Every business survives on cash flow—your income and your expenses. Payments come in from customers and clients. Payments go out to vendors and contractors. To a large extent, those inflows and outflows determine the health of your company. Tracking them is critical to your success, and invoice processing is a big part of that.
Most companies keep a close eye on their income, often using accounting software to keep those records. As a company earns money, those amounts become "accounts receivable," meaning money that the company is expecting to receive. When the company is paid, those amounts are deposited into the company's bank account.
Invoice processing tracks the other side of a company's health—its expenses. Whenever a company buys just about anything, from office furniture or internet service to parts and goods, the money the company owes for those products or services becomes "accounts payable," meaning money the company is expecting to pay.
The company receives an invoice from the product or service provider for the amount it owes. The accountant, finance officer, or in some cases the business owner, records that amount in accounts payable. Then, when they pay the bill, they move that amount out of accounts payable, record it as an expense (such as utilities costs), and subtract that amount from their bank account.
That's why invoice processing is often called the accounts payable or AP process. All of these terms refer to the process a company goes through when it pays its bills.
This article will walk you through what invoice processing really is, how to do it, and how to automate it to make the entire AP process faster and easier.
What is invoice processing?
Invoice processing is the process a company goes through when it receives and pays a bill. That might sound simple. After all, we've all received and paid plenty of bills in our personal lives. The bill comes in, and you pay it. But a business has to manage that process in a much more controlled way.
For a small business, the extra steps might not look overly complicated. Tax reporting requires a company to save its invoices and receipts as proof of payment. It also requires businesses to keep detailed records of each payment and expense. Many small business owners do that for themselves, or they might hire an accountant to enter their expenses into accounting software for them.
Those records aren't just for taxes. They're also to let the business owner know how well they're doing. If a company makes and sells dog toys, and it costs more to make one kind of toy than the company can get for selling it, that's important information to know!
In addition, if the company has a large expense coming up, they need to know how much they'll have to pay and when so they can make sure it's covered.
Invoice processing helps companies keep track of their expenses for the health of the organization, for their taxes, and for their cash flow planning.
How do you process an invoice for payment?
Invoice processes, or AP processes, vary from company to company, but the basic steps are always the same:
Make a purchase or procure a service
Receive the invoice or bill
Review the invoice to make sure it's right (often called an approval)
Record the amount in accounts payable (if they haven't already done this)
Pay the bill
Record that amount as an expense, noting what it was for
Subtract that amount from the account they used to pay it
It's more complicated than paying a personal bill, but when you break it down, it doesn't sound that bad. And it really isn't—at least, not until things get complicated.
When you own and operate your own business, you can simply look at all your own bills and decide whether to pay them. You don't answer to anyone else, and you're the person who ordered the goods or services in the first place. So you know whether those bills are right or not. But what if you hire a manager?
Your manager might need to order things for you to save you time. When the invoice comes in, how do you know if it's right? You need some kind of documentation to capture that information, so you know what the bill should be before you get it. You'll want to approve the order ahead of time, record the expected amount, and check the invoice when it comes in against that amount.
That's just one example. As a business grows, your AP solution needs to improve for a lot of reasons. Your cash is a resource you need to use wisely. You need to increase your protection against the possibility of employee theft. You need to make sure the services you buy are actually supplied. You need to make sure you don't pay the same bill twice. You need to put approval and compliance rules in place to satisfy loan officers and investors.
The AP process can get extremely complicated, and it can take a lot of time to manage. Plus, businesses can end up paying hundreds or even thousands of invoices every month. That's a huge volume of paper to store and keep track of. If you don't make timely payments, you're often charged even more. And many vendors don't like taking credit cards because they don't want to pay credit card fees. That means you have to print and sign hundreds or thousands of paper checks every single month.
Most companies end up hiring a huge finance department, and even then, the CEO and other officers spend far too much time tracking down needed invoices with questions about suppliers and amounts, dealing with errors, and managing the issuance of all those checks in accordance with their various systems and responsibilities.
It's no wonder companies turn to modern technologies to help.
Why automate your invoice processing?
Why would you want to automate your invoice processing? By now, one answer should be obvious—efficiency.
Unfortunately, AP automation means different things to different companies. For example, a company might decide that every invoice needs to be scanned and recorded in a digital document file. That might help you find an invoice, assuming it's been recorded correctly with the right invoice number, but that isn't invoice automation.
