5.

1 Objectives
 To understand the differences between standard invoices and speed
invoices
 To revise unposted and posted invoices
 To post invoices to the general ledger
 To understand how to enter and process recurring invoices
 To locate customer ledger information

5.2 About Invoice Processing

Generally, you create an invoice before you receive payment from the
customer. Effective management of invoice processing is fundamental to
your accounts receivable department.

Invoice processing consists of:

 Working with invoice entry controls

 Understanding fiscal date patterns
 Working with standard invoices
 Working with other types of standard invoices
 Entering speed invoices
 Reviewing and approving invoices
 Understanding the post process
 Posting invoices
 Revising posted invoices
 Printing Invoice Journal Information
 Locating customer ledger information
 Working with recurring invoices

Invoice processing is one example of three-tier processing. All JD Edwards

World systems use three-tier processing to manage batches of transactions.
The term three-tier refers to three standard steps you perform.

The following graphic illustrates the concept of three-tier processing.

Figure 5-1 Three-Tier Processing

Description of ''Figure 5-1 Three-Tier Processing''

5.2.1 What Are the Types of Invoices?

Depending on your needs, you can choose to enter the following types of
invoices:

 Standard invoices. These invoices give you the most flexibility and
options.
  Speed invoices. These invoices give you less flexibility and options
than standard invoices. However, they provide a quicker way of
entering invoice and accounting information.

Figure 5-2 Types of Invoices

Description of ''Figure 5-2 Types of Invoices''

5.2.1.1 Which Type of Invoice Should You Enter?

To help determine which type of invoice you should enter, consider the
following advantages and disadvantages of standard and speed invoices:

Invoice Feature Description

Standard invoice You can:

advantages  Create split payments
 Use multiple pay items
 Set up recurring invoices
 Modify and delete invoices
Invoice Feature Description

 Utilize and create model journal entries

Standard invoice You cannot:

disadvantages  Takes more time to enter invoices
 Uses two entry programs to enter invoice and
accounting distribution information

Speed invoice You can:

advantages  Use one entry program to enter both invoice and
accounting distribution information
 Enter limited invoice information quickly

Speed invoice You cannot:

disadvantages  Cannot split payments
 Cannot modify or delete invoices
 Cannot set up recurring invoices
 Cannot enter more than one pay item per invoice
 Cannot create model journal entries

5.2.2 When Do You Review and Approve

Invoices?
After you enter invoices, you can review and approve them before posting.
You can:

 Review and approve batches

 Review and revise individual invoices
 Review and revise associated journal entries

5.2.3 What Happens When You Post

Invoices?
After you review and approve invoices, post them to the general ledger.
When you submit a batch of invoices for posting, the system:

 Selects unposted, approved invoices and edits each transaction

 Posts accepted transactions to the Account Balances table (F0902)
 Creates automatic offsets to the A/R trade and tax accounts
 Marks the invoices as posted in the A/R Ledger (F0311) and Account
Ledger (F0911) tables

5.2.4 When Do You Set Up a Recurring

Invoice?
If you have a customer that you repeatedly bill for a specific amount, such as
a service or lease agreement, set up a recurring invoice. You specify the
frequency and the number of payments when you enter the original invoice.

5.2.5 What Is Customer Ledger

Information?
As part of your A/R activities, you might need to view the transaction history
of a customer. Customer ledger information provides:

 Open amounts remaining on an invoice

 Pay status and posting status of an invoice
 Invoice detail and associated journal entry information
 Account status information
 Receipt information

When you work with Customer Ledger information, be aware the action code
and search type security may affect your ability to inquire upon, add, or
change customer information. You must have the appropriate combination of
action code/search type security to work with Customer Ledger information.
What is invoice
processing?
Invoice processing is the handling of invoices from
arrival to payment. It matches purchase orders and
payment terms with invoices to ensure payments are
made accurately and on-time.

As the tip of the spear in accounts payable, invoice

processing plays a critical role in managing any
company’s cashflow.

Before an invoice is entered into an accounting

software system, the accounts payable staff must
ensure all invoices reflect what the company ordered is
exactly what was received and that the amount to be
paid matches the total on the invoice.
Invoice processing is crucial to managing cash flow
within an organization. Accounts payable professionals
are responsible for preventing invoice fraud,
inaccuracies, and missed payment deadlines. When
invoices are accurately processed, companies can
maximize cash flow by getting more favorable payment
terms, better pricing, or even better discounts.

Many suppliers even offer early payment discounts to

companies that pay before the due date. Therefore, the
person managing invoice processing must be
extremely organized and knowledgeable of the various
payment terms.

