Understanding the Invoice Management Process and Its Challenges

What is Invoice Management?

Invoice management refers to overseeing the entire invoicing process—from receiving and recording invoices to reviewing and paying them.

In many businesses, this process is typically handled by the accounts payable team within the finance department. They receive invoices from suppliers and vendors, verify their accuracy, and then validate and process them for payment.

The Importance of Invoice Management for Businesses

There are two key reasons why effective invoice management is essential for your business.

Improve Cash Flow

With proper invoice management practices, you can ensure timely payments and avoid delays, which helps improve your cash flow and enhances the accuracy of your cash flow forecasting. Invoices provide visibility into when cash will leave your business, allowing you to plan ahead and ensure there is always sufficient cash to cover operational expenses.

Build Strong Relationships with Partners

A smooth invoice management process helps prevent supply chain disruptions and strengthens your relationships with vendors. When you consistently pay on time, it builds trust with your partners, which may lead to benefits such as larger early payment discounts or more favourable payment terms—both of which can further improve your cash flow.

With help from automated invoice management software, a capable accounts payable team will pay all invoices by the due date and keep a detailed record of every invoice and every payment, providing you with more visibility into its expenses and preventing mistakes such as under- or over-payment.

Understanding the Invoice Management Process

When your business receives an invoice from a vendor or supplier, your team does not pay it immediately. Instead, the invoice must go through several steps to ensure its validity and compliance with the contractual agreement.

Below are the key steps commonly involved in the invoice management process for most businesses.

Receiving the Invoice

The seller/vendor sends an invoice to your company, outlining the details of the transaction, along with their contact information and payment details. This first step is often where the inefficiency begins, as the invoice is usually sent to procurement teams, managers, and other employees who don't work in the accounts payable department.

Invoice processing begins in earnest once the invoice is sent to the correct team.

Validating the Invoice

A member of the finance team, such as an accounts payable clerk, will check the invoice to confirm that the details correspond to the initial agreement. They may consult with other departments to double-check invoice details and confirm that the products were received or the services were supplied.

Recording the Invoice

The next step is to record the invoice in the company’s accounts. This can be done manually or through a platform that scans invoices automatically, reducing the need for time-consuming manual data entry.

Manual invoice processing typically entails copying information into a spreadsheet and then scrutinising it to confirm everything and prevent mistakes.

Paying the Invoice

The accounts payable clerk will request payment confirmation from senior team members before processing the payment and finalising the invoice. However, the approval process can be time-consuming, depending on your company’s spending policies and the number of approval layers required.

Once the invoice is approved, the payment is sent to the vendor. If there are no issues, the vendor will confirm receipt, and the invoice will be filed for record-keeping.

Invoice Management Challenges

Inefficiency is rife in invoice management processes, creating various headaches for businesses:

Manual Processing and Errors

Processing an invoice requires multiple steps, and these drag out the process and create unnecessary friction for the business. As noted above, the employees tasked with processing invoices aren't always the ones who actually receive them, and if they don't know what was agreed or what was delivered, and they must request permission before sending a payment, there will be payment delays and frustration on both sides.

Invoicing Formats

A lack of standardisation affects various aspects of the business but can be particularly frustrating in invoice management. If format requirements aren't explicitly stated, accounts payable may receive various formats—including both paper and digital invoices—thus complicating the payment and recording processes.

Late Payments

Every time the payment team must consult with another department, it slows the process down. If one of those employees doesn't respond quickly or isn't working at that time, it may delay the payment. In understaffed and overworked finance departments, such issues are common, as processing can take days or even weeks, and that creates a backlog.

Delayed payments will void early payment discounts and may incur additional costs.

Downsides of Inefficient Invoice Management

For most employees, invoice management is the last thing on their minds. They finalise a deal, sign a contract, receive the goods, and then focus on the next deal. However, if those invoices aren't paid promptly, the entire company will suffer.

There are two major issues here:

Damaged Vendor Relationships

Vendors expect to be paid before the invoice due date. They have sent the goods or supplied the services; they have upheld their end of the agreement, and now they expect you to play your part.

Delayed payments will frustrate your vendors to the point that they may think twice about doing business with you in the future.

Costly Invoice Processing

According to a report by Adobe, processing a single invoice can cost a business between HKD 117 and HKD 313. A paper invoice will typically cost more to process than an electronic invoice, but in inefficient systems prone to errors and reliant on extensive administration, the costs will be toward the upper end of that range.

