What is invoice processing? Steps and software to help your business

Invoice processing can eat into company resources. By having the correct systems in place, small business owners can save a lot of time, energy, and money.

Paying bills on time is essential to maintaining a good relationship with your suppliers.

Many businesses tend to use software solutions to help automate the cycle. When your business works with overseas suppliers or contractors, the currency you pay can also impact the process.

This article will cover what invoice processing is, and how to manage it.

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📝 What you’ll find in this article:
What is invoice processing? Invoice processing steps Why is invoice processing important? Benefits of invoice processing software Save money with Wise Business

This piece has been written in collaboration with Esther Friedberg Karp, an esteemed bookkeeper and QuickBooks ProAdvisor.

What is invoice processing?

Invoice processing is the management of invoices from when you receive them to when you pay them. Invoice processing is usually the responsibility of the accounts payable department.

Most SMBs (small to medium businesses) pay their bills ‘sporadically, often very late or very early.’ Optimal invoice processing can help your business pay bills on time.

You can also use software to automate invoice processing.

The process will vary from one business to the next, but there are some steps that most businesses follow.

Invoice processing steps

It’s worth laying out the invoice processing steps for employees to ensure the accounts payable process goes according to plan.

If you decide not to use invoice processing software, you’ll want to have a robust system of manual steps in place.

When it comes to processing international invoices, the currency also needs to be considered.

Businesses can save money by processing and paying bills in the local currency. This should be agreed upon upfront in the payment terms before your supplier or contractor starts any work.

Steps of invoice processing:

📩 1. The first step is receiving the invoice. The invoice will usually arrive in the form of a PDF or paper document, delivered either electronically or by mail. 🖥 2. Once you receive the invoice, you can go ahead and enter the invoice data into your system. If the invoice has a purchase order (PO), then you should match it with the corresponding PO number (or PO numbers if there are multiple PO’s related to this invoice.) 📄 3. Now add a copy or scan of the invoice to your filing system for your records. 📔 4. After you’ve done this, it’s a good idea to add General Ledger coding to the invoice.¹ You can do this manually or via AP automation. 🗂 5. Classify the invoice so that you can send it off to the authorized approvers. 🕐 6. Once you’ve sent it off, you’ll need to wait to see if it is authorized or rejected. ✅ 7. If it is authorized, then you can check the payment terms and proceed to process the invoice for payment. 🗄 8. Finally, archive the invoice and payment details for auditing purposes.

To make this information easier to digest, you can display it as an invoice processing flowchart. This visual representation of how to process invoices can save a lot of time and cut down on mistakes.

💡 When paying international invoices, always check the currency in the payment terms. You can save money by paying in the local currency with a Wise Business account.

Why is invoice processing important?

Invoice processing is an essential cog in the wheel of every business’ operations.

According to research from EXIM (Export-Import Bank of the United States), 60% of invoices are paid late, with invoices in the US being paid on average seven days late.²

Without a proper process in place, you may miss payments and lose vital suppliers.

By making sure you pay bills on time, you can avoid late fees and promote a healthy cash flow for your business.

Mistakes in invoice processing are not only time-consuming. They can result in costly errors if line items for the product or service are incorrect or missing altogether.

🌎 Invoice processing is also essential when paying international bills. Paying in the local currency can make the payment process faster. However, traditional banks may end up short-changing you by not giving the real exchange rate. With Wise Business, you always get the real, mid-market rate.

What are the benefits of invoice processing software?

Many small and medium-sized US-based business owners trust invoice software. A report in 2016 showed that 64.4% of SME (small to medium enterprise) owners already relied on it to take care of their company’s accounting needs.³

Working through invoices manually can be a long-winded process. Investing in software that can lend a hand can be a wise choice.

With various digital invoice processing systems available, you can use software that does the heavy lifting for you. This can save you hours of admin, both for accounts payable and accounts receivable.

Another benefit of invoice processing software is the level of accuracy. Bills will be paid correctly and on time, improving your working relationships with suppliers and saving you money.

Some invoice software providers such as QuickBooks, FreshBooks, and Xero offer Accounts Payable (AP) invoice processing automation. This allows business owners to speed up the approval process, set reminders, and establish recurring payments.

Invoice processing in SAP (Systems Applications and Products) is a breeze, too, letting you make the most of machine learning to boost productivity.

