If your Finance colleagues are still slogging away, manually processing high volumes of invoices, you’re missing a trick. RedSky Product Manager Brendan Magill explains how digitising invoice processing will improve accuracy, speed things up, save you money and free your team to work on more productive tasks.

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In today’s construction and contracting industry, operating margins can be wafer thin. Monthly invoice volumes are often very high and suppliers require prompt payment. Digitising invoice processing can help you to achieve good governance, control cash and even reduce your audit time.

TRADITIONAL INVOICE PROCESSING METHODS ARE INEFFICIENT

Many construction companies are still using traditional invoice processing methods.

It’s a time-honoured sequence. Invoices come in from a supplier, whether by post or email. The email attachments are printed out, matched against the relevant paperwork – purchase order and goods received note (GRN) – recorded, approved and then paid. As the final step, the paper documents are stored securely for VAT purposes, usually in a box and for seven years.

On the face of it, this looks like a pretty smooth, logical sequence. But don’t be deceived. It’s far from perfect. Here are some of the many reasons why traditional invoice processing methods are so inefficient:

  • Lack of validation – manual keying carries the risk of human error. Without a robust checking mechanism, inaccurate or duplicated information could be entered on the system and a supplier may end up being paid the wrong amount… or even being paid twice for the same invoice
  • Poor visibility – for example, an invoice may be showing on the system as ‘in approval’, yet it may have been mislaid. Or one of the approvers may be on leave. Either problem will bring the approval process to a grinding halt, with no easy way to identify the source of the blockage. These issues make it difficult to achieve good governance and cashflow control
  • No single source of truth – information is held in multiple locations, having sometimes been photocopied multiple times and passed between departments, then stored in places like desks, folders, filing cabinets and storage boxes
  • Poor traceability – if there’s a query on a historic invoice, the physical document will need to be tracked down… and the proverbial ‘needle in a haystack’ situation may take days to resolve
  • Problematic reconciliations – these difficulties can occur if the Finance team is not able to work with real-time information.

In my experience, business growth is often the catalyst for digitising invoice processing. A company can usually cope comfortably with processing a small number of invoices manually every month. But if the business really starts to take off and the volume of invoices increases, they will struggle.

This is especially true if invoices are coming in from all directions – by post, from sites and by email. Collating and organising them all in one place, ready for processing, is the stuff of nightmares…

WHAT ARE THE KEY STAGES FOR DIGITISING INVOICE PROCESSING?

All of the problems listed above can be overcome by introducing a digitised invoice processing solution.

It’s well worth thinking about adding automation (via data capture technology – OCR) to your invoicing processing. You’ll save hours of keying time because the data automatically extracted from the electronic invoice document is entered onto the system for you (see point 3 below). If your budget won’t stretch that far, choose a solution that has automation as an optional extra, so that you can add it on at a later stage, when the time is right.

Here are the usual stages in a digitised invoicing process:

  1. All invoices arrive from suppliers to a predefined email address (such as invoices@yourcompany.com)
  2. The invoices are automatically moved into the accounts payable system. If you’d like to ‘vet’ them, for whatever reason, you can – if your solution supports automation
  3. The data capture (OCR) technology ‘reads’ and extracts the required data from the document (pdf, Word or other image-type file). It then uses the data to prepopulate an on-screen form.

    The automation engine should determine if the document is an invoice or credit note. It should then match to the relevant supplier account, using either the VAT registration number or (if this is not present) the business name and/or address. Typical data that should be passed to the form including the extracted project, purchase order number, invoice date, invoice number, total amount, VAT and goods amount. The system should ideally then work out the invoice due date, based on the payment terms set against the selected supplier, as well as any agreed discounts (which will automatically be applied).

    If you don’t have data capture (OCR) technology, your team can populate the on-screen form by keying in the details manually. Choose a system that positions an image of the invoice on screen, alongside the electronic form to be filled in – it’ll make keying much easier

  4. An Accounts Payable team member checks the invoice details on screen, to make sure they match the original. As a further validation, they should also be able to check that the purchase order, GRN and invoice all match up – and when this is not the case, they should be able to send it off to colleagues under a query/workflow with the full audit history before costing gets under way
  5. Approve the invoice for payment. If you spend time up front to get the PO right and the GRN and invoice match with that, the invoice should be self-approving. This can be a big timesaver. If your business operates with multi-stage approvals, or requires more senior approvers for larger invoice amounts, you’ll need to build workflows to make sure invoices are sent automatically to the correct approver
  6. Once the invoice is fully approved, the agreed payment cycle of your business can pick this up and payment is made.

WHAT ARE THE BENEFITS OF DIGITISED INVOICE PROCESSING?

