Streamline AP Invoice Processing Using Your ERP

Manual methods and spreadsheets can cause invoices to be lost or misplaced. Learn how using an ERP can streamline the AP invoice process.

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    The Accounts Payable (AP) department in most companies operates in a demanding environment. The volume of transactions is usually substantial and completing the AP processing cycle can be difficult. AP interacts with nearly every department in the company as well as with outside vendors. To successfully meet its processing goals, AP must rely on both organization and sound processes.

    Many times, AP does not achieve it’s processing goals. This results in unhappy vendors which in turn results in un-necessary drama. AP’s inability to process transactions in an effective manner can be traced to specific reasons such as out of date procedures, poor review and approval processes, inadequate executive support and not using the supporting financial system to its full capabilities.

    In today’s SMB marketplace there are several AP specific applications designed to automate AP invoice entry, distribution and approvals. Overall, application functionality is adequate, and can make a positive impact in AP invoice processing. However, like everything else, there is a price to be paid for these improvements.

    In addition to the software cost, these applications require an implementation process like that of an ERP. Standard implementation tasks consist of application configuration, building approval trees, user testing and training. Completing the tasks can be substantial in terms of external and internal costs.

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    The purpose of this post is to provide some insight into how a company can improve AP processing by using basic ERP functionality and forgoing the costs of an AP automation application.

    Invoice processing

    Invoice receipt and logging

    Invoice receipt and logging processes vary greatly between companies. Many companies put incoming paper invoices into folders and/or maintain an excel spreadsheet invoice log. Invoices may be sorted by vendor, due date or both. Electronic invoices are printed and handled in the same manner. Using these manual methods and spreadsheets can cause invoices to be misplaced or lost and makes the open invoice search process difficult.

    Invoice entry is controlled using processing levels (e.g., unposted, posted). No matter how the levels are structured, the invoice entry process only affects the financials when the transaction is posted. With this in mind, a better way to receive and log vendor invoices would be to enter them into the ERP as soon as they are received and use the ERP as a logging mechanism. Since the ERP tracks information such as vendor, invoice date, discount date and due date entering the invoices into the ERP can streamline the receipt and logging process.

    It’s a fairly easy task to generate AP reporting to display voucher transactions set to an unposted status. The unposted vouchers displayed should reconcile to the invoices entered. Using basic ERP reporting features such as filtering, sorting and search any invoice search requirements should be easy to achieve.

    At the time of invoice entry, use features such as voucher templates to streamline the entry of large multi-lined invoices. Use the file import process if you can, to populate the template and realize additional processing effectiveness.

    Use default vendor GL accounts to code the invoices. Using vendor account codes allows the user to enter the invoice quickly and not have to distribute it. The reason for using the default vendor account code is that some ERPs will not allow the user to save a voucher without the header and detailed account distribution being completed.

    Other ERPs, however, will allow the user to save a voucher after entering only voucher header information (e.g., vendor, invoice date, invoice amount). In this case, using the default vendor code is optional. Either way, since the voucher has not been posted, any GL account changes needed can be made to the voucher record prior to posting.

    To streamline the invoice review and approval process, the invoice itself can be scanned and attached to the applicable voucher using the voucher screen’s notes and attachments feature. Electronic invoice records can be attached in the same manner. Store the scanned images in system directory folders. Name the folders using the invoice entry date. Name each record by vendor and invoice number. By following this process, paper invoice filing can be simplified (or eliminated) and future invoice searches will be more effective as the can use accounts payable reporting to find the invoice record and the attached invoice image.

    Invoice distribution and approval

    Invoice distribution and approval can be a nightmare. Invoices manually distributed often get misplaced or lost. If an effective logging process as described above is not in place, AP may not be aware of a lost invoice issue until the vendor calls looking for payment. One thing an AP team member doesn’t want is for an unhappy vendor, or an internal company executive contacting the department about a late payment.

    Companies try different methods to get the review and approval process under control. Some will make invoice copies, send the copies for review and approval and hold the originals in the department. In my mind’s eye, all that seems to accomplish is to have a paper copy invoice misplaced or lost instead of the original. I don’t place much stock in this processing method.

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    Using out-of-date processes doesn’t make a lot of sense in today’s business environment. Current e-mail applications can readily support attaching the invoice image file to an e-mail. Use e-mail to route the invoice to the reviewer for approval. Build an e-mail template to streamline the process and promote consistency. With some ingenuity, tech support may even be able to provide form functionality to the e-mail template allowing the reviewer and approver to enter the GL account codes and acknowledge payment approval.

    To make things easier, try to simplify your approval trees to improve the review and approval process. If you need multiple invoice approvals, send the e-mail to all the approvers.

    Remember, we’re addressing the needs of an SMB in this post. The approval process should not be as complicated as that experienced in larger companies. Complicated and multiple approval trees should not be the norm.

    Many of today’s ERPs support attaching a link to the applicable voucher screen in an e-mail or via a transaction routing feature. This can be an excellent way to complete the review and approval process. The approver can review not only the invoice itself, but can also review (and edit, with the proper permissions assigned) the GL account coding and other vendor and voucher related information. By limiting voucher posting permissions to AP team members, AP can create the appropriate internal controls.

    A note about purchase orders

    When a purchase order (PO) process is mentioned, a lot of companies complain that using PO’s un-necessarily complicates the purchase and payment cycle. Actually, this point of view is a mis-conception.

    While purchase orders require building an additional document, they can greatly simplify the subsequent review and approval process. Basically, when using PO’s, the review and approval process is front loaded (to the PO process) and removed from the AP voucher process (invoice distribution and approval).

    For example, an open PO can only be created once fully approved. Following this line of thinking, when the applicable vendor invoice is received, AP auto-loads PO detail into the voucher screen eliminating the data entry process. AP then matches the invoice to the PO and ensures that the goods or services ordered were delivered, to complete the voucher process. This process is called invoice matching.

    Since the purchase itself was originally approved during the PO process, the voucher should be able to be entered and posted without additional distribution, review and approval.

    For uncomplicated invoices, this process makes a lot of sense. More complicated invoices should be routed for review and approval prior to posting if needed. I personally like using PO’s and think that it increases productivity and control over basic purchases.


    Accounts payable invoice processing can have a material impact on a company’s operation. AP processing errors, lost invoices and delinquent payments do nothing but alienate vendors, create additional work for everyone involved in the process and can negatively impact profitability through lost discounts or less beneficial pricing on future purchases.

    Use the processes and software solutions which best suit your needs and budget. Keep things as simple as possible to get the most value from your AP department.


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