What is Invoice Automation?

invoice automation

The OnePosting website contains information about invoice automation but what is it and why should we be interested in it?

Most of us know that an invoice is a document sent to a buyer that specifies the amount and cost of products or services that have been provided by a seller. There is a minimum set of information specified by law that must be included for an invoice to be legally valid but did you know that evidence of the earliest invoices dates back to 3,300 BC when they were produced on clay tablets!

Since the 1500’s, they have been produced on paper and today, even with the widespread use of computers, a significant percentage of invoices are still issued on paper!

How are invoices issued?

A recent international study by OnePosting of over 100 companies revealed some interesting insights into how invoices are issued.

Channel Percentage
Email 42%
Post (Mail) 35%
Sent with goods 10%
EDI 5%
Collect from own online portal 3%
Courier 2%
Input on customer portals 1%
Route via electronic hubs 1%

It is interesting to note that 47% of invoices are issued in paper format, i.e. those sent by post, sent with goods, and delivered by courier.

A further study of over 1,000 businesses revealed that 92% of businesses print invoices received by email!

So even though a significant proportion of invoices are issued by email, they are still handled as paper invoices by recipients – only the cost of printing has been passed from the supplier to the buyer.

How inefficient is paper?

It came as a shock to me when I explored the research into the cost of processing paper invoices. A study quoted by Billentis suggests staggering costs for issuing and receiving invoices for a mid-sized company.

€11.10 to issue a paper invoice

This figure seems crazy, and for many businesses, especially ones issuing high volumes of low-value invoices, it seems unrealistic. It is composed of the following elements:

Issuing Paper Invoices Cost
Print-Envelope-Send €3.90
Payment Reminders €0.50
Remittance & Cash Management €4.50
Archiving €2.20
Total €11.10

On a like-for-like basis, the research suggests that switching to electronic invoicing can reduce the cost of issuing invoices to €4.50 per invoice.

€17.60 to receive a paper invoice

What was particularly surprising for me was the estimated cost of processing a paper invoice received from suppliers.

Receiving Paper Invoices Cost
Handling Envelopes & Sorting €1.10
Coding €3.00
Validation & Matching €4.00
Dispute Management €2.50
Payment & Cash Management €4.80
Archiving €2.20
Total €17.60

The research suggests that switching to electronic invoicing can reduce the cost of receiving invoices to €6.40 per invoice.

What does invoice automation do?

Well, for a start, invoices are issued or received electronically, and as the research above points out, there are very significant savings to be made as a result.

Paper handling, which is expensive, is eliminated. This is not just data entry, but filing, storage, retrieval, errors and omissions, and eventual disposal.

Technology is also very good at comparing data. In the case of invoices, they can be compared against purchase orders for pricing and maximum quantities, and goods received notes to confirm quantities actually delivered (“three-way-match”).

If a “three-way-match” is achieved between an invoice a purchase order and an goods received note, there should be no need to manually approve the invoice and it should be automatically passed for payment.

Similarly, for suppliers, converting a customer’s purchase order into an invoice eliminates issues with data entry and interpretation of what the customer actually wants. Not only does this save on data entry, but it also saves on returns, transport costs and delays in getting paid.

When you think about these issues, you begin to appreciate that paper invoice handling is in fact far more expensive than any of us imagine.

Is it complex to set up?

Traditionally, deploying any form of technology requires an IT project and experience shows that many IT projects fail spectacularly to achieve their goals and objectives.

It is very rare for an IT project to come in on time and on-budget, mainly because implementing IT solutions can be very complex.

However, cloud-based solutions are changing how IT is deployed and used.

Invoice automation ‘in the cloud’ often does not require an IT project as the infrastructure is already well-proven and works at scale.

Most accounting/ERP solutions can issue invoices in PDF format by email which is all that is needed by solutions such as OnePosting to route invoices to customers in a variety of formats.

Similarly, many accounting/ERP solutions have inbuilt capabilities to import supplier invoices.

Next Steps

If you would like to establish the financial benefits for your business, we can help without obligation.

Simply contact us and we will be delighted to provide any assistance that we can.

 

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Finbarr McCarthy

Finbarr has extensive international experience working with clients to improve their invoice handling processes. This applies to both inbound (invoices received from suppliers) and outbound (sending invoices to customers). Working with accounts receivable and accounts payable functions gives him a unique perspective because he can quickly assess the impacts of internal procedural or system changes on suppliers or customers, and how these changes will be perceived. His work has resulted in faster invoice throughput, lower costs and reductions in time taken to get invoices paid. More importantly, his work leads to better supplier-customer relationships with significant benefits for all parties.

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