A robust system can take the hassle out of invoice processing, enabling you to:

  • Store all key documents digitally and securely in a central location
  • Maintain all documents in one location
  • Rely on a single source of truth
  • Streamline your processes
  • Eradicate paperwork
  • Boost efficiency and speed up your invoice processes with data capture (OCR):
    • Minimise keying requirements (and the risk of repetitive strain injury for your team) and free up your team to work on more productive, less repetitive tasks
    • Process an invoice within 30 seconds
    • Complete your month-end reports up to 10 days sooner
    • Submit your monthly VAT returns up to 10 days sooner – and receive your refunds from HMRC sooner as a result
  • Drive up accuracy by introducing robust validations that eliminate errors
  • Improve visibility and transparency throughout the payment process
  • Remove approval bottlenecks
  • Follow the government payment performance guidelines (and prevent late-payment charges)
  • Locate documents with ease
  • Make reconciliations quicker and easier to achieve
  • Improve traceability with a ready-made, detailed audit trail
  • Minimise disputes
  • Boost efficiency and reduce overheads.

THINGS TO BEAR IN MIND…

Select a flexible, cloud-based solution

Your company will have its own unique processes and procedures for dealing with incoming invoices. If you’re looking for a software provider who can automate them, don’t allow yourself to be shoehorned into a rigid, unsuitable format. Choose a system that can be tailored to your needs.

The global pandemic sent shockwaves through Finance teams around the UK, particularly when the government-enforced lockdowns meant they were not allowed to work from the office. However, companies that had a cloud-based enterprise resource planning (ERP) system were able to switch seamlessly to home-based working and could continue to rely on their automated invoicing processes. It’s worth bearing in mind, in case we ever go back into lockdown…

Consider the benefits of using an industry-specific software provider

If you’re working in construction or contracting, it makes sense to select an integrated system that’s tailored to meet the needs of your industry.

Make sure the system has strong information management capabilities  

Check that potential systems allow you to keep all the information relating to your invoice in one place (and preferably linked to the project number). And to avoid the risk of creating information silos, check that all the processing is carried out within the system, based on the ‘single source of truth’.

Choose a supplier whose system is configured in a way that simplifies three-way matching: all related purchase orders, GRNs and invoices should be kept together and easy to access. And check out whether the supplier offers the ability to easily find all invoices for a supplier or project at the click of a button, as well as a full text search for invoice documents on the system – this will be useful for investigations and dispute resolutions.

Think about your auditor’s requirements too. You might like to consider this comment, made by a RedSky customer: “I could see our new auditor’s eyes light up when she saw each transaction had a document attached!” Will your chosen system meet your auditor’s needs and make their life easier?

Take the opportunity to reflect on volumes

How many suppliers do you have – is your supply chain too large? Are your supplier details up to date? How many invoices do you receive each month – are there too many? Are you spending too much time on reconciliations – do you need to introduce more validations? Can you work smarter?

Asking and finding the answers to questions like these can help to ensure that when you’re ready to set up your new system, you hit the ground running with a streamlined list of suppliers and an efficient overall approach.

Talk to your suppliers about digitisation

An electronic invoice processing system works most efficiently if all suppliers send in their emails to a predefined email address, so it’s a good idea to instruct your suppliers about this. Tell them that you will send an electronic purchase order, you expect an electronic invoice and you will pay it electronically.

If they aren’t keen to comply, try pointing out that, according to feedback received from our customers, for every 100 invoices they print, fold, put into envelopes, pass through the franking machine and post off, they’ll be forking out up to £2,000 in labour, stationery and postage. Sending invoices electronically wipes out these costs and can be done at the touch of a button. 

If they continue to resist, explain that because you’ll receive the electronic document immediately, rather than having to wait for the post, you’ll be able to pay them more promptly. That should do the trick.

IN CONCLUSION…

Many traditional invoice processing methods have had their day. Today’s electronic invoice processing systems offer a far more efficient alternative, especially if you decide to go for full automation using data capture (OCR) technology.

There are astonishing savings to be made. Is it time for you to take this important next step on your digital transformation journey?

If you’d like to find out more about how to digitise your invoice processes, get in touch with construction software specialist RedSky. Our award-winning end-to-end construction management platform has a unique Invoice Automation solution that combines a user-friendly Invoice Register with cutting-edge data capture (OCR) technology. Call us on 020 3002 8600, drop us an email (hello@redskyit.com).

ABOUT THE AUTHOR

Brendan Magill is a Chartered IT Professional and Member of the British Computer Society. He has 30 years of IT experience, from working in the smallest comms rooms with his sleeves rolled up to implementing strategic improvement plans for businesses of all sizes – primarily in the construction sector. His practical IT knowledge and skills are complemented by an MSc in Business Improvement.