You're still manually creating a scan and manually storing it somewhere. Whoever is tasked with that could make mistakes, filing the wrong image in the wrong place with the wrong number.
And even if they do everything right, that file has to be emailed from one human being to another to be reviewed, matched, and validated. That's another place where things can go wrong. The email could go to the wrong person, or it could get buried in the middle of a thousand other emails.
If someone has a question about an invoice, that question isn't stored with the invoice. It's left in limbo in someone's email account—an email you'll never find 5 months from now if someone forgot to include the invoice number in the subject line. Not to mention the fact that the employee who worked with that invoice might not even be with the company anymore.
These types of problems lead to the second main reason companies turn to automation software—mistakes cost money.
Duplicate purchase orders might get paid twice. That alone can cost a company thousands of dollars, or worse. But small mistakes can add up too. When a bill gets entered manually several different times—when it arrives, when it's paid, and on the paper check itself—a simple typo or mis-written number can throw the entire accounting system out of balance. Tracking down errors can cost hours upon hours of valuable time, and when a company is responsible to investors, those errors can even lead to legal liability.
It's just another reason why growing companies need a complete automation system for their AP cycle.
The Bill.com difference
Partnering with Bill.com provides a turnkey automation solution for your AP process. It doesn't require special training to use, and most companies can set up their account without any assistance and pay their first bill within just a few minutes. Here's how it works.
Let's start with invoice management. An electronic invoice can arrive by email, or you can snap a photo of a paper invoice on your phone and upload it with the Bill.com app, or you can scan an invoice and drag-and-drop it onto the Bill.com dashboard. No matter how that supplier invoice arrives, our Intelligent Virtual Assistant, IVA, stores it automatically and gets started processing that invoice for you. It reads the data for your review using advanced optical character recognition, reducing the chance of human error. It even checks for things like duplicate invoice numbers and flags any issues.
Once you approve the data, you don't have to route it anywhere for approval. True automated invoice processing can eliminate the need for manual routing. Just set up your business rules and workflows however you need to, with as many rules as you like. Make some approvals immediate and require 3 electronic signatures for others. It's entirely up to you. Bill.com finds the applicable rule for each transaction and sends the invoice to the right people automatically.
Want to move an invoice along quickly to take advantage of early payment discounts? Check the status of any bill from the easy-to-use Bill.com dashboard, and remind the accounts payable department that you need that invoice approval with just a few clicks. Bill.com will notify the right people, and the approvers can even handle that approval on their phone. Every communication about the invoice is stored with the invoice itself, so you don't have to go digging for what you need.
When you're ready to pay the bill, choose from 4 types of payment methods: virtual card, ACH, international wire, or paper check—Bill.com will even print and mail the check for you without any need for a manual signature. The approval is stored in the system itself, in a time-stamped audit trail. You don't have to worry about auditing today or years in the future. With the visibility and transparency that Bill.com provides, you'll know every procedure was followed and every invoice and payment was properly filed.
You can even integrate Bill.com with major business accounting software like QuickBooks, Oracle NetSuite, Sage Intacct, and Xero. Now, IVA helps you enter that invoice once, and the data related to that invoice flows through the system automatically from arrival, to approval, to payment, to the update in your general ledger, without manual duplication. And everything stays up to date, so reconciliation is easier than ever.
And there's still one more feature that makes Bill.com far better than paper systems. When you connect your checking account or other bank account with Bill.com, your vendors don't see your banking information. You fill out your own information in the Bill.com system, and they fill out theirs. Even when you pay by check, Bill.com sends that check from a Bill.com account, resulting in a much more secure payment system without the headache of papers and physical storage.
With so many benefits—true payable automation that leverages artificial intelligence to read incoming invoices, store invoice information, reduce inefficiencies, enforce business processes, flag discrepancies, and even improve vendor relationships, all while keeping the accounting department lean and happy—it's no surprise that growing businesses turn to Bill.com to automate their invoice processing.
"We transitioned from a paper file system for payables to Bill.com four years ago and have never looked back. Switching to Bill.com has ensured we never lose an invoice again, never forget to pay, and have greater visibility into our payables - both in detail and in summary. It has made actually paying our bills a breeze, cutting down on time spent printing and mailing checks. Now all it takes is a few clicks of the mouse, and our vendors are paid in full and on time, and a perfect workflow to prove it. In this unprecedented period when we are all working remotely, Bill.com ensures we don't miss a beat." — Katherine Harvey, CEO and Co-founder, Bare Bones Broth