Invoice processing is the comprehensive management of vendor invoices from receipt to payment, conducted primarily by the accounts payable department. It encompasses the validation, recording, and settlement of invoices, ensuring accuracy and efficiency in financial transactions and compliance with fiscal policies.
Invoice processing plays a pivotal role in the financial management of any organization, acting as a critical component of the broader accounts payable operations. This guide aims to provide a thorough understanding of how invoices are processed, the technology that enhances this essential function, and how Medius's innovative solutions optimize these processes. By integrating advanced technologies and strategic practices, Medius elevates the efficiency, accuracy, and security of invoice processing, facilitating better financial decision-making and resource allocation within companies.
Supplier invoices are often received in a variety of different formats – paper, PDF in email, e-invoice, EDI (electronic data interchange), etc. The invoice data must be digitized and transformed into a standardized format. In some cases, accounts payable staff will manually key in data to the finance system. But today, most companies use an accounts payable (AP) solution with automated invoice scanning and invoice data capture functionality. This means the solution will automatically extract the invoice data so that the AP staff can spend their time on more valuable tasks.
The invoice amounts are then coded to the correct G/L (general ledger) account, project, and cost center. Then, the invoice is distributed to the responsible buyer or budget owner for review and invoice approval. With an AP invoice automation solution, the entire invoice processing workflow can be digitized and automated for faster and more efficient accounts payable invoice processing.
To understand invoice processing meaning, it’s important to learn the different steps of the invoice processing process.
The invoice processing procedure starts with the reception of a supplier invoice via email, snail mail, fax, or automated capture via an accounts payable system.
To process invoices in a digital workflow, the invoice data needs to be extracted and captured in a standardized format.
The accounts payable team is responsible for invoice handling and will then apply accurate coding either manually or automatically using an AP automation solution that is pre-configured with the specific organization’s business rules.
The invoice processing continues with invoice approval. This part of the invoice processing procedure differs depending on the type of invoice: expense invoice or PO-based invoice. For PO-based invoices, invoice processing can be performed without human intervention using automated invoice matching through an AP automation solution.
Once approved, invoices can be processed for payment to their respective suppliers.
After payment, invoices are archived for record retention purposes or potential audits.
AI invoice automation uses artificial intelligence to streamline the entire invoice lifecycle — from data extraction and coding to fraud detection, approval workflows, and supplier communications. Traditional automation digitizes specific steps, but AI takes it further with predictive intelligence, contextual awareness, and the ability to make autonomous decisions throughout the process.
A key part of this technology is optical character recognition (OCR). OCR turns paper or scanned invoices into structured, searchable digital data. When combined with AI, it doesn’t just read invoices, it understands and acts on them intelligently, so that no manual effort is needed. Together, AI and OCR make it easier for organizations to process invoices faster, more accurately, and with better control.
Here's how AI invoice automation is modernizing accounts payable:
AI invoice automation starts with smart invoice capture. It can automatically pull and process invoice data from different formats, like PDFs, scans, emails, and portals, and accurately code it using historical trends and organizational rules. The system gets smarter over time, cutting down on manual fixes and speeding up processing while minimizing errors.
AI algorithms monitor your invoice data, spotting anything unusual like odd amounts, irregular frequencies, or changes in supplier behavior. This proactive monitoring helps catch potential fraud or duplicate payments before they hurt your bottom line. It also means finance teams can keep tighter controls and always be ready for audits.
AI can help invoice approvers by showing the most relevant information, flagging any inconsistencies, and suggesting next steps based on company policies. It takes the guesswork out of the process, making it easier and faster for approvers to make confident decisions, cutting down on delays and speeding things up.
AI-powered chat tools and automated agents can handle routine supplier questions, like checking payment status, missing POs, or confirming invoice receipt, without needing input from your AP team. This makes things easier for suppliers and reduces the number of emails your team has to deal with.
Unlike rule-based systems, AI invoice automation is flexible and adapts in real time. It adjusts based on things like invoice type, vendor history, priority, or urgency. Using a learning-based approach cuts down on manual exceptions and speeds up processing, keeping AP teams efficient, even as invoice volumes grow.
