The Beginner’s Guide to Invoice Automation Software

Using manual invoice processing is like entering a daily foot race you can't win. While an efficient AP clerk can handle up to five invoices per hour in processing, the constant flow of invoices and hard-to-spot duplicates quickly overwhelms even the fastest accounts payable departments.

Yet many businesses hold off on invoice automation projects due to their perceived challenges. Concerns about upfront time and research investments block the adoption of better processes and systems.

But, the truth is that investing in invoice automation is well worth the effort. Automation allows you to check, process, and pay hundreds of invoices, reduce late fees and errors, and streamline AP for more efficiency at every procurement stage.

Today, we’ll talk about the basics of invoice automation. You’ll learn the biggest challenges to adopting automation and get advice on overcoming these issues using the right tools.

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The basics of automated invoice processing

Invoice automation means using technology to streamline and improve a business's invoicing system. It involves converting manual billing processes using automation software to create, send, and manage invoices with minimal human intervention.

By leveraging software solutions, businesses can significantly reduce the time and labor associated with traditional invoicing methods. Automation offers several features to make end-to-end spend management easier.

Invoice automation uses digital tools to capture invoice data, validate invoices for accuracy, and integrate the data into an organization's financial reporting. It accelerates the billing cycle and enhances accuracy by eliminating errors common to manual data entry.
Automated invoicing systems often offer payment automation and invoice tracking features. They incorporate analytics and vendor management tools to help with performance management and reporting.

Adopting invoice processing automation can lead to substantial cost savings for companies by reducing the resources required for invoice processing. It can also improve compliance with regulatory requirements through better recordkeeping.

Benefits when you automate invoice processing

Accounts payable departments that use invoice automation software enjoy many advantages. When evaluating transitioning to an automated management system for invoice processing, consider these benefits:

Complete access to invoice data: With an automated invoice processing system, data management begins when an invoice arrives. The system helps teams save time by extracting and centralizing vendor data, such as the supplier name, purchase order information, and vendor payment information.
Timely payments for invoices: Manual accounting processes fall prey to lost invoices, duplications, late payments, and problems with three-way matching. Automated invoice processing software eliminates these errors and speeds up invoice processing to capture early payment discounts.
Better productivity: Manual data entry and invoice processing are time consuming. Some studies estimate that more than half of teams spend over 10 hours per week processing invoices. This traps accounts payable teams in a constant cycle of error correction, research, and frustration.

Common concerns in invoice processing automation

Many companies forgo the long-term benefits of automation to avoid the immediate pain of implementation. While it’s true that the automation process takes an upfront effort, a software-based process swiftly repays any time or cash investment made to bring it online. Still, over half of teams have only partially automated their invoice processing. Over 80 percent of teams still manually key in every invoice.

Often, companies clinging to manual invoice processing do so because of one or more of these five obstacles:

They don’t have a procurement policy: Good procurement thrives on clear rules and expectations. Organizations face an uphill climb in maintaining spend control and invoice accuracy when they don’t implement a well-communicated procurement policy. Working without clear rules leads to maverick spend, hidden charges on corporate cards and in expense reports, and costly cash leaks.

They’re using outdated, manual processes: Labor-intensive and error-prone manual systems make it difficult to automate the invoice process. These methods often involve paper invoices, manual data entry, and physical document storage.

The paper-based process also makes it hard to track spending patterns or analyze financial data. It increases staff workload and prevents organizations from leveraging technology to scale the procurement and AP processes. Getting records and vendor information into digital format is the only way to break free.

They lack an approval process: Effective invoice approval processing starts before anyone places an order, as every purchase must follow the procurement policy and receive departmental approval first. Even when businesses have designated approvers, they need the transparency of a digital approval process to centralize data and keep requests moving to the appropriate parties.

There are too many data gaps and silos: When everything is manual and paper based, accounting ends up with invoices that don’t match purchase orders or receipts. This complicates the reconciliation process and increases the chance of double payments, missed payments, and procurement fraud.

Accounting teams can ensure accuracy by conducting a three-way match of purchases, which connects each invoice to a PO and shipping receipt. However, this is rarely possible with hundreds of invoices and no way to link the data.

They lack reporting and analysis: Robust reporting and spend analysis capabilities are key benefits of procurement and invoice automation systems. Without these tools, organizations struggle to gain insights into their spending patterns, identify bottlenecks in the procurement process, and detect areas prone to fraud or inefficiency.

A lack of visibility makes it difficult to streamline operations and achieve cost savings. Companies may only begin to understand cash leaks, risks, and inefficiencies once they adopt automation.

Digging into data helps organizations understand what’s possible. Automating the process fully unlocks cost savings opportunities.

How to implement an invoice automation system

Taking the proper steps to set up a successful procurement automation process speeds up implementation and makes the project more successful. Strong automation starts with knowing what the business needs out of a system. Gathering the right information, selecting great tools, and supporting the project with process alignment and change management make the implementation process much smoother.

Follow these basic steps to bring on automation solutions without introducing friction into the process:

1. Understand invoice processing goals

To implement successful invoice automation, a business must first clarify its objectives. For example, understanding the project's goals could include reducing manual data entry, improving payment accuracy, or gaining better insights into spending. Setting clear goals will guide selecting and configuring the right automation solution.

