Invoice Processing for Small Businesses — How It Works?

Introduction

Invoice processing is an essential part of any business, regardless of its size. For small businesses, it can be challenging to manage invoices efficiently and accurately, especially if they do not have a dedicated finance team. This article will explain how the invoice process works for small businesses, the benefits of automating the process, and the tools available for doing so.

Understanding Invoice Processing

Invoice processing involves the steps taken to handle incoming invoices from vendors, verify their accuracy and legitimacy, and then process payments. This process can be time-consuming and complex, involving multiple stakeholders, including the finance team, accounts payable staff, and vendors.

Manual Invoice Processing

The manual invoice process involves physically handling invoices, manually entering data into accounting systems, and routing them for approvals. This process is prone to errors, delays, and inefficiencies. For small businesses, manual processing can be particularly challenging, especially when dealing with a high volume of invoices.

Automated Invoice Processing

Automated invoice processing involves using technology to streamline the invoice process workflow. This approach can significantly reduce the time and effort needed to process invoices and can also minimize errors and fraud. Automated invoice processes can be done in-house or outsourced to third-party providers.

Benefits of Automated Invoice Processing for Small Businesses

Automated invoice process offers several benefits for small businesses, including:

• Time-saving: Automated invoice process can reduce the time needed to process invoices by up to 80%, allowing small businesses to focus on more critical tasks.
• Cost-effective: Automated invoice processes can reduce the costs associated with manual processing, including labor, storage, and paper.
• Improved accuracy: Automated invoice processes can minimize errors and improve accuracy, reducing the risk of incorrect payments and fraud.
• Enhanced visibility: Automated invoice process provides real-time visibility into invoice status, allowing small businesses to track invoices and payments more effectively.
• Increased efficiency: Automated invoice process streamlines the workflow, enabling small businesses to process invoices faster and more efficiently.

Methods of Invoice Processing

Invoice processing can be done through various methods, depending on the size of the business, the volume of invoices, and the available resources. In general, there are two main methods of invoice process: manual and automated.

Manual Invoice Processing

Manual invoice processing involves handling invoices manually, including data entry, approvals, and payments. This method is labor-intensive, time-consuming, and prone to errors and delays. The manual invoice process typically involves the following steps:

Invoice Receipt

Invoices are received from vendors, either physically or electronically.

Data Entry

Invoice details such as vendor name, invoice number, amount, and due date are manually entered into the accounting system.

Approval

Invoices are then routed for approval, which may involve several stakeholders, including managers and finance personnel.

Payment Processing

After approval, payments are made to vendors, either through a manual check or electronic transfer.

Manual invoice processing can be challenging for small businesses, particularly those with a high volume of invoices. It requires significant resources, including personnel, time, and storage space, and can result in errors and delays.

Automated Invoice Processing

Automated invoice processing involves using technology to streamline the invoice process workflow, reducing the time and effort needed to process invoices and minimizing errors and fraud. This method typically involves the following steps:

Invoice Receipt

Invoices are received electronically and automatically routed to the accounting system.

Data Extraction

 Invoice data is automatically extracted from the invoice using Optical Character Recognition (OCR) technology, reducing the need for manual data entry.

Approval Routing

Invoices are automatically routed for approval based on pre-defined rules and workflows, reducing the need for manual intervention.

Payment Processing

After approval, payments are made to vendors electronically, either through an automated clearinghouse (ACH) or other electronic payment methods.

Automated invoice processes can significantly reduce the time and cost associated with invoice processing, enhance accuracy and visibility, and improve efficiency. It can also help small businesses free up resources to focus on more critical tasks.

Conclusion

Invoice processing is a critical part of any business, and small businesses can benefit significantly from automating the process. Automated invoice process can save time and money, improve accuracy, enhance visibility, and increase efficiency.

Small businesses can leverage tools such as accounting software, workflow management software, OCR technology, EDI, and invoice automation software to automate their invoice process workflow and streamline their operations.