How does procure-to-pay

work?
The accounts payable process, also known as procure-
to-pay, has several steps, starting from when the
invoice is received to Enterprise Resource
Planning system (also known as an ERP system) input.

While there is no standard accounts payable process,

the following workflow is typical when it’s entered:

1. Purchase order is prepared to communicate what the

company is ordering from a vendor. The person
sending the PO will give a copy to the accounts
payable department, the accounts receivable
department, and the vendor.

2. The company receiving the goods creates a shipping

document to record the goods it is receiving.

3. After the shipping document and purchase order are

complete, the vendor sends an invoice to the company
that has received the goods. Although the information
on an invoice can vary among vendors, it must contain
the following:
  Contact information of both the vendor and
purchasing company,
 Agreed prices and other terms related to the goods
purchased,
 Information on how to pay the invoice, and
 The date the invoice was created and sent.

4. An accounts payable specialist or clerk uses either

two-way matching – which matches the invoice to the
purchase order – or three-way matching – which
compares the two documents with the shipping
document. If items have been back-ordered, the
accounts payable specialist will make necessary
corrections and note when the items should be
delivered in the ERP system.

5. Verified invoices are passed to an accounts payable

manager or team for review and to complete payment
processing.
6. The accounts payable manager enters the invoice
into its general ledger system (typically an ERP) and
schedule the payment. Invoices are typically labeled
“Net 30 days,” which means the payment for goods is
due 30 days from the date of the invoice. Suppliers
may offer an early payment discount, such as “2/10 net
30,” which offers a two percent discount if the payment
is made within 10 days.

7. The accounts payable manager sends the requested

payments and expected cash flow to the top financial
officer to approve payment. This is often a Controller or
CFO.

8. He or she approves payment and begins the process

of preparing checks, which are then sent out to the
vendor.

Many accounts payable departments still process

invoices manually. However, the costs involved are
varied: paper, postage, staff required, and many other
factors put the real price of manual invoice processing
between $12-to-$30 per invoice.

This comes before many of the other hidden costs

associated with invoice processing – such as missed
early payment discounts, late fees, and accounting
errors – are considered.

Invoice processing is
broken
As a company scales, the problem will only get worse.
More invoices can overwhelm an accounts payable
department due to the volume of paperwork. In
addition, accounts payable departments are often
understaffed, leading to hours of data entry.

Even when alternative solutions are offered to manual

invoice processing, the IT team will be reluctant to
implement them and, instead, favor legacy software
and other processes. Many IT departments are
backlogged with numerous tasks and don’t have the
time for additional projects, leaving many technical
initiatives on hold.

Purchasers may feel that Electronic Data Interchange

(EDI) software can adequately solve most of these
problems. The reality is that EDI fails to effectively
lower the cost of invoice processing for a variety of
reasons. As a result, these companies spend
thousands of dollars per year without any improvement
in their current business process.

What is EDI?
Electronic Data Interchange (EDI) is an exchange of
business documents between computers in a standard
electronic format. This platform replaces the
cumbersome task of handling a variety of invoices
received via email, fax, or postal mail.
EDI is commonly used between companies to increase
the efficiency of data transfer. However, despite
growing popularity in EDI software, it falls short of being
a totally reliable solution for accounts payable
departments in a number of ways.

Here are five reasons why not to use EDI:

1. Setup is time consuming: Using EDI requires

extensive staff training in order to run the software.
This means that IT needs to balance the setup of
EDI software with various other projects that are on
its plate.

2. Technologically complex: In order to implement

EDI, businesses must invest in a separate network
for receiving and transmitting information. As a
result, EDI creates a significant barrier for small-or-
medium-sized businesses.
 3. Expensive upfront costs: Without the IT bandwidth
in place, many companies will outsource the
implementation to a Value-Added Network.
However, this service comes with costly fees for
training or to perform EDI transactions on a
customer’s behalf.

4. Limits ability to do business: Many suppliers don’t

have EDI implemented and have no plans to do so
due to the costs and training involved.

5. Can’t handle paper invoices: Because there will

undoubtedly be some suppliers not using EDI, the
accounts payable team is faced with significant
bottlenecks from dealing with paper and EDI
invoices.

Although EDI can be helpful in the transmission of

invoices, it falls short when it comes to efficiently
processing invoices. Accounts payable teams require
tools that not only make their jobs easier, but can
output files in a format that is friendly to their respective
ERPs.

The ERP factor

ERP software is crucial to any accounts payable
department. In fact, many organizations base their AP
automation strategies on how they integrate with their
ERP solutions.

