What does “Invoice Automation” mean?
When a company uses technology to collect, check, and send invoice data to its ERP or accounting system, it can automatically match that data with buy orders and receipts and receive payments from customers without any help from a person.
Invoice automation speeds up the accounts receivable process, including billing, handling payments, and ensuring all payments are correct. It is mainly used by the accounts receivable department.
Accounts receivable (AR) automation is mainly done by billing software, but for the billing process to be fully optimized, it needs to be connected to ERP systems and payment providers.
Automated invoice processing saves time and reduces mistakes compared to doing accounts receivable chores by hand. It also lets people see an organization’s sources of income in real-time.
Accounts receivable invoice automation, automated invoice handling, AI invoice automation, and AR automation all mean the same thing.
Top Reasons to Make Billing and Receiving Automatic
A 2022 study from PYMNTS called The Treasurer’s Guide to AR Payment Optimization says that 40% of B2B payments are made with paper checks, and 81% of all businesses use this method at least some of the time. Even though the pandemic has pushed businesses to go digital, accounts departments are behind in automation, which costs them money.
Manual processes are prolonged and prone to mistakes. Businesses need to automate AR tasks to keep the whole process going smoothly.
Time is saved by automation.
According to a 2023 Tipalti study, 73% of finance leaders said that using accounts receivable automation software to automate the collection and bookkeeping processes saves time and makes operations more efficient.
When you automate your invoices and accounts payable, you don’t have to send each customer an invoice by email, fax, or mail.
Putting invoice information into accounting and ERP tools Putting invoices in the central ledger
Making aging records for accounts receivable and keeping track of outstanding invoices; doing management work (dealing with late payments and sending payment reminders); adding up payments.
This frees the accounts receivable team to work on more critical and strategic jobs, and the order-to-cash process goes faster.
Cash flow and income that can be predicted
It’s too hard to keep track of customer payments when they have to be collected by hand. Because of this, companies are always one credit card rejection away from having to pay a lot of money in bad debts and losing customers.
A Forrester study of decision-makers in accounts receivable shows how bad things are for businesses and their cash flow. Half of them say that almost 10% of payments failed in the past year, and the vast majority (80%) say it takes more than 20 days to get paid.
This isn’t good for businesses further down the line, especially regarding cash flow.
Hands-free follow-up and making it easy for customers to see and pay their bills don’t just mean faster payments. Customers are much more likely to pay what they owe when using them.
When companies use invoice automation, they get better cash flow management, more accurate revenue forecasting, and a better financial outlook, no matter the process’s speed or efficiency.
One of the biggest problems with standard receivables processes is their lack of security. If you don’t track it properly, one paper check from a business-to-business user could be worth six or seven figures. This is a lot of money that could throw off your books.
Invoice processing tools have built-in reporting features that give you a good view of the whole order-to-cash process. This includes information about how customers pay their bills and other numbers, like the average time it takes for an account to be paid (days sales outstanding, or DSO) or the total amount of money customers still owe.
These features also make it easy to keep track of invoices sent to customers, check on the status of payments, and make sure that payments are made correctly. Businesses can easily measure the success of their accounts receivable operations with real-time data when they automate their invoices. This is something that manual processes have a hard time doing.
Make things better for your customers.
Because doing business with other businesses is always complicated, many people don’t want to switch to automatic billing. But most business-to-business buyers are ready to spend more than $50,000 online. This shows a big disconnect between how businesses currently do things and what their customers want.
People want three things from the sellers they choose when they want to buy something:
- Quickness
- Safety
- Ease of use
Customers don’t like manual billing because they have to fill out paper forms, make calls, and get provider updates, which they don’t want to do.
Customers want a smooth buying process that saves them time and money. Automation gives them that.
Make sure compliance
Customer payment information, like credit card numbers, bank account numbers, and so on, is very private. Companies can easily have data breaches or not follow industry rules when their security measures aren’t always the same and they do things by hand. These rules include the following:
Standards set by the American Institute of Certified Public Accountants (AICPA) and the Payment Card Industry Data Security Standard (PCI DSS)
HIPAA stands for the Health Insurance Portability and Accountability Act.
Software that automates invoices is made to help businesses react quickly to changes in compliance rules. You don’t have to worry about your customers’ data getting lost or stolen because it’s protected in the cloud. That’s not the case with paper checks that the AR team must remember to shred.
Invoice automation not only keeps data safe but also helps businesses follow the rules when it comes to calculating taxes and VAT.
Payments between countries Changes of currency
- Payment rules by country and state
- Recording of income
Most of the time, not following the rules costs three times as much as following them. Automated billing is one of the cheapest ways to escape expensive fines.