SAP Concur is one of the most popular options for invoice management. It uses AI to audit every transaction and provides reports, so you’re armed with the information you need to improve the way invoices are done.

💡 Need help invoicing overseas customers? Check out our top 10 Best invoicing apps article here.

Send and receive invoices faster

With invoice processing software, you can send and receive invoices electronically.

You won’t have to rely on paper copies and slow delivery. Since you receive them quickly, you can pay them off faster.

If you have access to electronic invoices with EFT (electronic funds transfer) options, then this can also speed up the payment process. With Wise, you can even pay bills in the local currency of your supplier at the real mid-market rate.

This could save you a substantial sum of money in the long run, which can positively influence your business’ cash flow.

Save time by automating processes when your data is all in one place

Manual data entry can be a labor-intensive process.

With invoice processing software, you omit the need to enter the data over and over again. Once it’s in the system, it’s there forever. This can add up to a tremendous amount of time saved over one year.

Once you’ve entered the data according to your business’ protocol, invoice processing software can match the PO number(s) up with the corresponding invoice. This speeds up the approval process.

You can also set up recurring payments. Simply set the date you want the bill to be paid each month, and the software will send the payment to the vendor on time.

Track your performance and set accurate goals

One of the most important aspects of running a business is staying on top of processes for accountability.

With invoice processing software, you can track your processes and timestamp everything. When the time comes to report, you already have everything you need in one place.

The software can also lend key insights into various elements of your business. For example, it can let you know if there are some areas in which you have created bottlenecks. You can set actionable goals based on this information and streamline your invoice processing system.

As a business owner, you’ll know how critical it is to optimize your processes and workflows where possible.

With the data and insights you get from this software, you’ll be able to speed up invoice payments. Time is money, after all, and invoice processing software can save you a lot of it.

Expert insights from Esther Friedberg Karp (EFK Compubooks):

Over the years, I’ve seen many factors contribute to throwing a wrench into a company’s bookkeeping and administrative processes - whether due to mistakes, delays, or fraud. The biggest factor of all has been, without a doubt, dealing with others in foreign currencies. Very few people understand the impact of multiple currencies, or how to work with them in accounting software. I always recommend the following: Learn how to use the multicurrency function in your accounting software (that is something I teach a lot); Maintain foreign currency balances if required and avoid unnecessary bank conversion fees; Use an international money transfer service that minimizes your fees (including hopefully avoiding hidden FX rate markup) and time spent when you have to transact in foreign currency - plus one that ideally moves your money quickly, so your business partners can get paid on time.

Save time and money with Wise Business

International invoice processing can be difficult due to issues with postage, delivery, and currency conversion fees.

The Wise Business account allows you to pay your overseas bills as if you were a local. What’s more, you can do so at the real mid-market rate with no hidden fees.

You can take advantage of exchange rates that banks and payment processing platforms like PayPal can’t offer.

You can also sync Wise with QuickBooks.

• You can see your unpaid bills in real time and pay them seamlessly from your ‘Bills’ page on Wise.
• Your bill payments and any other Wise transactions will be synced, matched and categorised in QuickBooks for simple reconciliation.
• All bills you create in QuickBooks Online will automatically sync in real time to Wise, where you can choose which ones to pay.

Sound amazing? See for yourself how much time and hassle you can save.

Join Wise Business today

Wise makes it easy to pay bills and employees across the world, all from one place. You can get local account details (IBAN, Sort code, or routing number in up to 10 currencies.

💡 For all you need to know about invoices, don't forget to read and bookmark the ultimate guide to invoicing from Wise!

This piece has been written in collaboration with Esther Friedberg Karp, an esteemed bookkeeper, QuickBooks ProAdvisor, and founder of CompuBooks. Esther Friedberg Karp, MBA, is an internationally-renowned trainer, writer, business consultant, and speaker with advanced certifications in both QuickBooks Desktop and QuickBooks Online. She has been named twice to the list of Insightful Accountant’s Top 10 QuickBooks ProAdvisors worldwide, with the titles “Top International ProAdvisor” and “Top Trainer/Writer ProAdvisor.”

Sources:

1. Understanding General Ledger Codes
2. Key Facts & Figures on Late Invoice Payments
3. Software usage by SMEs in US 2016

All sources checked 16 September 2021.