How AI Invoice Processing Works: An Ultimate Guide

Imagine that you’re running a small to medium-sized business (SMB). As it continues to scale, you may need to use artificial intelligence (AI) and machine learning on tedious tasks to reduce manual work. Nowadays, one of the most popular ways of implementing AI in your business is by automating invoice processing.

AI-powered invoice processing significantly reduces errors brought by manual data entry and streamlines your accounts payable processes. This article will go through everything you need to know about AI-based invoice processing, how it works, and what benefits it gives to your business.

Read on to know more.

What is AI Invoice Processing?

AI invoice processing uses advanced technologies like machine learning (ML), natural language processing (NLP), and optical character recognition (OCR) to process invoices digitally. It automates key steps like invoice capture, data extraction, and data validation and then sends them to appropriate channels for approval and payment.

Compared to manual invoice processing, this method can essentially handle different invoice formats, needs little human intervention, and is efficient since advanced technologies like AI and ML are self-learning and can improve over time.

Note: Most AI invoice capture platforms don’t offer workflow automation, forcing you to use different software for this function and doubling your costs. If you want a complete and affordable pre-accounting software, consider Envoice. It supports multi-level workflows for timely approvals and lets you add your entire team without additional costs. Contact us to learn more!

7 Key Elements in AI Invoice Processing

Here are the seven key elements for AI invoice processing and automating AP processes:

1. Data Extraction

AI technologies can accurately extract relevant data from invoices, including invoice numbers, amounts, dates, and other vendor details. After they’re structured, the data will be forwarded to the accounting system. Advanced NLP can also process and extract relevant information from unstructured data in complex invoices.

2. Optical Character Recognition (OCR)

OCR technology recognizes and converts text on captured invoices into machine-readable text. It allows you to digitize paper-based invoices or convert receipt images to formats your team can edit and share.

3. Machine Learning (ML)

With machine learning algorithms, AI systems can learn over time from user changes and recognize patterns from historical data. This enables AI-powered invoice processing systems to improve accuracy in data extraction and verification.

4. Natural Language Processing (NLP)

NLP enables AI to understand and categorize the extracted invoice data (e.g., vendor names, invoice numbers, etc.) automatically and repetitively on various invoices.

5. Data Validation and Verification

Extracted data is validated from custom-set rules and cross-checked for consistency and accuracy. Anomalies like duplicate invoices and invoice discrepancies are subjected to human review, ensuring that all transactions are legitimate and don’t involve fraud.

6. Workflow Automation

Artificial intelligence can establish custom approval workflows using your business’s policies, ensuring invoices are routed to the correct approvers. It improves the accounts payable process by reducing manual intervention and letting AP teams focus on more strategic tasks than manual data entry. It also streamlines payments and improves cash flow.

7. Integration with ERP and Accounting Systems

AI invoice processing can seamlessly integrate with various enterprise resource planning (ERP) systems and accounting tools, allowing an automatic two-way data sync and streamlined workflows.

How Does AI Invoice Processing Work?

As you might know, artificial intelligence has become a large part of streamlining accounts payable by automating invoice processing. It uses several elements, mainly machine learning and natural language processing. Here’s how AI invoice processing typically works for a company or business:

• #1: Invoice Capture – AI automatically captures incoming invoices from various platforms. In addition to uploading a receipt manually, it can capture invoices from emails and saved files.
• #2: Data Extraction and Verification – Next, the AI extracts relevant invoice data, such as the invoice number, line item, supplier details, payment terms, etc. It also verifies the extracted data by cross-referencing it with other related documents, like purchase orders.
• #3: Routing to Approval Workflow – Once the invoice data is validated, it will now be automatically forwarded for approval. However, if the AI detects discrepancies or the invoice comes from a suspicious supplier, it can reroute the invoice for further review.
• #4: Payment Processing – After an invoice is approved, the AI will send payments based on the company’s terms and policies, ensuring every invoice is paid on time and eliminating late fees.

How Envoice’s AI-Powered Invoice Processing Works

Envoice leverages AI on its core features, mainly for automating repetitive tasks like invoice processing. Its data extraction and workflow automation tools can help improve your business’s productivity, reduce costs, and allow your team to focus more on high-value activities.

Here’s how Envoice can automate invoice processing for your small business:

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• Step #1: Data extraction using SmartExtract – After the invoice is captured via the Envoice app or uploaded to your Invoice Inbox, Envoice uses self-learning AI to accurately extract invoice data (e.g., vendor name, payment method used, amount, etc.) within seconds, effectively eliminating manual data entry. The tool can handle various invoice formats, including handwritten receipts and email invoices.
• Step #2: Data Verification With ExactExtract – To ensure 99.9% accuracy on extracted invoice data, Envoice uses ExactExtract with Human-in-the-Loop verification. Envoice also offers a line item extraction service to accurately distribute expenses. This effectively reduces mistakes brought by manual data entry and more streamlined invoice processing.
• Step #3: Routing for Approval – Envoice speeds up approvals by helping you set up an approval workflow based on your business needs. It provides a clear audit trail and real-time status updates for transparency. You can also create custom rules for approvals on recurring expenses and automatically delegate approval duties once an approver is out of the office.
• Step #4: Payment Processing – Once an invoice is approved, Envoice allows you to easily track payments by syncing your accounting software directly to the platform. This ensures timely transactions and fosters better relationships with your suppliers. Envoice also supports SEPA ISO 20022 standards, allowing you to create payment orders and upload them to your bank account.

