Invoice processing might not be one of the most glamorous tasks that an organization needs to complete on a regular basis, but it is an integral process that contributes to its overall success. Every accounts payable department must be able to provide the executive team of numerous financial positions so that informed choices can be made.
Most invoice processing tasks are still reliant on paper-based processes. They require a lot of manual labor and the approach is one that is far from centralized. It’s far from cost-effective, but it sticks around because corporations are fearful of change in such a strategic need. Most companies rely on standard mail and fax machines for their invoices. Start going digital and you’ll incorporate the most important best practice there is.
Here are some additional invoice processing best practices to begin incorporating into your AP department today.
1. Always double-check the W9.
If you’re in the US, then you need to have a W9 form for every vendor that you utilize. Doing so will save you a lot of time when you’re preparing your end of year 1099 forms. Anyone paid more than $600 is typically required to have a 1099 issued to them, including other businesses. The fines can be high if compliance isn’t maintained, so just make sure the proper documentation is present before getting started.
2. Pay from the original invoice only.
Many companies will send an advanced copy of an invoice to an AP department because it will get them paid faster. Then the original invoice comes in and the AP department might just think that they need to pay the invoice a second time. If you do pay from copies, always check the records you have and match up the copies with the originals. This is why going digital is such a time saver. There’s no physical paperwork to hunt down.
3. Different people should have different responsibilities.
Fraud and embezzlement is a lot easier to commit if one employee is responsible for all aspects of invoice processing. You should be having one person signing the checks. Another person should be entering the invoice. A third person should be approving the invoice. This also helps to prevent errors from occurring during the invoice processing procedures because there will be a minimum of three people putting their eyes on the invoice.
4. Have a consistent pattern of filing and saving.
Even digital invoice processing can create a massive headache if there isn’t a consistent pattern of entering invoices, processing them, and then saving them. Don’t let your AP staff use their own devices when it comes to invoice numbers and how they are entered. Also make sure that you’ve got clear policies in place that will help to dictate what needs to happen should there not be any invoice numbers around for some reason.
5. Provide an audit trail.
If you’re invoice processing in batches, then you’re creating a system that can be easily manipulated. Each invoice should be entered individually and in the order that it should be processed so that a clear audit trail can be established if someone may need to follow it one day.
6. Create consistency with your vendors from Day #1.
Vendors always have their own invoicing procedures that they’re going to default toward if they have no information from you. Therefore one of the invoice processing best practices to have in place is a welcome letter that gets sent out to every vendor who may wind up sending you an invoice. Make sure to include all of the required information that you’ll need to make sure that your process remains optimized. It’s something that vendors love because it lets them know what they need to do to get paid on time and your AP staff love it because it provides a higher level of consistency.
7. Keep track of potential vendor discounts that are available.
Many vendors will offer discounts over the course of the year, but they’re not always going to highly promote these discounts. That’s why it is important to always watch the invoices as they are being processed to see if there are any discounts that might be available. Although it may only save a few bucks here or there, those sums really do add up over the course of an entire year.
8. Keep your invoice processing coding consistent.
Even digital invoices have coding that must remain consistent. Make sure that your file names follow a specific format so that they can be appropriately followed. If you have paper invoices that need to be tracked, then make sure the account coding that you’ve set as standard for your organization is included every time so that the audit trail can be appropriately followed.
9. Get the invoices logged before processing them.
Most invoices need to be approved by the manager that made the purchase. The only problem is that the average manager is more concerned about job details of that day instead of providing receipts or signing off their approval on a purchase. That’s why all invoices should be logged by your accounting department before they get sent out so that your AP staff can keep track of the numbers that still need to clear. Just because invoices are digital doesn’t mean managers are going to make a proactive effort to approve them.
10. Make invoice approvals a top company-wide priority.
Invoice processing needs to be efficient in order for it to be effective. Safeguard yourself by logging invoices before sending them out, but hold managers responsible for their approvals. If payments are stalled to vendors, then it can affect your overall corporate image. Having automatic escalations for outstanding invoices after a certain period of dime can help to increase the efficiency of the system.
Is invoice processing a fun task? Not usually. It is, however, an essential and strategic task that must be completed on a daily basis. By following these best practices, you’ll be able to streamline your AP, limit trouble, and establish beneficial vendor relationships with ease.
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