Ignition blog  /  Improve cash flow  /  The ultimate guide to automated invoicing

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It’s typical for small business owners to manually invoice their clients, especially when they’ve first started their business. In the beginning, this is very doable. With only a few clients to invoice and vendors to pay now and then, manual invoice processing doesn’t take up much time.

But as your business grows, so will your time invoicing. And that’s when you should consider saying goodbye to paper invoices and hello to invoice automation.

What is invoice processing?

Before going any further, let’s establish what invoice processing is.

Invoice processing refers to the tasks involved in receiving, validating, and paying supplier invoices. This process includes receiving invoices from suppliers, verifying the accuracy of the information, matching the invoices to purchase orders and contracts, and processing payments to suppliers.

The typical workflow includes these steps:

  1. Receive invoice from the supplier.
  2. Enter the data into the accounting system.
  3. Validate the data to make sure it’s accurate and complete. This includes verifying that the invoice amount matches the purchase order and contract details.
  4. Route the invoices to the appropriate person or department for invoice approval.
  5. Finally, process the payment.

Although it’s straightforward, this process can be time-consuming when it’s done manually, which is why we recommend automating it.

For large organizations, this process may take as long as 25 days between the manual data entry, validation, and invoice approval workflows.

What is invoice automation?

Invoice automation – sometimes called automated invoice processing – refers to the use of technology to automate the invoicing process from end to end.

An invoice automation tool can automate the time-consuming tasks associated with invoice processing, such as manual data entry, invoice matching, and invoice approvals.

Depending on the organization (and its accounts payable processes), streamlining invoices can also be part of a broader accounts payable automation strategy.

When implemented properly, invoice automation can speed up your financial processes and pave the way for faster payments, which means professional services providers like you can reduce the time you spend chasing funds and improve cash flow.

What is an automated invoice processing solution?

An automated invoice processing solution (aka an automated invoice processing system) is an app or platform that facilitates the steps for processing invoices. It can populate your invoices, schedule when bills are sent, and make it easy for clients to pay you.

In other words, automated invoice processing solutions can ensure everything flows smoothly for your accounts payable department.

By doing this, it saves you time and effort, reduces errors, and makes the whole invoicing process much easier to manage.

The 5 benefits of automated invoice processing

Why automate your invoice processing? There are a lot of benefits for businesses of all sizes. These include:

1. Time savings

Automation in general saves companies large amounts of time, especially when you use a platform such as Ignition, which is built for professional service providers.

Over half (59%) of customers say they’ve saved time and improved efficiency since implementing Ignition.

In the instance of automating invoice processes, you save time on manual data entry, invoice matching, and invoice approval workflows. This gives your staff the time they need to focus on more value-added activities, such as customer service or business development.

2. Cost savings

Thanks to the time savings, automated invoice processing actually helps businesses save money on administrative tasks such as data entry and paper-based processes.

Additionally, automated invoicing can help to reduce late payment fees and improve cash flow. Ignition’s data supports this: over half (54%) of customers say they've improved cash flow since implementing Ignition.

3. Reduced errors

Automated invoice processing minimizes mistakes because it removes the possibility of human errors, such as typos, miscalculations, and missing information.

The reduction of errors improves the accuracy of financial records and helps prevent fraudulent activity, payment scams, and lost vendor invoices. This can also reduce delayed payments since you can pretty much guarantee that your invoices are sent on time.

4. Improved efficiency

With the reduction of time, effort, and errors, automation generally improves the efficiency of your invoicing process, reducing bottlenecks and delays.

Let’s say you run a marketing agency that bills clients. By implementing an automated invoice processing solution, you can speed up and reduce the steps necessary to send invoices and process payments. This means you and your team can spend fewer billable hours on admin tasks.

Meanwhile, your client’s accounts payable team will be happy, because there’s less back and forth with paying bills.

5. Improved customer experience

Speedy, accurate invoices help remove friction from the payment process, leading to happier customers excited to do business with you again.

That’s why it pays to use a system with invoice processing automation capabilities. Almost half (49%) of customers say they’re able to offer a better client experience since implementing Ignition.

In fact, when you automate your invoice processing, you can even provide your clients with a little extra incentive to enjoy the system. You can offer them early payment discounts. (This is a great benefit for you as well, since early payment on accounts receivable improves your cash flow. Win, win!)

How does automated invoice processing work?

Automated invoicing involves the use of specialized software to streamline and automate the entire invoicing process, including sending invoices to clients.

With automated invoice processing software, the invoice is sent through your system at the right time, and delivered to the right person for invoice approval, so you can reduce manual data entry. It’s as simple as that.

That said, the granular part of the invoice automation process depends on your client agreements, payment terms, and accounts payable process.

Broadly speaking, however, this is how automated invoice processing works. Here’s a step-by-step overview of how it works in automated invoicing software, such as Ignition.

