Is Manual Invoice Processing Slowing Your Business Down?

Introduction

In today’s fast-paced business environment, Chief Executives prioritize agility and efficiency across all departments. Yet, many organizations remain bogged down by manual invoice processing, creating a hidden bottleneck that hinders growth. This inefficiency ripples through business operations, management, and overall performance, resulting in strategic setbacks and a competitive disadvantage

Even after this labor-intensive, paper-laden workflow, your financial statements are also very prone to human error. According to the Institute of Finance and Management (IOFM), manual invoice processing can have an error rate of 8% to 12%.

Manual invoice processing can be a significant bottleneck for business processes, hindering cash flow, productivity, and employee morale. Traditional methods are reliant on paper trails and manual data entry.

This article explores the challenges of legacy invoice processing systems and introduces the transformative potential of Artificial Intelligence (AI) in streamlining this critical business function.

What is Invoice Processing in Accounting Systems

The process includes receiving, processing, and reconciling invoices to culminate the payments of vendors. For decades, businesses have relied on manual and semi-automated invoice processing.

Here’s how the process works:

1. Capturing invoice data: Companies get invoices in various formats. Usually, they convert them into electronic data by using optical character recognition (OCR). Since OCR is error-prone, it ultimately requires manual verification by analysts.

2. Verifying crucial invoice data: By using custom validation rules, legacy invoice systems verify vendor information, which includes address and bank account information.

3. Matching invoice data using business rules: Typically analysts manually flag unmatched vendor-related data from invoices. They also match them against purchase orders, receipts, statements of work, and other internal records.

4. Payments and Uploading data on ERP: Legacy systems pay the vendors and prepare a final report manually. The report requires uploading the data with all invoice data to ERP systems either directly or via APIs.

Advantages of Legacy Invoice Processing Systems:

Ease of use: OCR software has a user-friendly interface. The system usually reduces the time taken to fix errors that arise due to inaccurate OCR.

Security: Since these systems are essentially deployed on-premises (i.e., within the Information Technology (IT) Firewall of the user), the likelihood of a data breach is reduced considerably.

Customization: Since these systems are usually bespoke, they are flexible and can incorporate specific needs and approval workflows easily.

Scalability: The entire workflow system can usually handle several million invoices per year thereby accommodating future growth.

Integration: Most legacy systems integrate quite well with existing accounting and ERP systems (such as QuickBooks and SAP), thereby maintaining data consistency.

Support: Usually a systems integration partner or the IT department within the user’s organization can manage these systems effectively, providing reliable customer support, and following continuous improvement – continuous delivery (CI-CD) process easily and effectively.

While legacy systems offer some advantages (ease of use, security, customization), their limitations are significant.

Disadvantages of Legacy Invoice Processing Systems:

High Labor Costs: The limited accuracy (around 90%) of OCR technology necessitates extensive manual verification by analysts. Since the location of errors is unknown, the analyst has to review the entire output of OCR. This not only increases labor costs but also diminishes the potential benefits of automation.

Slow processing: Paperwork, manual entry, and filing slow down invoice processing in legacy systems.

Data Rebuilding: Most OCR systems lose the two-dimensional aspect of the invoice, thereby forcing manual reconstruction of tables with product names, quantities, taxes, etc.

Error-Prone: Often, because of time limitations these analysts are unable to completely reconcile all invoices with purchase orders and the underlying contracts. For example, many contracts allow the payor to deduct 2% of the value of the invoice if this invoice is paid within ten days of receipt. However, often the analysts are in a hurry or forget to take advantage of such a clause.

It’s Time to Eliminate the Paper Trail

AI-powered invoice processing solutions offer a compelling alternative to traditional invoice processing. By leveraging machine learning and intelligent automation, AI can significantly improve efficiency, accuracy, and cost-effectiveness.

Our AI-based product suite, Collatio® provides automated invoice digitization with data reconciliation features across documents such as SoWs, purchase orders, and MSAs with an efficiency of 98%. It is capable of processing 200+ invoices/hour. Collatio® delivers end-to-end invoice documentation processing and categorization including pre-forma, interim, past due, and final invoices. This AI-based processing of invoices helps prevent fraud and provides actionable insights. Collatio® is equipped with features that allow for seamless integration with Enterprise Resource Planning (ERP) systems.

Collatio® incorporates deep domain expertise in its intelligent document processing factory to achieve straight-through processing with 98% efficiency. Try Collatio® Here

In the next article, we delve deeper into the capabilities of AI-powered invoice processing solutions and explore the specific benefits they offer businesses.