instead of tracking it down manually.