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Many construction companies still rely on traditional paper-based invoices and physical routing and approval for their accounts payable (AP) processes, which require vast amounts of time and handling. Besides being inefficient, it’s more prone to costly mistakes that can delay payments to vendors.
But your invoice collection, reconciliation, approval, and management don’t have to be a frustrating, time-consuming process. Taking advantage of invoice management software that integrates with your accounting ERP system and following industry-specific guidelines can help improve your business’ invoice management through automation and custom workflows.
Here’s a list of top 6 invoice management best practices for the construction industry to consider for your own company.
1. Set Clear Expectations
All parties involved in the project must clearly understand payment expectations in advance to avoid future misunderstandings or payment disputes. Contracts must outline payment timelines and any other requirements. For example, if the project uses progress billing, you’ll want to know when invoices will arrive. Invoices can be sent at certain time intervals, like monthly or quarterly, or when a specific percentage of the job is complete, such as 25% or 50%.
Depending on your contract, you may also need to account for retainage, typically 5-10% of the project’s total cost, until the work is complete. Setting and communicating payment expectations early helps keep you on track in your AP processing and maintains a more consistent cash flow.
2. Consider Going Paperless
Are you still using paper invoicing and manual processing for your invoices? Upgrading to digitized AP processing from this traditional method can save your team time and money. Paper-based invoice processing requires significant time to manually sort documents and enter data into your systems. Various invoicing formats, inaccurate or incomplete data, and data entry errors are common issues with this method.
Then, your team must cross-check invoice information against your receipts and orders before physically routing paperwork to your approval team. This entire process is slow, and your progress is difficult to track. It’s also harder to ensure you’re staying in compliance. And if you’re storing physical files, significant office space is needed.
On average, processing each paper invoice costs $15-40 and can take 10-20 days to complete, depending on your team’s efficiency and the complexity of each invoice. Delays and errors can result in late vendor payments, causing frustration and harming your business relationship.
Going paperless lets you automate your entire AP process, from acquisition to cost coding and routing, for quicker approval and payment. Invoice management software can automatically scan invoices and enter data, virtually eliminating errors caused by manual entry. Reconciling invoices against your orders and receipts takes less effort when all your files are digitized and stored on the cloud.
You can even create custom workflows that deliver your coded invoices to the right people in the right order for approval. A paperless invoice management system speeds up the processing time, greatly reduces errors, and helps ensure vendors get paid on time.
3. Automate Your Invoice Acquisition
Automating your invoice acquisition can save you countless hours of manual data entry. With the right tools, data from your invoices transfers automatically into your invoice management and accounting systems. hh2’s Document Flow does just that.
Our flexible document acquisition feature can automatically monitor and scan designated email accounts and folders, pulling images of invoices into your system. You can also use a mobile device to snap a photo of a paper invoice to digitize and transfer information seamlessly.
Invoice data becomes immediately available to all authorized users through our web-based platform, so your AP team can access information no matter their location. You’ll be able to quickly spot invoice redundancy, ensure invoices are properly coded for compliance, and speed up your entire workflow.
4. Create a Centralized System For Invoice Management
A major problem construction companies face is matching invoices with existing receipts and purchase orders. Creating one place to store and process receipts and invoices makes the reconciliation process more efficient and less prone to problems. You’ll spend less time on reconciliation tasks because you’ll have access to digital receipts and invoices instead of having to look for the physical files you need and manually cross-checking them.
A centralized system also makes it easier for your team to check that documents are correctly coded and standardized, which is necessary for automating workflows and integrating with your existing accounting system. Establishing a single source of information is critical for tracking costs, staying in compliance, and reducing the time it takes to process invoices. It can also help catch inaccuracies or fraudulent transactions the human eye could miss.
5. Establish Clear Approval Workflows
Automating your invoice routing and approval workflows streamlines your AP processing even further. Before setting up any automation, examine your current invoice approval workflow process to see what’s working well and what you could change to make it more effective. You’ll want to ask the following questions:
- Who is a part of your approval process?
- Which staffers are responsible for approval versus those who need read only access to the documents?
- What order of approval do you need to follow?
- Is it more efficient to send documents to company titles and roles or specific people?
- Can you automate decisions based on invoice dollar amounts or business roles?
From there, you can create your desired invoice approval workflow. Customizing your workflow for your company’s specific needs is ideal. Our construction software's expense routing and approval features make this practice simple.
6. Keep All Related Documentation
Keeping accurate, detailed records of all associated costs and coding them according to your business standards is key to saving time, staying in compliance, and making invoice management more efficient. In the event of a payment disagreement with a client or vendor, having all your documentation organized and accessible can resolve any issues quickly.
Fortunately, our construction software can handle all your financial documents, including receipt and invoice management. It integrates with your accounting system so your accounts payable team can access the necessary information. You can easily track and manage each invoice from acquisition through coding and reconciliation to approval and payment, staying informed at every stage of the project.
Take Advantage of Invoice Management Software
Do you want to go paperless and automate your invoice approval workflows? Join the 70,000+ users implementing our cloud-based solutions to streamline their payroll processes and invoice management. Visit our site to request a demo and explore our full suite of construction solutions.
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