HKD 313 sounds like a lot to process a single invoice, but that's because there are various factors involved, from the price of labour, invoice management software, and mailing to wasted resources and costly mistakes.

Benefits of Automated Invoice Management

Automated invoice management software tackles many of the pain points associated with invoice processing.

An automated invoice management system uses various innovations to manage invoices quickly and effectively, with minimal manual input and few mistakes. This includes a technology known as Optical Character Recognition (OCR), which converts handwritten texts and images into a digital format, allowing the system to process a paper invoice just as quickly as a digital one.

The benefits of using this type of accounts payable software include:

Faster Payments

An invoice automation system processes invoices automatically and quickly, reducing payment times from a couple of weeks to a matter of hours. Every supplier invoice is paid quickly and correctly, thus supporting strong vendor relationships.

Increase Accuracy

By creating a tailor-made workflow, businesses can establish exactly what they want the payment process to look like. The software will take over from there, and as there is very little manual intervention required, there is no risk of human error.

Increase Productivity

As your finance team isn't spending their days sifting through invoices and completing repetitive data entry tasks, they'll be free to work on other tasks. You can put their skills to good use, optimising your business and helping you to get the most out of your employees.

Prevent Fraud

Invoice automation software contains various security features. These secure layers prevent fraudulent invoices from slipping through the cracks, ensuring that only legitimate and verified invoices are processed and paid.

The same features can detect duplicate invoices, whether they were sent to defraud the company or as a genuine vendor error.

Scale Easily

As your business grows, so do your invoicing demands. You'll either need to quickly scale your finance team, often at a substantial cost, or place a greater responsibility on existing employees. Either way, it's rarely a viable solution for a rapidly growing business.

If you use software to receive, check, and approve invoices, you can grow your business without worrying about burying your finance team in paperwork.

Stay Compliant

Automated invoice management systems keep detailed records of all invoice information, including payment terms, goods/services provided, vendor details, and completed payments. These details are essential for maintaining accurate company records needed during company audits.

They are also equipped with data security features to ensure regulatory compliance.

How Aspire Can Streamline Your Accounts Payable Process

Invoice management plays a crucial role in improving both your cash flow and vendor relationships. To ensure timely payments, automating your invoice process is essential. If you're looking for a tool to streamline invoice management, consider using Aspire's Business Account.

Aspire's Business Account comes with a Payables Management feature that lets you upload thousands of invoices, customise approval workflows, and automate payments. You can also optimise your cash flow by scheduling bulk payments based on invoice due dates—saving you hours of manual work.

What’s more, you can synchronise all accounts payable data with your accounting software, allowing you to close your books twice as fast.

Sign up for an Aspire account today to embrace innovation and automation while remaining compliant.

Frequently Asked Questions

Who processes invoices in a company?

Invoice processing is the job of accounts payable, which often exists within a larger finance team. They receive every supplier invoice, check the invoice data, confirm that the goods/services were received and the invoice corresponds to the contract, and then approve payment.

How do you effectively manage invoices?

The best way to automate invoice processing is to use invoice management software. It's often easy to use and comes with a variety of features that will simplify the process, reduce costs, and pay invoices quickly, all while keeping your business secure and compliant.

Do I need automated invoice management software?

Invoice management software is often a low-cost and accessible solution that can scale with your business, making it suitable for companies of all sizes. If you have an AP or finance team, you will benefit from implementing an invoice management system. It will also integrate with existing software and is a key feature in enterprise resource planning (ERP) systems.

How can I avoid duplicate payments?

Your invoice management software should be able to detect duplicate invoices, thus avoiding unnecessary payments. If you're still using a manual process, educate your employees on checking invoice data and make sure they confirm everything with the correct departments before sending payment.

What is the difference between invoice management and invoice reconciliation?

Invoice management refers to the steps involved with processing invoice data and payments. Invoice reconciliation, on the other hand, confirms that all of the invoices a company receives align with its business accounts. The purpose of reconciliation is to find discrepancies resulting from fraud or human error.

What are approval workflows in invoice management?

An approval workflow is a predetermined structure through which all invoices must pass. Programmed into the company's accounting tool and outlined in its guidelines, the workflow covers the review and verification process, as well as any other steps that must be followed before an invoice is paid.