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Overcome Paper Invoice Challenges

Each paper invoice requires time-intensive, error-prone, manual processing for both buyers and suppliers. According to the European Associations of Corporate Treasurers, you can save over 80 per cent of your costs by introducing eInvoicing. To understand how this saving can be achieved, it is worth examining just how intensive the paper-based invoicing process is – for both the buyer and supplier.

Once you understand the processes involved, it should be easy to see why the cycle time to process can take 23 days or more – a figure that can rise to over 90 days when errors and exceptions are involved. An invoice-to-settlement cycle can shrink to under 5 days when you implement eInvoicing.

Paper invoice issues for Buyers

While every Accounts Payable (AP) department operates differently, in general there are five phases — each of which is very resource and paper intensive, as shown in the following table.

Phase Activities Description
Invoice capture
  • Creation of invoice by supplier
  • Delivery of invoice to buyer
  • Sorting and routing of the invoice to AP department
  • Entry of invoice into AP system
Suppliers typically generate and print invoices from their Accounts Receivable (AR) system and then mail them to the buyers for payment. Once received in the buyer’s mailroom, invoices are sorted and routed to the AP department where administrators manually key them into the AP system.
Quality assurance
  • Verify and augment supplier data
  • Validate math on invoice
  • Match invoice to order, receipt and contract
  • Assign to cost centres
  • Ensure correct tax treatment
An AP administrator reviews each invoice to ensure data accuracy and completeness. For example, invoices are reviewed for errors such as incorrect account number or missing purchase order number. Then, the AP administrator validates the invoices to confirm that the amount being billed matches the amount ordered and the amount of goods received, and that the price billed corresponds to the contracted price. Finally, the administrator assigns the appropriate cost center to ensure the appropriate tax treatment.
Routing and circulation
  • Determine approval authority
  • Circulate invoice for approval
  • Resolve disputes with supplier
  • Monitor status of approval
Invoices often need to be approved by one or more company personnel prior to payment. The AP administrator routes invoices to the appropriate approver(s). The administrator monitors the process, following up with required approval personnel when there are delays. In the event of an invoice dispute, the AP administrator contacts the supplier to resolve.
Reporting and filing
  • Record expense in General Ledger
  • Store and archive for tax audit purposes
  • Respond to supplier status inquiries
The AP administrator records the expenses in the General Ledger. The invoice is then filed or transported to archives for storage. In the event of a subsequent supplier dispute or audit, the invoices must be retrieved.
Payment
  • Aggregate payments due to Supplier
  • Release payment
  • Send instructions to bank
  • Distribute remittance advice to Supplier
Upon invoice approval, the payment is processed by the AP system and payment is made via paper check or Automated Clearing House.

Paper invoice issues for Suppliers

As with buyers, supplier paper invoices requires time-intensive, error-prone, manual processing and this is very resource and paper intensive, as shown in the following table.

Phase Activities Description
Invoice creation and distribution
  • Generate the invoice
  • Print the invoice
  • Fold the invoice and place it into an envelope
  • Stamp the invoice and place into the mail
Suppliers typically generate the invoice from their sales order system. They then print the invoices and mail them to the Buyers for payment. Suppliers have no control over whether or not the customer has received the invoice.
Status follow-up and issue resolution
  • Contact buyer to confirm receipt
  • Deal with rejections or re-send requests and repeat the process
  • Resolve disputes with buyer
  • Inquire about approval status and payment date
Suppliers have no visibility into the processing status of the invoices they mailed. Customers may reject invoices long after the supplier has submitted it if required data is missing. This often prompts calls and emails to confirm invoice receipt, request payment status, and resolve any disputes
Payment and reconciliation
  • Receive check and reconcile with invoice
  • Contact buyer to resolve under/overpayment/late payment issues
  • Contact buyer with questions on reconciling invoice(s) to payment
Data reconciliation is a difficult, manual process. The lack of visibility into invoice processing makes cash management a reactive process. Late payments and variable days sales outstanding (DSO) impact working capital and borrowing.
Reporting and filing
  • Store and archive for tax audit purposes

 

The invoice is then filed or transported to archives for storage. In the event of a subsequent dispute or audit, the archive must be manually searched for retrieval of the pertinent invoice.

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