ERP systems store all the accounts payable

documents – such as open PO files, shipping
documents, invoices, and receiving reports. The best
invoice processing solutions can take advantage of the
information stored in an ERP to further improve
business workflows.

But not all automation solutions integrate with every

ERP. Even worse, there may be issues with
interoperability where the file exported from the invoice
processing software isn’t accepted by the ERP.
Either issue may create more headaches for the
accounts payable team rather than solve them.
However, when there is seamless integration, the data
can be used to provide a full overview of the accounting
department.

What is 2- and 3-way

matching
Human error in data entry is common among nearly
every accounts payable department. Accounts payable
clerks often perform two- and three-way matching using
“stare and compare” to verify invoices.

Two-way matching is when an accounts payable

specialist verifies that the goods and services ordered
through a purchase order are reflected in the invoice.
Some companies take this process a step further by
performing three-way matching.
Three-way matching includes verifying the purchase
order and invoice with the receiving documents. These
documents are typically either packing slips or an order
receipt.

When two- or three-way matching is performed

hundreds of times per day, even the most careful
human eye lacks the ability to guarantee accuracy.
They typically miss dates, values, or formulas that can
ultimately slow down the entire department and expose
the organization to a variety of risks.

As a result, many organizations are opting to automate

these processes through artificial intelligence and
robotic process automation technology. These
innovations have enabled accounts payable costs to
dramatically cut back on errors and reduce processing
times by as much as 80 percent.
Benchmarking your AP
department
When looking for areas of improvement for an accounts
payable department, it’s important to consider
benchmarks comparing industry averages against
world-class departments.

Your analysis should cover key metrics such as invoice

turnaround, cost per invoice, the number of invoices
per full-time employee, and several other key
performance indicators.

Not sure where to start? Here are a few KPIs to help

you understand the gap between average and world-
class accounts payable departments.

Invoice turnaround time

The average small-to-mid-sized company takes 25
days to process a single invoice. For organizations
processing between 3,000-to-5,000 invoices per month,
this cycle time can create a significant strain on the
accounts payable department.

Through the advent of automation, world-class

organizations can reduce this processing time to as
little as five days.

Cost per invoice

When considering what it costs to process a single
invoice, be sure to include staffing and storage costs, in
addition to hidden costs associated with invoice
processing – such as late fees, accounting errors, and
missed early payment discounts.

This can often make the cost per invoice significantly

more complex. If you need a simple formula to
calculate what it might cost you, here is a simple
suggestion:
Cost per invoice = (salaries of full-time employees +
postage costs + storage costs) / annual invoice volume

In this calculation, be sure to include both full-time

accounts payable employees and part-time staff
responsible for keying in invoices. World-class
companies have dramatically lowered the cost of
processing invoices to as little as $5, providing clerks
with the ability to perform more strategically beneficial
tasks to their company’s bottom line.

Invoices per full-time employee

According to the Institute of Finance &
Management’s key metrics report on accounts payable,
the average employee processes just over 8,000
invoices per year. This means that distributors must
hire at least four accounts payable clerks just to handle
manual invoice processing.
The average salary for this type of position is $42,000 –
before considering benefits and technology costs
related to each hire. Yet, world-class distributors are
finding that by investing in an automation solution, they
can process the same number of invoices with just two
clerks. Through technologies like data recognition and
extraction, accounts payable departments process as
many as 20,000 invoices per year.

Establishing yourself as a world-class accounts

payable department isn’t easy, especially for wholesale
distributors. But with these benchmarks, you can better
understand a baseline of where most of the industry
stands and how early adopters of technology are
becoming more efficient.

Achieving early payment

discounts
Many accounts payable managers are leaving money
on the table by not taking advantage of early payment
discounts. Despite being concerned about their bottom-
line, processing invoices is time-consuming and error
prone, making it extremely challenging to receive these
discounts.

On average, it takes up to two minutes to manually

process an invoice, creating a painful strain on AP
specialists and vendor relationships.

An early payment discount is a favorable credit

term offered to companies in exchange for expedient
payment. For example, many suppliers will offer a 1-to-
2 percent discount per month when payment is made
within 10 days of receipt.

Over the course of a year, the cost-savings

can mean thousands of dollars in savings. Many
organizations have taken advantage of early payment
discounts by investing in automation software.
This investment has reduced the stress on accounts
payable departments and helped them take advantage
of early payment discounts. In addition, it has
presented the opportunity for AP firms to negotiate
more favorable terms with vendors, even if the
relationship has been strained in the past.