Step 1. Collect client payment details upfront

The invoicing process starts at the proposal stage, when your software enables you to collect your client’s payment details upfront. As soon as your client accepts your proposal, invoices can be raised automatically through the accounting system you have connected to your solution, such as Quickbooks Online or Xero.

Step 2. Raising and sending invoices

Based on the fees you’re charging, and your billing schedule (for example, recurring billing for your retainer and billing on completion for a project), you can choose to have automated invoice software like Ignition, send bills automatically and collect payment on the date of your choosing.

All the necessary fields in the invoice are populated based on these settings. In addition to basic client information (that is, company name and address, contact details, and so on), your invoicing software should automatically itemize the services you provide to a client and the corresponding amounts based on your agreement.

Step 3. Payment is processed

Once your client approves their invoice, the next step is getting paid. The specifics of this step depend on you and your client’s agreed payable processes. If you're using software to automate your invoicing, then payments should be a breeze.

Most invoices sent by automated invoicing software contain a payment button so clients can enter their payment data and pay their bills with just a few clicks. Depending on how you’ve configured your system, your clients should be able to pay by credit card, automated clearing house (ACH), or other methods, depending on your location.

Additionally, if you’re implementing early payment discounts, your invoice automation software should be able to collect the right payment amounts.

Step 4. Invoice marked as paid

When your invoices are paid, these are automatically reconciled and marked as paid, then a receipt can be sent out automatically, if you choose.

Automated invoicing software that takes the hassle out of getting paid, can end late payments for good. With Ignition, effortless set-and-forget client billing and automatic payment collection means you don’t have to chase late payments and can finally eliminate accounts receivable.

Features to look for in automated invoice processing solutions

Now that you know what an automated invoice processing solution can do for you, it’s time to look at the must-have features in a solution besides simply the ability to automate the traditional invoice processing workflow.

Look for: Automated payment collection

As we’ve shown, when your automated invoicing process starts at the proposal stage as it does in Ignition, you can collect client payment information upfront, and automate payment collection from the moment a client signs your proposal. The result? You get paid faster and can run your business smarter.

Look for: Robust and customizable invoicing capabilities

It should go without saying, but automated invoice processing systems must have the ability to generate and send invoices to your customers.

Every firm and client is different, so features that can automate different payment terms (for example, retainers, milestones, and hourly billing) are a must.

In addition, the solution should offer customizable email templates for invoice notifications, allowing you to personalize the communication with your clients. This feature makes your proposals stand out by allowing you to tailor your proposal communications to your client.

Look for: Automated engagement letters

Your automated invoice processing software should be able to send new clients engagement letters or client agreements (aka contracts). These documents define the scope of work, responsibilities, and terms of engagement between you and a client.

Although an engagement letter is not invoicing per se, it’s still important to have one signed before you invoice the client. It helps to manage client expectations further down the road, especially if there are requests for out-of-scope work.

Unbilled out of scope work can lead to cash flow pressure that affects long term growth. Ignition’s State of client engagement in the US report shows that accountants and bookkeepers in the United States estimate the out-of-scope work that hasn’t been fully billed for is costing their business $76,636 each year.

Look for: Scope change functionality

Out-of-scope requests are common for professional services businesses. So, automated invoicing software that enables you to easily revise the description, price, quantity, billing details (and more) of your services when the project scope changes, is essential.

Software that includes scope change functionality offers a better experience for your clients too, because you’re offering them the flexibility to adjust their services if their needs change during the engagement or agreement period.

Look for: Reporting dashboards

An extremely helpful feature in automated invoice processing software is a business intelligence dashboard with the ability to report on the key performance indicators (KPIs) related to invoicing. This means providing information on how much money you’ve invoiced and what your monthly averages are, creating revenue forecasts, and more. You should also be able to report on the invoicing process itself – that is, how many outstanding invoices you have, the average cost of an invoice, and so on.

Look for: Excellent integrations

It’s imperative that your automated invoice management solution can integrate with your accounting system, so you can set and forget invoicing and reconciliation, and stop doing it all manually.

Look for: Topnotch security features

Given that automated invoice processing software has to store large amounts of sensitive data from both your business and your clients, it’s an absolute must that the system comes fully loaded with excellent security features, such as data encryption.

Over to you

Ultimately, an automated invoice management system gives businesses of all sizes peace of mind that invoicing and payments are being managed effectively. With the amount of time and money automation saves, getting started is a no-brainer.

For businesses wanting to get paid faster, an all-in-one platform like Ignition – that automates and optimizes proposals, client agreements, billing, payment collection and workflows – can put an end to late payments, unbilled work and mundane repetitive admin for ever.

Are you ready to discover the difference? Watch a demo and see Ignition’s powerful business tools in action.

Book a demo of the Ignition software

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Meet the author

Francesca Nicasio
Francesca Nicasio

Contributing Author 

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Published 02 Jun 2023 Last updated 19 Mar 2024