What is Invoice Management? A Comprehensive Overview

Financial management is a necessary part of a business workflow. Right from outsourcing materials to the final delivery of the product or service, every piece of financial information has to be collected and analyzed carefully.

Invoice processing is the part of financial management that handles most of the financial elements of a business. For example, getting the invoices, managing them, analyzing them, and paying them. Whether you have a small business or a big one, invoice processing has its complications.

Based on the payment type, payment time, number of orders, agreed terms, etc., invoices can vary. Moreover, when it comes to invoice management, there are several add-ons and other crucial factors that cannot be handled by a human altogether. An accounting tool or an invoice management system is necessary here!

Let’s dive into this blog and learn about what is invoice management, its types, best practices, and more.

An Overview of Invoice Management!

Invoice management is a business process where a business receives, analyzes, and pays invoices to its various vendors and suppliers. There are several workflows, technologies, and people involved in the invoice management process. However, not all businesses have a well-defined and optimized workflow for invoice management.

As per stats, the average time to process an invoice manually is 14.6 days, and the cost is $15. Now, these numbers can be overwhelming for a large business or the one planning to expand. Therefore, to save time and cost and prevent errors, a streamlined invoice management process is crucial, and it can be obtained by introducing invoice management software.

Right now, the market of invoice processing software is in billions of dollars and is expected to go upto $8.06 billion by 2031. Hence, it is a worth investment to make. With accounting software, you can seamlessly manage all your expenses in one place.

Some accounting software can also provide you with remarkable automation and AI features that further streamline the invoicing process.

What is Invoice Management | Key Components of the Process!

The invoice management process has several stages where different processes are undertaken. The sophistication of these stages depends on the type of business, whether it is an SME or a large-scale business. Here are the key components!

1. Invoice collection

The first step of invoice management is the collection of invoices. Here, your financial department collects detailed invoices from its vendors and clients via different media. It can be collected via email, chat, accounting software, or physical mail.

Further, in this step, these invoices are entered into the invoice management system or accounting software. This can be done by scanning pictures of the invoices or directly importing or receiving them in the systems. Mocha, Zoho Books, Tally, etc., are some of the best accounting software.

2. Invoice validation

The next step is to check and validate the invoices received. In this step, the received invoice details are validated for correctness through matching purchase orders and delivery receipts. The invoice validation checks make sure that the invoices do not have any incorrect amounts, missing information, or unauthorized charges.

Tools like IntelliChief use RPA to validate invoices.

3. Approval

Once the validation process is complete, the invoices are sent to the process supervisors for approval. Here, the invoices are verified for discrepancies and approved for payment.

4. Payment

Further, in the invoice management process, the invoices are processed for payment. These payments are made based on the conditions defined in the invoices. These can be a specific time frame of payment, mode of payment, etc.

Payments to invoices can be made via cheques, electronic transfers, and other methods.

5. Record keeping

Post payments, these invoice payments are entered into the accounting systems. This is necessary to ensure due to several reasons, such as accurate financial records, auditing, regulatory compliance, etc.

Types of Invoices!

In the process of what is invoice management, a crucial thing to understand is the types of invoices. The invoices can be of various types based on the type of payment, client industry, vendor industry, agreed terms, etc.

Each invoice type has its unique aspects. Here is a brief overview!

1. Interim invoice

Interim invoice is provided by the vendors to their clients while the project is still in progress. For example, when the project is of multiple months, vendors can send monthly invoices to the clients. It improves payment flexibility and helps retain vendors.

2. Pro forma invoice

A pro forma invoice is the invoice that is provided to the clients for quoting purposes. It is sent before the transaction happens and contains a detailed estimation of the expected expenses of goods and services. It is useful in budgeting and planning.

3. Recurring invoice

Recurring invoice is the one that is provided on a periodic basis, monthly or bi-monthly. These are usually for subscription services like SaaS software, streaming apps, etc. These kinds of invoices are automatically created and sent to the clients.

4. Final invoice

The final invoice is the one that a client receives from a vendor that has all the expense records after the project is complete. It includes all the previous invoice details, credits, debits, etc. The invoice narrates which expenses are settled and which ones are due.

5. Credit Invoice

In this type of invoice, a reduction in the original invoice amount is requested and issued. This invoice is issued in the case of returned goods, any overcharges, or billing errors.

6. Debit invoice

In the type of invoice, an increase in the original invoice amount is requested. Here, the invoice value increases due to additional fees or undercharges.

7. Collective invoice

This type of invoice is issued when the vendor is providing you with multiple types of products or handling multiple projects for you. In this invoice, the collective quote of all the invoices is issued simultaneously.