A Look at the Process of Automating AR Invoices
Bills are processed by hand and must be matched, checked, and recorded several times. With invoice automation, the extraction is done by hand, and each invoice is checked against the company’s rules and added to the ERP and bookkeeping systems.
This is how the process looks:
1. Getting data from invoices
First, the automation tool takes information from the statement that email, PDF, or fax sends. It reads the bill using optical character recognition (OCR) technology, a process powered by AI that turns text from scanned images or printed papers into a format that can be edited.
OCR quickly pulls essential data from the invoice, such as
Customer or business name Billing address Payment history Due date and amount of the bill
2. Checking the data
The AI server checks the invoice against organizational rules and preferences that have already been set (for example, “If the invoice for Customer X is more than $10,000, please contact the accounting department for approval”).
It also checks the invoice for mistakes or discrepancies, such as duplicate bills, wrong amounts, missing customer information, or records that don’t match up with the customer, and marks them as needing to be looked at.
Two-way validation is an extra benefit of automating invoices during the validation stage of the process. This means that the information on the invoices is checked against the information on the purchase orders. The system gets better for a business as it stores more invoice data.
3. Setting priorities
Some invoices take longer to process than others. Invoice automation can tell which ones are which by looking for data that doesn’t match the invoice and the buy order, invoices that need management approval, or payment history for the customer.
If the system thinks an invoice is essential, it will send it automatically to the right person in the company so they can move quickly and avoid delays.
4. Making records
Invoice automation software saves All invoices on the ERP and accounting systems of businesses. This software keeps track of the dates, amounts, and due dates of all invoices so that the business can keep track of its outstanding accounts.
The program helps accounting and finance keep their books up-to-date and balance their accounts receivable when they get paid.
With real-time data, it also makes reports that help businesses monitor their success, see how invoices are being paid, and quickly settle customer disputes.
5. The Dunning Company
The dunning process is integral to the AR team’s job because it ensures that customers who haven’t paid their bills follow the payment terms. Usually, someone from the billing team would have to contact late-paying customers directly and send them follow-up emails, invoices, or reminders to pay.
Invoice automation makes dunning management easier by sending emails and reminders to customers who are past due on their payments automatically, keeping track of their payment history, and helping businesses set up automated payment plans.
Essential Parts of Software for Automating Invoices
Organizations generally use a comprehensive billing platform to handle the revenue lifecycle. One of its features is the ability to generate invoices automatically.
Here is a list of the most essential features for automating invoices:
It works with ERP, CRM, and CPQ.
A company can only be operationally efficient if its tech stack is connected. There can’t be any places where data can’t flow, or it will be hard to keep track of every invoice and figure out how it affects (or helps) the bottom line.
If you want to automate your invoices, ERP is the most essential integration because it stores financial data and lets other areas access it.
Along with CPQ software, most businesses also use CRM software to store customer data like contact information and payment history and CPQ software to turn quotes into purchase orders and bills.
These three should work together, and billing and invoice automation should work well with them (if not naturally).
Sending reminders and alerts
Automated payment alerts are a must for any business that wants to automate its invoices. Customers who don’t pay on time or at all would still be a problem without them.
Aside from automatically reminding people to pay, invoice automation software should also let the AR team know when they need to do something by hand, like when a buy order and an invoice don’t match.
Accessibility on Mobiles
Invoice automation software should ideally be able to be used on any device, either through an online interface or a mobile app.
Mobile access lets business owners and managers who run small businesses or teams that work from home look over bills and handle customer payments from anywhere.
Plus, customers can pay while on the go, which cuts down on the time it takes to make a sale and helps customers meet their payment dates.
Different ways to pay
Businesses lose about 2% of their customers monthly because they can’t keep them. Businesses that give their customers more than one way to pay significantly reduce the chance that those customers won’t pay on time or at all.
As customers move away from paper-based billing systems and toward digital ones, having more than one way to pay has become more critical. People will not all give a business their credit card or bank account number, and they will not all use the same credit cards.
You can let encrypted software handle it without much trouble.
Made Collections More Organized
The steps a business takes to get payments from customers who owe money or are past due are all part of the collection process.
When a customer signs up for a service or a contract, invoice automation software records the payment terms and how often they will be sent. It then sends the buyer branded invoices regularly.
When a customer is past due, it sends them more requests with emails and notes that have already been written. This process happens at a set time. Usually, seven to ten days before the due date, the accounts team doesn’t have to do anything about it.
Dashboard for Analytics
Users should be able to see real-time information about their invoices, past-due accounts, cash flow, and customer payment histories when they login to an invoice automation tool.
The analytics dashboard should also have tools for customer segmentation and visualization to make it easy to compare how well different groups of customers are doing.
A good analytics panel is easy to use, bright, and straightforward, so people can quickly see what needs their attention and share data with others.