The future with invoice

processing
Invoice processing has progressed dramatically over
the last few years through the purchase of invoice
process automation solutions. As a result, companies
have been able to reduce manual labor costs,
accelerate invoice turnaround, and improve invoice
processing accuracy.

Automating your accounts payable department can

have tremendous advantages in terms of efficient
resource allocation. It can help prevent fraudulent,
inaccurate, and duplicate invoices caused by human
error.

Many of these solutions utilize optical character

recognition (OCR) technology or computer vision to
perform accurate data extraction.

Over the next several years, machine learning will

equip automation software with the capability of
understanding each distinct invoice it receives from a
vendor.

This capability will further eliminate the need for human

validation when processing invoices and allow
accounts payable departments to receive optimal
results for an even better ROI.
Why are Accounts Payable
and its management
important?
Accounts payable and its management is vital for the smooth
functioning process of any business entity. It is important for
any business because:
 It primarily takes charge of paying the entity’s bills on a
timely basis. This is important so that strong credit and
long-term relationship with the vendors can be
maintained.
 Only when invoices are paid on time, vendors will ensure
an uninterrupted flow of supplies and services; which in
turn will help in the systematic flow of business.
 A good accounts payable process ensures there are no
overdue charges, penalty or late fees to be paid for the
dues.
 The organized accounts payable process ensures all that
the invoices due are tracked and paid properly. This will
help avoid missing payments and making a payment
twice.
 It also enables business entities to manage better cash
flows (i.e. making payments only when due, using the
credit facility provided by the vendor, etc.)
 Frauds and thefts can be avoided to a greater extent by
following a stringent accounts payable process.
For a company’s financial statements to be complete and
accurate, the accounts payable balances should be recorded
with accuracy. These payables must be dealt with efficiently
and accurately. If there is a double-entry of an expense or
omission of a particular invoice, the financial statements will
not report the correct amounts and the loss will be huge when
the numbers involved are big. Hence, proper recording of the
expense and tracking of the payment is necessary.

Accounts Payable Process

Every entity will have an accounts payable department and its
structure depends upon the size of the business. Accounts
payable section is set up based on the probable number of
vendors & service providers, the volume of the payments that
would be processed for a period of time and the nature of
reports that would be required by the management.
For example, a small entity with less number of purchase
transactions would require a basic accounts payable process.

Whereas, accounts payable department of a medium/large

enterprise will have a set of procedures to be followed before
making the vendor payments. Set guidelines here are
essential because of the value and volume of transactions
during any period of time. The process involves:
 Receiving the bill:
In the case of goods, the bill/invoice helps in tracing the
number/quantity of goods received. The time for which the bill
is valid can also be known when the bill is received on time.
 Scrutinizing the bill for details:
The vendor’s name, authorizations, date, and requirements
raised with the vendor based on the purchase order can be
verified too.
 Updating the records for the bills received:
Ledger accounts connected to the bills received need to be
updated. Here, an expense entry is usually required to be
made in the books of accounts. In cases when an accounting
software is used, recording some expenses may require
managerial approval. The approval will be based on the bill
value. As a precautionary step, large companies usually
follow the ‘maker and checker’ concept for posting.
 Making timely payment:
As and when the due dates arrive (based on a mutual
understanding with the vendor/supplier/creditor), the
payments need to be processed. Here, the required
documents need to be prepared and verified. Details entered
on the cheque, vendors bank account details, payment
vouchers, the original bill, purchase order/agreement, etc.,
need to be scrutinized. Often the signature of the authorized
person may be required.
Once the payments are made, the vendors/suppliers/creditors
ledger account has to be closed in the books of accounts.
This will reduce the liability earlier created. In simpler words,
the amount showed as payable, will no longer be seen as a
liability.
The procedures mentioned above are organization specific.
They can be stricter for large companies with more approvals
required. However, the basic steps are needed to be
considered before payments are made in order to avoid errors
and frauds.
As the accounts payable process is vital for every organization, a lot
of time needs to be invested for its successful implementation. In
order to have efficient accounts, payable process automation
becomes necessary. This will minimize the time and cost of invoice
processing, employee headcount and much more. Automation will
also help reduce human errors and increase efficiency.
Accounting software available in the market which can streamline
the accounts payable process. These eliminate most of the
paperwork involved in accounting. Using electronic invoices,
scanned copies of reports, email approvals, etc., will not only reduce
the time involved in managing the payables but will also improve
the day to day performance of the businesses. To add, they usually
integrate with the organizations ERP.
There are many other value added services which can be availed
from this accounting software. They ultimately improve business
efficiency.