When you’re running a small business, making on-time and accurate payments to vendors seems simple enough.
However, this can quickly change as your business scales and you start working with more vendors.
Even as the volume of incoming invoices grows, you still need to verify them each for legitimacy, record the due date, and check for possible early payment discounts, all of which can be tedious and time-consuming.
Not to mention, if your team still relies on manual workflows and paper invoices, this process can become even more convoluted (and expensive) as you grow.
Effective vendor invoice management helps you ensure payments are made on time and reduces your risk of making mistakes when processing invoices.
But, there are many pieces to this puzzle that must come together if you want the process to be efficient, accurate, and productive.
In this guide, we’ll cover what vendor invoice management is, how automation can benefit the process, and some best practices that you can implement in your own business.
What is vendor invoice management?
Vendor invoice management refers to how your company handles invoices from receipt to payment.
Put simply, it’s the process you take to pay your bills.
The goal of vendor invoice management is to streamline the process and improve AP efficiency while still making accurate and timely payments.
The importance of vendor invoice management
Paying your vendors on time may seem like a straightforward process that you don’t need to put a lot of thought into–especially in the earlier stages of your business when you have just a handful of suppliers.
But, from receiving a new invoice and verifying its data with an invoice audit to tracking down the appropriate approvals and finalizing the payment, there are many moving parts in this process that need to run smoothly for on-time and accurate vendor payments.
With this in mind, defining and implementing a solid vendor invoice management process can provide important benefits to businesses at any level, including:
- Helping you make on-time payments, avoiding late fees or penalties
- More accurate financial reporting and fewer payment errors
- Better relationships with vendors by avoiding late payments
- Greater visibility into cash flows
The benefits of automated vendor invoice management
A solid invoice management system can be highly beneficial to your business. You can tap into even more advantages by automating certain aspects, providing the following benefits:
Faster invoice processing
When done manually, processing vendor invoices can take up a lot of your team’s resources. With each additional invoice they receive, their workload increases in proportion, eventually maxing out their capacity.
In turn, this can bottleneck your invoice processing abilities, resulting in higher labor costs, reduced productivity, and slower payment cycles until your team can catch up.
An automated system can help your AP department gain back valuable time in their days for more engaging tasks that require critical thinking, like managing vendor relationships or performing cash flow analysis.
Better efficiency
According to data published on CFO.com, the cost to process an invoice can range anywhere from $1.42 to $6. So optimizing your AP workflows where possible can help you achieve spending at the lower end of this spectrum.
With automated AP software (like BILL), you can streamline how you pay vendor invoices for better efficiency.
You can quickly import invoices into the system with minimal manual data entry, tailor approval workflows to fit your requirements and ensure vendor payments are processed on time.
The result is less hands-on time for manual data capture, invoice matching, requesting approvals, and processing payments–which can help you save on labor costs and boost productivity.
Lower risk of human error
With less reliance on manual data entry, you can mitigate the risk of human error like making duplicate payments or transposing digits on the amount due.
In turn, this can give you better visibility into your cash flow levels, supporting better budgeting and purchasing decisions.
Vendor invoice management best practices
If you’re struggling to keep up with invoices, or constantly missing due dates, here are some tips to make sure your vendors get paid on time, every time:
Automate tedious and time-consuming tasks
Automation can provide significant improvements in the efficiency and accuracy of invoice processing.
Other advanced technologies like optical character recognition (OCR) are highly useful, as it can scan and interpret invoice data so it’s properly stored in your system with minimal human intervention.
At every stage of the process, using technology like OCR and automation can lessen your dependence on manual data entry for quicker payment cycles, easier standardization, and a greater capacity to handle more invoices.
If your team still handles paper invoices or requests approvals manually, an AP solution like BILL can help you streamline the critical workflows in this process, like:
Implement two/three-way matching
To reduce the likelihood of payment errors and prevent fraud attempts, you should match incoming invoices against purchase orders (with two-way matching) or purchase orders and receipts (three-way matching).
Compare each of these documents against one another to ensure the details and information are consistent and correct. If so, you can proceed with payment.
Verifying invoices can help you catch mistakes and discrepancies, whether they stem from honest errors or intentional fraud attempts.
These are some of the possible types of invoice discrepancies this process may uncover:
- Incorrect amount due
- Incorrect item quantities
- Items not yet received
- Duplicate invoices
- Fake invoice sent for products/services never rendered
Make sure you outline how your team should handle discrepancies, and who they need to inform in such situations. You can document this in your accounts payable policy.
You need to catch these mistakes proactively, otherwise, it could cost you.
Maybe your vendor’s team transposed two numbers on the invoice before sending, showing you owe $21,000 instead of $12,000.
Without proper invoice verification, you could seriously overpay and create a pinch to your cash flows in the meantime.
Even when you receive invoices from vendors you trust, you should still verify them. Everyone makes mistakes, and you’d rather catch the error before you’ve processed the payment and need to request a refund–or worse, it goes unnoticed.
Establish clear approval workflows
Whether you’re processing invoices manually or using an automated system, you’ll want to have clear approval workflows in place.
Define and communicate the approvals process with relevant employees. This will allow invoices to be handled uniformly, which can prevent bottlenecks and reduce payment delays.
An established structure can also help strengthen your internal controls and provide transparency for auditing purposes. It can eliminate confusion about who is responsible for making approval decisions, which can further delay the process.
You can implement an additional approval step by someone outside of the AP department, like the compliance team.
Depending on the nature of your business and the number of vendors you deal with, you might need to assign certain staff members to different types of invoices.
Those above a certain amount may require additional approvals or routing to more senior personnel.
You should have specific guidelines for how rejections are handled, what documentation is required in these situations, and where invoices are routed afterward.
Strategically time payments
While it might seem like best practice to pay invoices as soon as possible, this may not always be the most strategic choice from a cash flow perspective.
Even if a vendor offers an early payment discount, you may not want to close out the invoice ahead of the due date if you’re worried it will create a short-term cash squeeze.
When it makes sense and you have plenty of working capital on hand, you have more reason to take advantage of early payment discounts.
Of course, you should always time payments so they’re made by the due date to avoid late fees. This helps support good relationships with your vendors, which may earn you better priority and more favorable terms in the future.
Ready to automate your vendor invoice management process?
Manually processing vendor invoices can weigh on the efficiency of your AP department as you grow.
To avoid bottlenecks and continue making on time and accurate payments, automating vendor invoice management can help your team work faster and save valuable resources.
An automated AP solution like BILL can help you streamline invoice processing, making it easier to capture invoice data, request approvals, and process payments with little to no manual work required.
Find out how our invoice processing automation can help streamline your accounts payable workflows.