How AI Invoice Processing Can Help Change Your Business

AI-based invoice processing provides several advantages for your business. Besides reducing manual intervention and streamlining AP processes, here are more of its key benefits:

#1. Fast and Accurate Invoice Processing

Implementing AI in invoice processing makes it much faster than manual methods. Typically, it takes 3 to 4 minutes to fully extract data from an invoice, which can vary depending on the invoice format. On the other hand, advanced AI models can accurately extract invoice data in under 30 seconds. It can adapt to various formats and consider rules that expedite specific invoices that require less validation. This enables your accounts payable process to be more efficient and improves cash flow for your business.

Note: Most accounting software doesn’t offer cognitive capture and fully automated data extraction. If you’re looking for a robust AI invoice processing solution, try Envoice. It has SmartExtract for AI invoice capture and ExactExtract backed with Human-in-the-loop review for 99.9% accuracy of extracted data. Register for a free trial today!

Additionally, the key benefit of using AI for data extraction is its high accuracy. Compared to manual invoice processing, AI algorithms can extract and validate information more precisely and at a faster rate. It allows your business to process invoices with fewer errors and delays and ensures accurate financial records.

#2. Increased Productivity

Since automation eliminates manual and repetitive work, such as manual data entry, your accounts payable team can now focus on tasks that require strategic decision-making, like maintaining good vendor relationships, analyzing spend reports, and enhancing customer experience. It also gives you better resource allocation and increased profitability.

#3. Enhanced Fraud Detection

AI ensures that every invoice complies with your company’s terms and rules by monitoring transactions in real time and identifying potentially suspicious and fraudulent invoices. Since there’s no human intervention, results cannot be influenced by anyone involved in the process. Also, machine learning models can detect discrepancies by analyzing patterns from past invoices, like suspicious transaction amounts.

#4. More Cost Savings

AI reduces labor costs for invoice processing by reducing manual intervention, giving you more savings and greater resource allocation. Since there are fewer errors in the AP workflow, you can take advantage of suppliers’ early payment discounts. AI also makes your business more scalable since it can handle increased workload without necessarily needing additional resources.

#5. Efficient Accounts Payable Workflow

Automating accounts payable gives you optimized workflows and hassle-free financial operations. AI-guided invoice processing and payment ensures timely payments and reduces delays, allowing your AP teams to save valuable time for financial planning.

Preparing Your Team for Accounts Payable Automation

Artificial intelligence has been a notable addition to many companies, streamlining processes and repetitive tasks to improve efficiency. In accounts payable, AI-powered invoice processing helps employees focus on more critical tasks for business growth rather than mundane work like manual data entry.

Here are some ways to prepare your team for AI solutions and accounts payable automation:

Provide Training and Upskilling Opportunities

To prepare your team for AI-based technologies, you must offer them relevant resources and briefly explain AI’s use cases and benefits. You can provide practical training and certifications about the basics of your company’s AI model for AI invoice processing and AP automation, its functions, and how they can use it for daily tasks. Keeping them informed about the best practices for AP automation is also critical.

Introduce Learning Platforms for AI

Besides hands-on training, you can give employees access to online skills-learning platforms and courses from popular AI solutions. These platforms must contain relevant course offerings and personalized learning paths to keep them updated with emerging technologies like AI. You can also offer additional resources so they can continuously learn and retain information more effectively.

Leverage AI for Tracking Trends and Workflow Improvement

You can train your team to interpret and recognize key trends from AI-generated reports. This includes applying data analysis concepts like outlier detection and understanding data insights to make informed decisions. Your AP team can also enhance workflows by checking areas where AI can be integrated for a more streamlined process.

Cultivate Soft Skills

To further develop your employees beyond AI, you can provide soft skills training, like effective communication, problem-solving skills, and adaptability. This leads to enhanced productivity and a more conducive working environment. You can also emphasize how AI helps with daily repetitive tasks and enables them to focus on processes needing human intervention.

Final Thoughts

Artificial intelligence is a game-changer for many businesses today. It boosts productivity by automating tedious tasks, reducing human error, and streamlining financial workflows. AI-powered invoice processing significantly helps your organization by optimizing invoice capture, data extraction, and payment processing for quicker approvals and vendor payments.

If you’re looking for a comprehensive pre-accounting and accounts payable solution with AI capabilities, consider Envoice. It uses artificial intelligence to perform tasks like data extraction and validation for efficient invoice processing. It also supports multi-level approval workflows and customized rules, so you can automate repetitive tasks and let your team focus more on tasks that encourage business growth.

Ready to streamline your financial process with AI-based invoice processing? Try our automation features today and transform how you manage accounts payable tasks. Contact us to get started!