For any firm, the Accounts Payable performance depends on how accurately it executes the invoice validation process. Regardless of the business vertical, invoicing is important. That’s why it is important to understand invoicing in order to achieve favorable full-cycle accounting performance metrics.
That said, let's first find out what an invoice is exactly.
What is an Invoice?
A commercial document that enlists the goods/products sold by a seller to a buyer, indicating the quantities, agreed on prices, date of sale, and details of the items transacted thus, is called an invoice. In short, an invoice is a document that sums up a sale.
Invoices are extremely important as they act as a record, sort of, of a particular transaction having taken place.
Crucial parameters of an invoice
Invoices carry all the details of a sale - however, there are 5 parameters that are vital from an accounting point of view:
1. Vendor's Details
Knowing whom to send the payment to is the first step of invoicing. The vendor's contact details, such as the name of the company, its address, zip/postal code, email address, phone number, and other contact details, need to be clearly recorded for the invoicing process to stay smooth. Recording this data helps accounts to keep all the invoices sorted.
2. Invoice ID Number
An invoice ID number is unique to an invoice. These numbers act as identifiers when a payment from the buyer is initiated - it helps the vendor pinpoint the sale for which the payment is being received against an invoice. It helps in keeping the ledgers duly updated and categorized.
3. Purchase Order Number
PO numbers are the same as invoice ID numbers, with one difference in protocol: PO numbers are issued when the transaction amount exceeds a certain pre-decided limit set by the purchasing company. They are usually used for high expenditure items, as a means of authority for approving an expenditure of such high value.
PO numbers are issued against Purchase Orders. These documents are a legal tender that binds the supplier to fulfill the delivery of the goods ordered by the buyer as per the terms and conditions mentioned in the purchase order.
4. Terms of Payment
The interval of payment release from a buyer to the seller is usually indicated in the terms of payment of an invoice. It tells the accounting department when to expect compensation for the goods sold; it also helps them raise a follow-up or concern in case the payment isn't received by the end of the timeframe stipulated in the payment terms of an invoice.
5. Description of Pricing
Every invoice contains detailed descriptions of the products sold, the quantity and unit prices, date of sale, etc. These details come in handy when a business is required to revisit a sale for reference or more information. It also helps in putting together a transaction history of a client.
Additional information on an invoice
An invoice carries more information than just the five parameters mentioned above; however, this extra information does not adversely impact full-cycle accounts payable.
a) Billing account number - This field carries information about the administrative offices of the buyer from where the payment against the invoice is received. It is helpful in case the buyer has branch offices.
b) Balance due - Any balance payments due from the last or previous transactions with a buyer show up in this field. It comes in handy in forming a big picture of the payment status of an invoice.
c) Credit - In case the buyer has paid for the goods in advance for a lot yet to be delivered, the invoice records it in the credit field. In addition, previous balance or current charges on an account also appear in this section of an invoice.
d) Extra information - Billing helpdesk contact information, links to resources, terms of the invoice, etc., can be accessed through this section. In case of any queries about the invoice, this is the section to seek.
Automation of invoice scanning process
Manual invoice processing requires long and tedious man-hours of reading and recording the data digitally, and maintaining safe copies of the invoice files in case of loss or damage. In addition, the invoice validation process may incur inevitable human errors. Manual invoice processing not only makes wasteful use of manpower but also returns less-than-accurate data, which can adversely impact the AP cycle performance metrics.
Automation in the workflow is a boon for the resources of a company if deployed effectively. For documents as central to a business as invoices, automation helps reroute significant budgets and resources to other arms of the business.
1. Data capture is quicker
By using the Intelligent Optical Character Recognition technology, Docsumo is able to extract data from paper forms onto its digital database in a matter of minutes. This exercise is a lot less cumbersome than the traditional method of manual data entry.
2. Accuracy is higher
Manual data entry is fraught with errors. On the other hand, intelligent software solutions have algorithms in place for error prevention - which is why automating the process of invoice reading helps create a highly accurate digital database.
3. Reduced turnaround times
Bringing an intelligent software solution like Docsumo into the equation drastically reduces the time required to complete a process. From sending an invoice into the system to be captured digitally through OCR, up until the process of invoice approval, the timeline is noticeably shortened.
Docsumo significantly reduces the manpower required to be employed for processing invoices, thus improving the cost-effectiveness of the whole operation. With minimal manual intervention required only to validate the anomalies detected while capturing data, Docsumo truly automates the entire invoice reading process.
Docsumo is a revolutionary software that enables a business to digitize its paperwork within a matter of moments, with high accuracy and minimal manual involvement. For more information about invoice processing automation, read our complete AP automation guide. To learn how we can help you automate document processing for your business, contact us today!
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