How to set up an invoice processing procedure

How to set up an invoice processing procedure

All activity in a company is carried out for a purpose. While there is a larger purpose, or goal, of the company, which is usually to make money for its owners while operating in a certain segment or industry or niche, as well as related goals that define the philosophy of the company and what binds it together. They are often known as the Vision and Mission statements.

There are goals also at the operating level. These goals could exist at multiple levels, depending on how big the company is and how many different sets of people and teams are needed to pull all of them together.

For achieving these goals, which could be broken down to Key Result Areas (KRAs) or Performance Objectives, for each individual with some responsibility for a part of the goals, the company also defines how business activities are to be carried out. This is done to ensure that activities are carried out in the most efficient manner, and achieve the best results possible. A common name for a collection of such procedures is Standard Operating Procedures, or SOPs.

An invoice processing procedure is likely to be an important part of the Accounts Payable section of most SOPs, unless the company has a separate SOP altogether for either Finance or Accounts Payable.

The leadership team of oWorkers has over 20 years of work experience in the industry. They work with clients to set up optimum procedures for all processing activity taken up by oWorkers for its global clients, which includes several unicorn marketplaces as well as technology companies.

 

The role of invoice processing procedure

Generation of and payment of an invoice are important activities for an organization. After all, the main goal of most organizations is achieving financial success, which is eventually going to be achieved through the activity of generating revenues or selling its products and services.

The production of a product or service that can be sold usually entails working upon some input materials. These materials need to be procured, or purchased. Many times, a lot of additional material also needs to be purchased all of which goes into making the final product or service.

The route to generation of revenue is through sales. An invoice is the document that is issued as a proof or record of the sale. It is issued by the seller to the buyer.

The buyer, on receipt of an invoice, needs to work on it and ensure that the seller receives payment for it, based on the terms that may have been agreed if it is a B2B arrangement, or right away as is usually the case in retail sales. As it results in the outflow of money, checks and balances are usually built into the system to avert the errors and fraudulent transactions that can happen where money is involved.

Efficiency results in timely realization of sales receipts for a seller. For a buyer, it ensures they get reasonable terms and results in a harmonious relationship with sellers.

oWorkers case is aided by the prominent position it occupies in the communities it has set up delivery centers in. As a preferred employer, it attracts a steady stream of walk-in talent which enables staffing client projects with the best resources for the role.

 

Invoice processing procedure

In a twist of sorts, invoice processing services actually refers to the work done by the buyer, after they receive it from the seller. From a seller’s perspective, the act of issuing one is usually not referred to as one. It is often simply the tail end of a sales cycle.

To process invoices is to initiate the set of activities that take place once it has been received by a buyer from a seller, till the point when it has reached the point of settlement, usually a transfer of money. Like most processes in an organization, it is also, often, a composite of many other lower level ones.

The storied ability of oWorkers to attract the right talent is evident when a client faces unexpected volume pressure. With its ability to hire an additional hundred resources at a short notice, oWorkers provides invaluable support that cannot be measured only in monetary terms. Without such a partner, clients may need to resort to keeping a standby set of resources which would be an additional cost.  

An invoice is received

They say the best place to start is at the beginning. The receipt of an invoice from a vendor is the beginning of the journey for an invoices processing company.

Though we live in an era when digital technology is all around us, the initiation of invoice processing services is, often, manual.

What is that the case?

The reason is that the generation of the invoice that needs to be handled is from a different system that is used by the vendor. Else, though this is becoming less frequent, it could also be a manually generated one.

Either way, the document that is received in the form of an invoice is foreign to the technology and systems, if used, of the buyer and is, hence, not recognized.

Though attempts have been made to process invoices in an automated manner, there are many exceptions. At this point, the one case where automation from a buyer’s perspective is possible is where the buyer is a large enterprise that insists on vendors to raise invoices on their system, and create accounts for them to enable them to do so. Because of hugely different bargaining powers, many vendors will perhaps agree rather than risk losing the business.

Otherwise, in most other cases, it is issued and then sent, either as paper or as an attachment with an email.

oWorkers has the capability to deploy the most updated technologies for supporting client transactions.

How does it do it?

oWorkers accesses the latest technology thanks to its deep relationship with several technology providers.

Verification

Once received, an invoice processing procedure calls for verification to be done to ensure correctness. Firstly, verification is needed to ensure that it really pertains to you and has not been sent in error. Besides, the other details pertaining to the order which would make it a unique transaction also need to be validated.

