In this day of automated processes, there is no longer any reason for supply chain processes to hinge on people manually passing paper invoices back and forth with trading partners. With traditional paper invoices, the document is sent via fax, scanned as a PDF and emailed, or sent through snail mail. Accepting and paying the invoice requires manual data entry, a process that is notoriously tedious and prone to human error. To save time and resources, and reduce the risk of costly errors, more organizations are opting to automate the invoicing process using electronic invoicing (e-invoicing).Want to learn more about integrating your financial data directly into your ERP? Check out this blog post.
Managing an Unmanageable Number of Invoices
A smaller organization may only receive ten or twenty paper invoices from a small number of suppliers. However, as the organization grows, expanding their number of trading partners to include a large network of suppliers, they quickly find themselves struggling to process hundreds of invoices each month and fielding emails and phone calls from suppliers eager to get paid.
By transitioning to e-invoicing, the accounting department will gain better visibility and control over important financial data, since the invoice documents are shared electronically in real-time. When sending an e-invoice, structured invoice data from the supplier’s Accounts Receivable (AR) system is sent directly to their clients’ Accounts Payable (AP) system via Electronic Data Interchange (EDI) format, decreasing the risk of invoice disputes, rejections or other manual entry errors.
Optimize Your Accounts Payable Department
As organizations grow, so does the task of processing large volume of invoices each month. Paper or PDF invoice documents must be stored, sorted, and re-entered into the AP system. These steps are inherently time-consuming and prone to error, problems that are avoided using e-invoicing.
Here are the 3 key benefits of switching to e-invoicing:
1. Take Advantage of Supplier Discounts
Organizations that make payments early can often negotiate a discount from their suppliers. For example, a supplier might offer a 10% discount if the invoice is paid within ten days, or may provide a discount to any client that uses electronic or online invoicing, as the likelihood of rapid payment is much higher than with manual paper checks. Paying an invoice quickly is a simple way to save money while making trading partners happy, and e-invoicing allows for dramatically faster processing and shorter payment cycles. As a result, organizations that use e-invoices have a better chance of taking advantage of helpful discounts.
2. Two and Three-Way Matching
Automated two and three-way invoice matching protects organizations from inadvertently paying an unmatched and unverified order. In the event that inconsistencies or errors are detected, payment will be withheld to allow for further research. For example:
- Two-way matching: Verifies that the Purchase Order (PO) and invoice information match within the following ranges: Quantity billed is less than or equal to the quantity ordered, and invoice price is less than or equal to PO price.
- Three-way matching: Verifies that the receipt and invoice information match with the quantity range you define: Quantity billed is less than or equal to the quantity received.
Just as the use of e-invoices eases the burden of reconciliation for suppliers, they also enable organizations to automate validation, ensuring accuracy before they are routed to business managers for approval. These validations also ensure that all the calculations are correct, and in large, multi-departmental organizations, help identify which goods were purchased by which departments.
3. Provide Automatic Status Updates
Another cost related to paper invoicing is the support staff needed to answer supplier queries. For example, after submitting a paper or PDF invoice, the supplier’s AR team will typically contact the trading partner to confirm that the invoice was received and approved. However, it’s not unusual for the supplier’s AR team to reach out again to inquire about the status of a payment. A critical feature of an e-invoicing program should be a portal which offers suppliers the ability to check the status of a payment. This frees up support staff from tracking down each invoice to provide updates.
Traditional paper invoicing has several hidden costs, with payment delays creating negative cash flow. These deficits become even more pronounced as a business grows, increases order volume and number of trading partners. Paying for personnel to manually process hundreds of invoices each month is simply not fiscally logical. In addition, as governments around the world institute strict environmental regulations, the drive to “go paperless” has become less of an altruistic goal and more of a practical necessity.
Embracing the benefits of e-invoicing requires a deep and realistic understanding of the benefits, challenges, and best practices for making the paperless dream a reality. Register now for our upcoming webinar, e-Invoicing: Benefits of Cutting Down on Paper to get a deep-dive into electronic invoicing from an industry expert.