8. Overdue invoice

This invoice is issued by the vendor when the client has not made the payment as per the decided due date. This is sent after the due date.

How Technology Simplifies Invoice Management?

Invoice processing is a critical part of a business workflow. Therefore, it has to be handled carefully without error. As humans are prone to commit errors, technologies like AI, RPA, etc., can be leveraged to simplify complex and time-consuming processes in invoicing. Here is how!

1. OCR

OCR stands for optical character recognition. It is a remarkable technology that can seamlessly examine documents and extract data to fit it into the accounting systems. For example, if the invoice is in the form of a clicked picture or a printed document, rather than manually reading and entering data into the system, OCR can automatically extract data for you within seconds.

2. RPA

Robotic process automation is an AI-powered technology that can handle several monotonous and time-consuming tasks of invoice management. For example, it can automate tasks such as data entry, data validation, and payment processing.

RPA harnesses the power of OCR to scan and extract data from the invoices faster. Thus saving time and money and reducing errors.

3. AI

RPA is backed by AI to perform the respective invoice operations. Furthermore, at the deeper level, AI can streamline several other tasks and processes, including.

• Routing invoices to approvers
• Flag discrepancies in invoices to ensure accuracy and compliance
• Categorizing invoices based on predefined rules and learned patterns. Valtatech is a firm that uses AI-powered invoice categorization to categorize invoices.
• Verify invoices for compliance with respect to external regulations and company policies.

4. Cloud computing

While some tools are in the form of a system app, some have all their infrastructure on the cloud. Cloud computing enables businesses to have access to their invoices from anywhere. The best thing about cloud computing is its ease of use, accessibility, the elimination of hefty offline infrastructure, etc.

Cloud computing has revolutionized the invoice management process.

5. Integration features

The ability to integrate other tools and apps into the invoice management systems reduces hassle and improves functionality. Therefore, an integration facility is necessary to keep the invoicing process simpler. You can manage multiple clients or vendors via a CRM system from one interface.

Best Practices for Indian Businesses

Effective invoice management is an essential aspect of a business. To ensure this, there are some practices that every business has to implement.

1. Automate the processes

There are several processes in what is invoice management that are time-consuming and boring. These tasks and processes, including data entries, data extractions, approvals, reconciliation, etc., need to be automated. OCR, RPA, and AI are the technologies that can help in this.

2. Invest in accounting software.

Accounting software is the one where you can centralize all your business financial tasks. Software like Mocha Accounting, Zoho Books, QuickBooks, etc., offer you powerful accounting features that cover everything from invoicing, expenses, GST compliance, automation, payment reminders, etc.

Accounting software can reduce a lot of hassle for you while offering you an all-around solution.

3. Standardize the process

Another way of effective invoice management is invoice management standardization. In this, you need to establish several rules and guidelines to improve the efficiency of the process and ensure consistency.

• Set rules for handling invoices, from receiving to payment
• Clear roles and responsibilities of people handling the invoices.
• Clearly establish the deadline for invoice receiving, validation, approval, and payments.

4. Ensure security and compliance.

As a lot of sensitive data is involved in invoice management, it is crucial to establish practices that ensure data security and compliance. Make sure that data is stored in an encrypted form and requires multi-factor authentication to access. Moreover, establish access permissions based on the heirarchy of the firm. Lastly, keep periodic data backups.

Furthermore, look for a tool that offers these features built-in, such as Mocha accounting. The tool can keep your data safe while you focus on more important jobs.

5. Monitor performance

To keep your business operations running smoothly for an extended time, it is crucial to keep an eye on the performance of the invoicing process. With technologies like AI and RPA in place, you can monitor invoice processing time, approval delays, payment accuracy, etc.

These key metrics can indicate issues in the invoice management process, and based on this, you can take the required actions to improve performance and reduce inefficiencies.

6. Train the staff

While humans can make errors, no process can function well without human intervention. In invoice management, it is crucial to provide your staff with professional training in handling the invoice management tool and the entire process. They should know how to use the tool as per the rules and guidelines, the right time to send the invoices for approvals, etc.

Your staff should also be trained to handle client or vendor communication to foster healthy relationships.

Conclusion: The role of invoice management in financial success.

What is invoice management? Well, as we have discussed, the role of invoice management is paramount in the business landscape. With the number of data points, multiple vendors, multiple customers, and processes, it can become challenging to manage everything manually. But how about a software or tool that can help you keep it simple?

Mocha accounting is an invoice management software that can help you manage your invoices seamlessly. Designed for all types of businesses, especially SMEs, Mocha accounting provides you with remarkable features, such as personalized invoices, automated GST compliance, automated reminders, and more. The best thing is that it comes at an affordable price. So, get your free demo today!