How High-Growth Startups Approach Invoice Management

How High-Growth Startups Approach Invoice Management

According to Investopedia, Four in five startups fail within 20 years. If you want to be part of the 20% that survive, you have to get things right—from the outset. What can you do today to position your startup for success? Start by auditing your current processes to ensure that they support long term growth.

One area of operations where savvy high-growth startups are making improvements is invoice management. The key problem is that the methods new startups use for processing invoices with a one- or two-person finance team won't scale as the finance team grows to 50 or 500 people. You may not expect it, but strategic invoice management is key to scaling your startup.

So just what does strategic invoice management entail? What do you need to do differently to set your business up for explosive growth? You'll learn all that and more in this guide on how to streamline the invoice management process, including:

  • What gets in the way of growth for startups
  • What invoice management is
  • How to embrace Accounts Payable (AP) automation along every step of the invoice management process
  • How to choose the best invoice management software

What gets in the way of growth for startups?

As startups begin to expand, several critical problems arise that can hinder progress.

First, startups tend to have fewer human resources than enterprises do. They often lack the workforce to complete all the work that needs to be done, with employees already stretched thin across multiple projects.

Second, startups may not yet have processes and systems in place to enable repetitive tasks to be completed efficiently. The dynamic nature of a start-up means new workflows are constantly in creation. And because new requirements pop up so quickly, there may not be established processes for tasks like data entry or managing purchase orders. However, it's critical for startups to find ways to automate new processes as they arise.

Why not just roll with it? Because when there isn’t a set process, your employees end up constantly reinventing the wheel, coming up against the same roadblocks, and unnecessarily wasting time. It's far more efficient to create a workflow for each procedure and have everyone follow it.

Finally, repetitive, manual tasks cripple growth for startups. When your team members invest their valuable time on tasks that a computer could do, they're taking themselves away from projects that only human minds are capable of—things that have more of an impact on the bottom line.

This challenge is especially real for finance departments, where invoice automation is critical, yet old school methods tend to rule. Invoice management is one of these areas that could be significantly improved —or even wholly automated — to set the company up for growth.

What is invoice management?

Invoice management is the process by which companies pay their vendors. Invoice management typically involves:

  1. A vendor sending a company an invoice for their products or services;
  2. the company processing the invoice by entering its data into their system;
  3. the budget owner approving the payment of the invoice and
  4. the company paying the vendor.

This multi-step process is traditionally completed manually, but there are new tools that high-growth startups are using to automate the process and enable them to scale.

How to embrace AP automation along every step of the invoice management process

Automation is key to successfully scaling your startup. Because invoice management involves tedious data entry and back-and-forth communication between internal and external stakeholders, it's a prime candidate for an automation software that can take over repetitive tasks. Here's how to embrace automation in your invoice processing.

1. Receiving invoices

The invoice management process is triggered when your company receives an invoice.

The traditional way:

Traditionally, receiving supplier invoices is a disorganized mess. Some vendors email invoices, some upload them to the cloud, and other suppliers mail them in. Collating and processing various invoices takes considerable time and effort.

Further, invoices can easily be lost when they're coming through multiple channels. If your team loses track of an invoice and makes a late payment, you could be subject to late payment fees that cut into profits and damage your supplier relationships and trade terms.

The better way:

The best practice involves your Accounts Payable team creating a uniform business process for receiving invoices. They would decide where, how, and when vendors should send invoices and what information needs to be included.

All invoices will end up in the same place—one email address, dashboard, or cloud folder. And each invoice will have the information necessary in order to be fulfilled promptly.

2. Processing invoices

Next, your company needs to make a record of the invoice before paying it.

The traditional way:

Traditionally, when a company receives an invoice from a vendor, they need to enter the invoice data into their system. This invoice information includes the client's name, invoice number, amount due, and payment method.

Many companies still rely on manual data entry, which is time-consuming and therefore expensive. Reports show that processing just one paper invoice can cost between $8 and $60. These invoice-processing costs increase to $200 per invoice if it's lost or an error is made. Unfortunately, mistakes are inevitable when the data entry process is done manually.

The better way:

Invoice management software automates data entry. It uses optical character recognition (OCR) technology to read the text on PDFs and enter it into fields, thereby removing this step from the invoice management process. Machine learning is making manual data entry a thing of the past.

