Learning Center
What is vendor invoice management?

What is vendor invoice management?

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.

Key takeaways

Keeping a good relationship with vendors is crucial; paying on time avoids late fees and earns trust

Automating vendor invoice management saves time and reduces mistakes, making payments faster and more accurate

Strategic payment timing can leverage early payment discounts without straining cash flow

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 process of managing invoices from vendors
The process of managing invoices from vendors

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:

AP Process How to automate it How it helps your business
Invoice capture Vendors send digital copies of invoices to a shared inbox. Creates a centralized location where invoices can all be stored and handled uniformly, with little or no manual data entry required.
Invoice matching Invoices stored in the centralized inbox are scanned with OCR to record relevant data, like the amount, due date, vendor details, and more. This information is then matched against corresponding purchase orders and receipts to verify accuracy. Any flags raised by the system can be reviewed by your team, otherwise, no other manual intervention should be necessary.
Approvals Invoices are automatically routed to the necessary approvers. All approvals/denials will be stored within the system to create a clean audit trail, in addition to any questions or discussions about a given invoice for future reference.
Payment Upon approval, the automated system will process the payment and ensure it’s made on time. Many systems support several payment methods like card, ACH, wire transfer, or paper check to meet your or the vendor’s preferences. Prevents delays in the payment cycle, and makes it easier to verify when payments were issued.
Data storage The automated system will capture and store invoice data collected at every step of the process for better transparency and analysis. You can easily access and review any information when necessary, without needing to input it manually.

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.

BILL and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on, for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. BILL assumes no responsibility for any inaccuracies or inconsistencies in the content. While we have made every attempt to ensure that the information contained in this site has been obtained from reliable sources, BILL is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this site is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied. In no event shall BILL, its affiliates or parent company, or the directors, officers, agents or employees thereof, be liable to you or anyone else for any decision made or action taken in reliance on the information in this site or for any consequential, special or similar damages, even if advised of the possibility of such damages. Certain links in this site connect to other websites maintained by third parties over whom BILL has no control. BILL makes no representations as to the accuracy or any other aspect of information contained in other websites.