AP » The hidden costs of inefficient invoice management – and how to avoid them

The hidden costs of inefficient invoice management – and how to avoid them

Invoice management is arguably the most labour intensive part of the P2P cycle, referring to the systematic processing of incoming invoices from receipt to payment. The process typically includes receiving an invoice, verifying its authenticity, entering data into an accounting system, matching the invoice to a purchase order (and a goods receipt for three-way matching), and finally assigning it to either an approval or payment workflow based on the company’s procurement policies.

As we can see, invoice management is made up of a series of sequential steps, many of which are either partially or fully manual. The number of linear steps, and manual nature of many of these tasks can make invoice management a significant resource drain. In fact, according to a Goldman Sachs report, a mid-size enterprise incurs approximately £13 in costs to manually process a single invoice. For a company receiving thousands of invoices per month, this can add up to an eye-watering sum.

The Hidden Costs of Inefficient Invoice Management

Missed Invoices

When a member of the AP team is manually combing through emails to input invoices received, it only takes one distraction to open an email without downloading the invoice, allowing invoices to easily slip through the cracks. Down the line, this leads to late payments, damaging valuable supplier relationships, and hindering the ability to negotiate the best terms on future purchases.

Data Entry Errors

Manual data entry is prone to errors, causing delays and requiring review and additional manual time to correct, further straining resources and reducing overall efficiency.

Missed Discounts

Inefficient invoice management is a widespread issue in finance teams across industries. In 2023, the UK government’s Payment Practices Reports show that among the five biggest retailers in the UK, 25% of invoices take 61 days or more to be paid. But why is this a problem for companies paying invoices?

Many suppliers offer early payment discounts to incentivise early payments. Inefficient invoice processing can cause your company to miss these opportunities, resulting in higher base costs, or even incurring late payment penalties if these are laid out in the terms of purchase.

Fraudulent or Duplicate Invoices

Accidental duplicates or malicious fraudulent documents can be a drain on budgets and finance teams’ time. Running even the most basic checks of authenticity on documents is yet another manual task which adds to overall processing times.

How to Avoid These Costs

  1. Invoice Inbox: Implementing an automated invoice inbox eliminates missed invoices, manual data entry, and the errors associated with this. Suppliers send invoices directly to the inbox, which automatically identifies document types, extracts data using OCR and machine learning, and uploads it to your ERP or accounting system.
  2. Automatic Fraud Detection: Before uploading, automatic fraud detection crosschecks key information to ensure there are no duplicates documents and that supplier details are correct. This step reduces the risk of processing fraudulent or duplicate invoices.
  3. AI-Powered Matching: While rules-based matching is not new, AI-powered matching uses contextual reasoning to establish even fuzzy matches that would otherwise have to be made manually. Harnessing this advanced matching capability significantly reduces manual intervention, allowing businesses to scale without spiraling invoice management costs.
  4. Automated Workflow Assignment: After upload and processing, invoices either need to be approved or submitted for payment depending on a company’s procurement policy and whether they require approval at this stage of P2P. This workflow assignment can be fully automated based on pre-configured rules for routing, for example, for spending in the marketing department over £5000, there is one workflow and another for purchases under £5000. This eliminates yet another manual process of assigning invoices to workflows. 

Kloo’s Smart Invoice Inbox

Kloo’s Smart Invoice Inbox combines these solutions with powerful sequential automation. Invoices progress from being received from the supplier to being assigned to approval or payment workflows with zero manual intervention. Upon receiving an invoice, the system automatically conducts fraud checks, OCR data extraction and upload, 2- or 3-way matching, and workflow assignment, all integrated with seamless two-way data-sharing with your ERP. This significantly reduces processing costs by automating four consecutive processes into one fully-automated workflow.

The Bottom Line

The hidden costs of inefficient invoice management—missed invoices, data entry errors, missed discounts, and fraudulent or duplicate invoices—can be substantial. The key to cost savings in invoice management? Sequential task automation. By automating every step from invoice receipt to approval or payment, companies can focus AP time on strategic, value-add activities, and reap the rewards of timely payments, in the form of early payment discounts, stronger supplier relationships, and better terms on future purchases.



Was this article helpful?

Comments are closed.

Subscribe to get your daily business insights