3. The invoice approval process

Now you have to make sure the budget owner authorizes the payment of the invoice.

The traditional way:

After manual data entry is complete, the invoice needs to be approved. The old school method tends to be disorganized and involves a lot of back and forth communication.

For example, some finance team members might forward invoices to budget owners for approval as they receive them. Other finance team members may send invoices out in batches at the end of each month. Inconsistencies in delivery method and timeframe can lead to mistakes and extra work for both parties.

Sending emails back and forth to coordinate approval logistics is a drain on time. Approvers and AP team members alike could better utilize their time on projects that grow the business.

The better way:

Invoicing software can streamline the approval workflow. After software reads data from the invoice, it can automatically notify budget owners about invoices that need their approval. Budget owners can then approve invoices on their own time.

This streamlined process removes back and forth email communication and removes the AP team from the approval process to focus on tasks where they are genuinely needed.

4. Fulfilling invoices

After all of those steps have been taken, it's finally time to pay the invoice.

The traditional way:

Traditionally, after the budget owner manually approves an invoice, the finance team goes back to the drawing board and looks up vendor information to fulfill the payment. They have to manually look at invoice due dates and payment methods, which might differ for each vendor.

If some vendors ask for checks, some request ACH, and others want wire transfers, your team can spend a considerable amount of time processing these requests for various payment methods.

This manual method can also make it challenging to keep track of early payment discounts that vendors may give.

The better way:

Creating a definitive process for fulfilling invoices can help you streamline the payment process. Consider these factors to create a system that works for you.

  • Payment terms: Does your company pay vendors ASAP, bi-weekly, or net 30? Decide on a system and stick to it, without exceptions. Having concrete rules will streamline your invoice management process.
  • Payment methods: Set up one payment method and ask vendors to comply.
  • Early payment discounts: Find an invoice management system that lets you note these dates. As your startup scales and adds more vendors, you can significantly save by taking advantage of early payment discounts.
  • Automatic payments: Software can automatically trigger payments after the budget owner has approved them. You can pre-set your company's preferences and the vendor's preferences to 1) make sure you pay them on time, 2) pay them using a method that is convenient for both you and the vendor, and 3) take advantage of early payment discounts.

5. Accounting

After you make a payment, you need to keep track of the payment in your books.

The traditional way:

The traditional method for bookkeeping invoices involves manually recording payments. You either have to request receipts from the vendors or use your own records for your bookkeeping. This process involves manual data entry, several back and forth emails, and waiting on the vendor to get back to you. Then you have to manually input payments into your company's accounting software.

The better way:

Use invoice management software to automate bookkeeping. When you choose an invoice management solution that integrates with your accounting software, it automatically sends transaction information to your accounting software.

This process automates your bookkeeping to share information with the accounts receivable team sooner and help you close the books faster. When you close your books more quickly you gain visibility into your budgeted versus actual spend so that you can keep your cash flow in order, and in real-time.

How to choose the best invoice management software

Now you understand how automation can revolutionize your invoice management process and facilitate growth in your startup. With so many invoice management solutions out there, you’re probably wondering how you can sort through the marketing spiels and find the best solution for you. Here’s what to look for as you shop around.

Look for flat pricing

Find an invoice management tool that charges a flat fee rather than a price per user. Flat fees work in your startup’s best interest as they don’t cost you more as your finance team grows. Your software costs will stay predictable, even when the rest of the business won’t.

Don’t overlook the importance of customer support

Best-in-class invoice management software has support to guide you through every step of the process. This support should include a detailed onboarding process and someone to answer your questions as you become a more advanced user.

Check integrations

A tech stack is only as powerful as its integrations. If your software doesn’t work together, you’re missing out on powerful features that can help you make better business decisions and automate repetitive tasks, like bookkeeping. Ensure that the invoice management software you choose integrates with the rest of your tech stack—including your ERP and accounting software—and makes it more powerful.


About the Author: Ana Cvetkovic
Ana Cvetkovic is a freelance writer for Lola.com. She is also the CEO of BLOOM Digital Marketing, a creative marketing agency that specializes in creating demand generation content for SaaS companies in the hospitality and travel industries.