CFO Service Finance & Accounting

3 Major Challenges of Using Paper-Based Invoices

Invoices are important for all businesses whether they provide products or services.  Invoice processing is a big task and especially manual invoicing. You might be surprised that the majority of companies still process invoices manually. A common format used to send/receive company invoices is PDFs. A big amount of time/resources is needed to scan/capture physical invoices. This results in delays in the process of invoices and affects the visibility of cash flow.

It’s important for companies to keep in mind that there are various drawbacks of paper voices. They’re very time-consuming and often contain many benefits. The typical time required for paper invoicing is typically quite high. A 2011 study showed that the paper invoicing cycle time can be up for about 3 weeks. That’s quite high in today’s business world.

It’s critical to know the steps that are involved in paper processing. That will help you to see why paper invoicing is wasteful and it’s more logical to use digitization and automation. The details can differ from company to company. However, the majority of companies go through the same basic steps in terms of manual invoicing. They include the following ones:

Capturing Invoices

Suppliers generate/print invoices then mail them to buyers. After they receive it he invoices must be sorted and then sent to the Account Payable (AP) department. The AP staff usually manually inputs the details into their particular system.

Quality Assurances

In order to make sure the payments are correct; payments terms are right/complete it’s important to verify the invoices. AP staff typically reviews each of the invoices to make sure they’re complete and accurate. For example, invoices must be examined for errors like a Purchase Order (PO) number that’s missing or wrong account numbers.

Next, invoices must be validated in order to verify that the billing amount matches up with the order amount and the number of goods/services bought. Then the cost center should examine the tax treatment for an invoice.

Approvals

In most cases, invoices must be approved by authorities before payment. AP staff must route invoices to the right personnel when their approvals are required. The process must be monitored so there are few delays. If there are any issues like discrepancies or disputes the AP staff should contact the supplier to clear up the problem.

Accounting

The AP staff is required to record the expenses located in the company’s General\CFO Ledger. They must then file invoices or move them to archives for the purpose of storage. This process is done in order for invoices to be retrieved when that’s required.

Payments

When the approvals are received the AP system then processes the payment. The payment is sometimes made through an automated clearing house (ACH) or paper check.

Major Problems with Manual Invoice Processing

Manual/paper process of invoices involves many issues/problems that can cause extra causes and lower efficiency. There are various reasons paper invoicing is a process that’s wasteful:

• Errors

Invoices are usually received through different means of courier, mail, email, fax, or other formats. Because there are multiple sources there might be confusion unless the invoices are input into one system. This must be done manually, which can result in wasted time and errors. Errors can include paying one invoice twice; paying invoices when goods/services weren’t delivered, entering a wrong PO number, or paying wrong amounts.

• Monitoring

It’s easy to lose paper invoices. If paper invoices aren’t filed or stored in the correct place there’s a chance they’ll get lost with other paperwork. It can be difficult to monitor each of the invoices. This results in AP personal spending a lot of time dealing with queries from various suppliers regarding payment status.

AP departments are now key to a company’s bottom line. They now don’t cost/processing centers. So, AP staff doesn’t have time/resources to waste from manual processing. The goal of AP departments should usually be to boost savings via different methods like discount capture, avoiding penalties, and lower labor costs. It’s also a good idea to improve efficiency with which staff members are able to access invoice/payment info.

There are 2 things that can determine an AP department’s efficiency. The first is the amount of time required to process an invoice. The other is the cost needed to process invoices. One study discovered that the top companies spend an average of nearly 3 days to process one invoice and it costs about $220 per invoice. This happened when the industry average was nearly 16 days the cost was over $9 per invoice. This can only be done through digitization and automation.

A 2015 study stated that common electronic/automated processes for invoices can result in savings of up to 80% versus traditional paper processing. The study also shows that companies that switch to e-invoices usually earn their money back within 6-18 months. There are various key benefits of automation including:

• Approvals

The approvals are faster since the info is available to everyone. These results in approvals can be done much faster.

• Instant info

When invoices are automated the invoice can be accessed by anybody and from anywhere. This is a major benefit since the information can be accessed instantly.

• Errors

Automated invoices working with an AP system can streamline workflow and make the info more accessible. A more important issue is when data is captured there are fewer chances of errors. There’s also no need to constantly check/monitor for errors.

• Costs

The costs are lower since payments are on time and penalties can be avoided. There are even discounts sometimes offered by suppliers for people who regularly pay on time.

• Work

There’s a lot of time required for the handling/processing of paper. Another issue is there’s the need for manual cross-referencing. This requires a lot of time since AP staff must compare the voice with a contract. In the case, the info isn’t available they might have to send it to other authorities for cross verification. Based on the company’s size there could be thousands or millions of invoices sent to the company. This wastes a lot of time for workers.