AI invoice automation isn’t here to replace finance teams but to empower them. By removing repetitive, manual tasks and surfacing intelligent insights, teams can focus on high-value work like cash flow planning, strategic vendor management, and compliance.
Effective integration with existing business systems is a must for any robust invoice processing solution. These integrations are essential for ensuring seamless data flow, reducing manual input errors, and enhancing overall operational efficiency. Here are key integration capabilities typically supported by advanced invoice automation systems:
By leveraging these integrations, businesses can ensure that their invoice processing is not only faster but also more aligned with other core business functions, leading to greater operational transparency and control.
Medius's invoice automation software supports these integration capabilities, allowing for robust connectivity with a range of business systems, enhancing both functionality and user experience.
Invoice automation solutions bring a multitude of benefits to businesses, streamlining operations, reducing costs, and enhancing compliance. Here are several ways automation benefits invoice processing:
Enhanced efficiency and touchless processing
Automation significantly accelerates the invoice processing cycle, reducing the need for manual intervention. This increase in efficiency allows staff to focus on higher-value tasks instead of routine data entry.
See how Medius helped Intersafe increase their touchless processing rate to 55% within just a few months, exemplifying the efficiency improvements possible with advanced invoice automation solutions.
Cost reduction and operational savings
Automating invoice processing reduces labor costs and operational expenses by minimizing manual tasks, which in turn reallocates resources to more strategic areas, optimizing overall business performance. Dynapac experienced considerable cost savings and resource optimization by implementing Medius's automation technology, demonstrating the cost-effectiveness of such solutions.
Accuracy and compliance
Invoice automation solutions improve the accuracy of data entry and ensure compliance with regulatory standards by minimizing human error. The use of technologies like OCR and AI ensures that data captured from invoices is precise, which is critical for compliance and financial reporting.
Improved vendor relationships
Timely and accurate processing of invoices strengthens relationships with vendors. Automated systems ensure that payments are processed on time, which helps maintain good standing with suppliers and may even qualify businesses for early payment discounts.
Scalability
As businesses grow, the volume of invoices and complexity of processing them also increase. Automation solutions scale to handle increased loads without a corresponding increase in errors or staffing costs, supporting business expansion smoothly and efficiently.
Security enhancements
Automated systems offer advanced security features, including controlled access and audit trails, which protect against fraud and ensure that only authorized personnel can access sensitive financial data.
Explore the KPIs and benchmarks driving accounts payable departments around the world in this 2023 report from leading analyst firm, Ardent Partners.
Before you implement invoice processing software, it’s important to outline the areas you’d like to improve the most in your business. Ask yourself what problems or pain points within your current accounts payable process need to be addressed and in what order of importance. What specific and measurable objectives or outcomes would you like to address or see after implementing AP software?
Even if it’s the easiest-to-use software, many employees will still have a lot of questions about potential new or updated workflow processes or will appreciate knowing how to get the most use out of the new invoicing software. That’s why you should develop or plan a training program for your employees on how to use the new software.
Just because you think you have the invoice workflow(s) mapped out smoothly, does not mean they will be perfect when applied. A best practice to include is to have users test the software before rolling it out company-wide. Keep your user testing group to a smaller number of people, perhaps managers of departments and maybe one member of their respective teams. This way you can gather feedback on the workflow process and make any necessary adjustments.
According to a study by the Institute of Financial Operations, organizations that automate their invoice processing can see a return on investment in as little as 3-6 months. Any software you bring into a business should have a clear and easily understandable return on investment. But you still have to establish what KPIs (key performance indicators) are most important to your business. Document what the KPIs are, and measure them on a specific cadence to show ROI and ensure the successful adoption and rollout of the software.
When creating your KPIs to show ROI, consider these stats as some useful benchmarks:
25% quicker to process
Aberdeen Group found organizations that use automated invoice processing see a 25% reduction in the time it takes to process an invoice.
20% fewer invoice errors
Hackett Group found that companies who automate their invoice processing can see a 20% reduction in the number of invoice errors.
Cut late payments in half
Paystream Advisors found that organizations who automate their invoice processing can see a 50% reduction in the number of late payments.