If the company has a Purchase Order (PO) based system for ordering, it also needs to ensure that the PO number has been mentioned, as it is a safeguard against future errors and duplicate payments.

Other than the above, since to process invoices, in most cases, means starting its digital journey here, it is good business practice to ensure all information is correct, at the port of entry.

The following are the usual details verified by a standard invoices processing company:

  • Name of the client – is this really meant for you?
  • Name and details of the supplier?
  • Tax ID information of both parties
  • Description of goods/ services supplied
  • Calculations showing the amount due
  • Payment terms based on agreement
  • Payment information – how to remit

Verification also ensures that the vendor has an opportunity to rectify the errors and resend the corrected version within the time window for receiving payment as per original agreement. Late verification and late correction and representation could delay the whole set of activities, with the vendor having to wait longer than the expected period for the funds. It ensures maintenance of harmonious relations with the vendor.

Its 24×7 operations, in each of its global centers, positions oWorkers to turn transactions around quickly. oWorkers is at work, whenever a client needs it.

Data entry and imaging are done

Once the verification has been done, invoice processing services will kick off the digital journey, which is how most get processed.

This is not to take anything away from companies who have chosen to retain their invoice processing procedure as a manual activity. Many small companies make the choice to stay manual as they do not consider the investment a worthwhile investment for their level of activity.

While it is recommended that such companies should consider engaging the services of BPO providers like oWorkers who, with aggregated volumes across several clients, are able to deploy the best tools. But, to each his or her own.

A related step at this stage is that of imaging. Since the invoice has been received as a physical document, it might need to be retained in that form for posterity. However, as most companies now also have digital storage, they would also like to store a digital version for easier retrieval and access. Only if that does not serve the purpose, in the event of a dispute, will they need to look for the original.

Different applications will have different workflows. It is expected that the company would be familiar with the requirements of the system they have chosen to implement and make the digital journey smooth.

Invoices processing company oWorkers supports clients in 22 languages. This enables a unified support for transactions, regardless of the geography they emanate from, making it easier for clients to manage and oversee.

Approval to pay is obtained

As it leads to the release of money, the central resource driving a business, invoice processing procedures call for caution and build in a system of approval so that frauds and errors are minimized. The approval usually works on two universal principles:

  1. There should be dual control in the system. One person should not be allowed the freedom to complete the entire process on his or her own. In a checkbook payment example, for instance, the check book will be stored with one person who will not have the authority to sign it. The person who has the authority will not have the check book. Only when the person with the checkbook writes a check and presents it for signature will the cycle be complete.
  2. Approval authority should be commensurate with the amount of risk the company will be bearing. The higher the amount of approval needed, the more senior should be the authorizer, or even a combination of authorizers. The principle operating here is that by committing a fraud, a perpetrator would be jeopardizing his/ her own exalted position and the benefits that come with it.

And it is not merely the payment authorization that may be needed. There may also be a need to seek clearance from the department that had initiated the purchase request to ensure that the order has been fulfilled and that they are satisfied with what has been supplied. Only after that the money approval process can be initiated.

In some organizations, the payment approval is obtained at the time an order is placed. This is done in the belief that once an order has been placed and fulfilled, the payment cannot be held back. At the presentation stage, it is only a matter of ensuring that the fulfillment has happened. This is usually the case in companies that follow a PO process.

Many clients report savings once work is outsourced to oWorkers. Some even report savings of up to 80% measured against pre-outsourcing numbers.

Payment is effected

And lastly, the payment execution.

This is what the supplier has set up a business for; to generate revenue that will translate into profits for the company.

Modern payment systems allow almost instant, electronic transfer of funds from one party to another. Legacy check-based payment mechanisms caused delays as the check had to be signed physically, then sent physically to the supplier, who would deposit it to his bank physically for clearing, after which the bank would present it to the drawing bank for realization of the amount after which it would be credited to the supplier’s account.

Of course, additional activities may be required for certain payments, such as the ones made overseas or in a foreign currency.

The invoice processing procedure usually also defines the most suitable time for making a payment. Most companies prefer paying as late as possible so that they have availability of funds as long as possible. This way, they can either earn interest on balances or save on interest they would have otherwise paid in case they were operating an overdraft account. In either case, paying as late as possible makes sense.

However, it should not be so late that it ends up either violating contract terms, or incurring penalties and being blacklisted by the supplier.

Its ISO certified facilities and systems create a secure environment facilitating client data to be handled safely while making external transactions such as payments. oWorkers is also GDPR compliant.

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