2. Shortlist automated invoice processing options

There are many options on the market for invoice automation and spend management. Research and create a shortlist of invoice automation options that meet the defined criteria. Look for a solution compatible with existing systems that’s also easy to use and competitively priced.

Seek out additional solutions that create end-to-end procurement management and AP automation, such as:

Vendor-agnostic procurement options so the business can work with vendors it already knows and loves
Automatic general ledger (GL) coding to categorize purchases without manual input
Curated buying catalogs and dynamic spend controls for guided self–service purchasing
Automated invoice processing approval routing to ensure every purchase falls within the procurement policy
Purchase processing for every type of vendor order, whether online, email, phone, or fax

3. Collect invoice data and vendor information

A procurement system uses previous purchasing data and supplier invoice information to build a catalog and analyze spending. To prepare for onboarding, collect the previous 6 months of invoice and vendor data from all internal sources. This allows the implementation team full access to the transaction and vendor data needed to build the procurement environment and automate invoice processing, verification, and payment.

4. Establish the approval workflow

Establishing the approval workflow defines the hierarchy for approving various purchases, from minor office supplies to significant capital investments. It requires setting up clear thresholds for different spending levels. It outlines approvers from every department who must okay the purchase rationale, cost, and risk.

The approval workflow should be similar for every transaction. In some instances, such as with high-dollar-value contracts or those with additional risk, extra layers of approval (such as from the executive team or CEO) may be necessary.

5. Integrate with other systems

Integrating a procurement solution with the rest of the financial tech stack helps businesses achieve seamless, efficient operations and comprehensive oversight of invoice processing. It ensures that procurement data flows effortlessly between systems, such as accounting software, enterprise resource planning (ERP) systems, digital accounting systems, and supply chain management tools.

System integration facilitates real-time visibility into spending, enhances accuracy in financial reporting, and streamlines the reconciliation process.

6. Track your progress

Key performance indicators (KPIs) can help track the progress of invoice processing automation efforts. The KPIs selected should align with the organizational goals outlined above. KPIs offer evidence into how invoice automation with the right software improves the current process and provides insight for future improvements.

Some relevant metrics to consider include:

Cash flow
Invoice processing time (for a single invoice)
Invoice exception rates
Reduction in procurement cycle time
Cost savings through automation
Compliance rates with preferred suppliers
Cost avoidance figures
Early payment discount rates

Monitoring these indicators helps organizations assess the efficiency of the procurement processes. It can reveal areas for improvement in automated invoice processing and help leaders make data-driven decisions to optimize invoicing further.

7. Solicit feedback

The best process in the world can’t help the business if teams don’t use it. Engage employees and teams to gather feedback on the new automated invoice system. Organize a survey, workshop, or meeting for users to share their experiences. Some organizations consider using anonymous feedback channels to ensure honest input.

A user satisfaction survey can also help quantify feedback, making spotting trends and improvement areas easier. Ask targeted questions about the system's usability, efficiency, and challenges.

Some questions worth asking about their experience with automated invoice processing include:

How has the automation system impacted your daily tasks?
What features do you find most useful or lacking for processing invoices?
What challenges have you encountered while using the automated invoice system?
How has the system improved your overall workflow?
Have you received sufficient training on how to use the automated invoice system?
How user-friendly do you find the interface?

Feedback can provide valuable insights for further improvements and help identify employee training needs. Additionally, acknowledging and addressing user feedback shows their opinions are valued, which can increase adoption rates.

Acting on received feedback is essential. Prioritize issues based on their productivity impact and user experience. Let teams know how their feedback has led to changes. This validates their contributions and promotes a culture of continuous improvement and collaboration

Successful invoice automation: A case study with Lark Hotels

Multi-location businesses like hotels and service-based companies often need help automating accounts payable processes. The complexity of ordering for different locations means data and invoice processes are siloed and disorganized.

Lark Hotels, a boutique hotel chain with over 30 property locations, faced such a dilemma. The business structure made it hard to capture what was purchased. It also meant teams fended for themselves on substitutions when an item went out of stock. Employees did their best to track spend using spreadsheets and receipt submissions, but the solution wasn’t scalable.

Lark turned to Order.co in 2022 to streamline its catalog, centralize the order and payment process, and automate AP. Now, all purchases and invoices flow through a central, automated system for approval, reconciliation, and payment.

Every manager can access a curated catalog of preferred products and vendors. When something goes out of stock, AI enhancements suggest a similar product or find the exact item with another high-quality vendor. Buyers can quickly decide to move forward with the replacement or independently source another suitable option.

Lark has 20 properties on the platform as part of its staged onboarding process. It’s bringing on more properties regularly, including onboarding newly opened locations as part of its market expansion. The move to Order.co allowed Lark to put less effort into the granular order and spend management process. That time is better used to improve guests’ experience and exceed their expectations.

As a result of loading everything into the Order.co platform, having the consolidated bill where they're able to code when they make the purchase — it's already done in the moment. They don't have to think about it towards the end of the month.
Korina Lopez, Director of Learning and Development

Automate invoice processing and liberate your AP team with Order.co

Order.co takes the burden of invoice processing and payment off your AP team’s shoulders. With a streamlined purchase-to-pay workflow, curated catalogs, AI-enhanced features for substitution, and full AP automation and reporting features, your teams can focus less on research and more on saving money and creating value.

Effortlessly manage payments and leverage your accounting as a strategy for growth. Download our free invoice tracking template and stay on top of your expenses all year round.

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