Automated invoice processing reduces the risk of data entry errors and also protects against fraud. We estimate it increases the security of your AP process by up to 85%. After the software scans invoices, it can send alerts to the right stakeholders to verify any suspicious activity such as large increases in invoice volume, extreme variations in amounts asked for, or duplicate invoices. In addition, invoice processing software also has built-in security features like encryption and access control to allow different levels of access to employees.
See how your organization can benefit from Medius’ Automated Invoice Processing Solution.
Is your business's payment approval process optimized? Manage accounts payable invoices more efficiently with automated invoice approval workflows and software.
“Switching to Medius has been a game changer for our accounts team, who are now able to process our invoice volumes with greater speed, accuracy, and efficiency by automating manual systems. The team was also impressed by how easy the system is to use and the seamless integration into our existing payment processes. We have established an automated workflow, which has increased visibility and tracking, enabling us to reach a level of unprecedented efficiency!”
Rory Whitman
Accounts Payable and Receivable Manager, White Stuff
The tasks involved in invoice processing typically include receiving the invoice, verifying its details against purchase orders and delivery receipts, entering data into the accounting system, routing the invoice for approval, executing the payment, and finally archiving the invoice for future reference and compliance. Automated systems streamline these tasks to enhance efficiency and accuracy.
Accounts Payable (AP) Invoice Processing refers to the end-to-end process managed by the accounts payable department that includes handling incoming invoices from vendors, processing these invoices for payment, and maintaining records for accounting and auditing purposes. It is a key function within the broader procure-to-pay cycle in business.
The time to process an invoice can vary widely depending on the efficiency of the AP process in place. Manually, it might take anywhere from a few days to several weeks. However, with automated invoice processing, the time can be reduced significantly, often to just a few hours or less, depending on the system's efficiency and the complexity of the invoice.
The cost of processing an invoice manually can be quite high, typically ranging from $15 to $40 per invoice due to labor and other associated costs. Automation can reduce this cost dramatically, often bringing it down to less than $5 per invoice by minimizing manual input and streamlining the entire process.
The number of invoices an AP department can process in a day depends on several factors, including the complexity of the invoices and the efficiency of the process. With manual processing, an AP clerk might handle 20-40 invoices per day. Automation can increase this capacity to hundreds of invoices per day per clerk.
Speeding up accounts payable invoice processing can be achieved by adopting automation tools that streamline various steps, such as data entry, verification, and approvals. Implementing electronic invoicing, utilizing OCR technology to capture data, and setting up automated workflows for invoice approval are effective strategies to reduce processing time.
Automated invoice processing is invoice processing software that eliminates manual steps by scanning invoices and routing them along a predefined workflow to the appropriate approvers. It reduces errors, saves time, and gets the job done faster so your employees can focus on their core job responsibilities, and not accounts payable.
Because you can define who can see what with user permissions, invoice processing software is uniquely more secure than other methods of invoice processing. In addition, it auto flags duplicate invoices, and any potentially fraudulent or suspicious activities are flagged and monitored constantly.
AI and machine learning play significant roles in enhancing the capabilities of automated invoice processing systems. They help in improving the accuracy of data capture, enabling predictive analytics for better cash flow management, automating complex decision-making processes such as invoice approvals, and detecting patterns that could indicate fraud.
Yes, modern automated invoice processing systems are typically designed to support multi-currency and international transactions. These systems can handle invoices in various currencies, apply appropriate exchange rates, and ensure compliance with international tax laws and financial regulations.
Automated invoice processing ensures timely and accurate payments to vendors, which is crucial for maintaining positive relationships. It also provides vendors with clearer visibility into the payment process, reducing disputes and enhancing trust. Additionally, timely payments can qualify businesses for discounts and better terms, further strengthening vendor relations.
Automated invoice processing solutions like Medius integrate with any ERP system including common ERPs such as Microsoft Dynamics, Oracle NetSuite, and SAP S/4HANA.
You can have your automated invoice processing software up and running in a few weeks. The length of time it takes to onboard invoice processing software also depends on the internal resources available. Stakeholders will need to gather project information and make key considerations, such as deciding product owners and allotting time for any associated training.
Learn more about how your organization can benefit from Medius’ automated invoice processing solution.
