Many businesses have updated and improved their invoicing process by sending invoices electronically.
However, the majority of invoice recipients still process them as if they had been delivered through the postal service. So we asked ourselves, “how many people print invoices?” Well in recent research, we discovered that over 90% of businesses that receive invoices electronically print them and process them manually.
Once printed, invoices are typically approved manually, input on accounts payable software and then filed for storage, or scanned. So why with the technology that is available are businesses still printing invoices they receive in PDF format?
The 5 top reasons for printing are:
- Legal requirement to keep a physical record for audit/revenue purposes.
- Necessary to get invoices through the internal approval process.
- Match against supporting documents.
- Scan invoices to the accounting system.
- For the Financial Controller to review before making payment.
Your organisation may have similar reasons but let’s examine each one in turn to see how it stands up to closer scrutiny.
Reason #1: Legal Requirement
The majority of businesses believe that they must keep a physical record of their invoices for audit/revenue reasons (legal requirement).
However, in most countries, this is simply not the case and electronic storage of invoices has been an accepted practice for well over a decade.
The key criteria that must be met are:
- Invoices must be available for a minimum legal period. In many European countries and in North America, this is typically 7 years, while in some southern European countries, this period can be as long as 12 years
- They must be in ‘human readable format’, i.e. it must be possible to read an invoice – the safest practice is to ensure that an image of each invoice is available
- They must be secure from alteration for the entire period for which they were stored
- All of the legally required constituent parts of an invoice must be present, e.g. supplier, supplier’s tax number, unique invoice number, invoice date, product/service descriptions, invoice total, tax breakdown, customer name and address
In fact, electronic storage of records is in many ways preferable to paper storage for reasons such as:
- Any individual invoice can be retrieved at the touch of a button rather than having to wade through paper files
- Ranges of invoices can be quickly and easily retrieved – again avoiding the need for manual effort to retrieve paper copies
- Remote access can be granted if required which is convenient and does not require on-site access
- It costs a lot less than the cost of filing, physical storage, invoice retrieval and document disposal at the end of the legally required storage period
Reason #2: Internal Approval Process
It is common practice for accounts departments to print invoices and then send them to line managers or their teams for approval. There are a number of issues with this including:
- It is time consuming and inefficient
- The time taken to get invoices approved and returned to the accounts function
- Risk of invoices going missing
- Effort required from accounts team to get sign-off before invoices are due
- Missed early payment discounts
Approving invoices electronically is a far more efficient means of processing invoices than a typical paper-based process for the following reasons:
- Streamlined approvals process, i.e. paper no longer has to be circulated in order to get invoices approved
- Greater accountability in that there is a comprehensive audit trail for every invoice approved
- Invoices can be approved wherever there is Internet access, i.e. managers no longer have to be tied to their desks to approve invoices
- The finance team has complete visibility of the status of any invoice at any time
- Faster throughput at lower cost
Reason #3: Match against Supporting Documents
Invoices are often printed so they can be matched against supporting documents, such as a delivery notes.
Here again, technology can be utilised to automatically match invoices against purchase orders and delivery notes if they are available. Even if they are not available, matching a paper docket against an invoice on-screen is a simple task that provides a degree of automation that is acceptable for many businesses.
Reason #4: Scan Invoices to Accounting Systems
There are two types of scanning often used with invoices.
The first is where images of invoices are stored so that the originals can be disposed of. Indexing of these images has to be done manually, i.e. someone has to input the invoice number, supplier, invoice date and invoice totals and tax totals.
The second type of scanning uses OCR (Optical Character Recognition) to attempt to extract information from the invoice images, although manual review is normally required.
OCR seeks to reduce/eliminate manual entry while scanning and storing invoice images simply frees storage space and links images to accounting system records.
Having received an invoice electronically, it seems strange that it would have to be printed in order to be scanned to be turned back into digital data. This typically applies to older scanning systems, because more modern systems can often extract information from invoices received in PDF format.
However, receiving invoice data electronically can eliminate the need to scan altogether (and invoice images can also be fed into document storage solutions).
Reason #5: For the Financial Controller to review before making Payment
Financial Controllers often review invoices before making payments just to make sure that all checks and approvals have been undertaken (they check for signatures or initials against specific tasks).
This can all be undertaken electronically. When a Financial Controller reviews an electronic invoice, the complete audit trail of who and when an invoice was approved is visible, making it far more effective than deciphering hand-writing to see how approved invoices. Furthermore, electronic systems can present purchase order and delivery information along with an invoice as well as showing whether or not these details were matched on the invoice.
It is perfectly understandable why people print invoices received electronically because historically that is the way that invoices have always been processed.
There is a perception that the paper-based method is legally required (it is not) or that it provides better control. However, as we have seen, electronic invoice approval provides the same or better control than paper in a more cost effective and efficient manner.
Want to learn more about electronic invoicing? Check out this blog post on the most common myths of e-invoicing.