Understanding the Core Invoicing Capabilities of Vendor Management Systems

This article was first posted on Vndly.com in October 2022.

The reliance on external workers is increasing year over year. It’s estimated that as many as 80% of today’s companies are leveraging contingent workers and 70% of executives plan on hiring more contingent workers post-pandemic. 

As the use of external workers increases, so does the importance of properly managing invoicing and spend related to these employees. Mistakes in these areas can be costly—in terms of time, money, and reputation. In response, vendor management system (VMS) providers need to go beyond traditional practices to power significant innovations, such as individual off-cycle invoicing and custom invoice builders, to help organizations stay on track.

Historical Invoicing Processes

Generally, when businesses operate without a VMS, each vendor has to submit an invoice to accounts at the end of the month, outlining the contractors, hours worked, and the associated bill rate. This invoice goes to the accounts payable team, where someone must manually reconcile all invoices. This includes validating line items and cross-checking approved time sheets. The result can be a manual, cumbersome process, especially when many vendors are involved.

More often than not, the vendor invoices are accurate and reconciling may feel like a wasted exercise for your finance department. However, if team members begin to assume these documents are correct, diligence in cross-checking all line items can begin to decrease. When this starts to happen, inaccuracies can pass through, creating hidden expenses to your overall program spend. 

Traditional VMS Invoicing Support

To ensure accuracy and efficiency in invoicing and spend management, many organizations turn to vendor management systems. Most legacy VMS solutions are designed to consolidate and automate invoice generation based on approved time and rates. That means that when a time sheet is submitted and approved—either directly through your VMS or via another timekeeping solution—that time at the associated rate automatically becomes an invoice line item in your system. The information is then sent to your accounts payable system for payment, creating a more streamlined process. 

Through these capabilities, financial controls are strengthened due to:

Removal of manual invoice reconciliation: Only approved transactions—whether project expenses, time sheets, or fixed price payments—are turned into invoice line items. This means all spend must be preapproved before being charged. As invoices are based on approved work, the accounts team doesn’t have to go through each invoice line by line, reducing manual effort while maintaining accuracy. 

Increased visibility: All relevant stakeholders will have visibility into the same inputs that make up the total amount. They should be able to see the same bill rates that went into the calculations for each worker, eradicating questions related to accuracy. 

While legacy VMS solutions address invoicing challenges in these areas, gaps remain, particularly when it comes to needs related to global expansions. However, newer technologies in the market have taken things a step further in order to provide advanced invoicing support and help organizations grow. 

Innovative Invoicing Capabilities a VMS Should Have

A VMS should provide all of the expected invoicing capabilities outlined above, while continuing to innovate on the core. Some of the latest advancements in the industry include: 

Line-item level and individual off-cycle invoicing: You’ve likely found yourself in a situation where you have questions around one or two line items and don’t want to send through for payment until you’ve investigated further. With legacy solutions, if you need to put these line items on hold, you must put all line items on hold, slowing down the entire process. This can lead to delayed payments and negatively impact vendor and contractor relationships.

Some VMS solutions have found ways to streamline the approval process to minimize delays in payments and deliver a better experience for all stakeholders involved. For example, our VMS solution allows you to hold the items you want to look at further, while moving the rest of the process along.

Custom invoice template builder: Custom invoice builders are a rare but incredibly innovative feature in a VMS. Invoicing regulations vary from country to country, which can make it difficult to account for all requirements. With a custom invoice builder, you’ll gain the flexibility to build invoice templates with the country-specific information you need, in the appropriate currency, and can push those templates out to vendors. 

As your extended workforce footprint continues to expand across borders, it’s important to ensure you’re adhering to local invoice regulations that vary from country to country. The local expertise of your vendors can be tapped into here if your solution has the capabilities to do so.

Vendor-generated and vendor-submitted invoicing: In global markets with a lower spend footprint, you may not want to launch a full-blown contingent module and managed service provider (MSP) program. For these markets, getting the compliance aspects right is a major challenge. While you may not be an expert on the local compliance laws, the local vendor in that market is. Instead of having them submit a paper invoice for these small-spend global markets, our VMS solution allows you to bring local vendors into the invoice build phase. By properly connecting stakeholders, we provide vendors with access to the custom invoice builder. This moves the burden of compliance, taxation, and invoice creation onto those local vendors, helping businesses to remain compliant, while saving internal teams time. 

Full digital invoicing across all locations: Depending on in-country spend levels, a traditional VMS typically won’t provide you with full digital invoicing across all locations. This can create a situation where you’re left trying to balance historical invoice processes with VMS use. VMS providers who see the necessity of digital invoicing have addressed this challenge by offering both worker tracking capabilities and fully digital invoicing across the globe, regardless of spend. This allows you to adopt a global standard for invoice practices, which is key to streamlining the process. 

When it comes to managing the extended workforce, invoicing is the backbone to a successful program. As such, you don’t want to rely on outdated processes that are no longer working for your team. The latest advancements in invoicing capabilities are bringing invoicing practices to a new level—thanks to VMS providers who aren’t afraid to create a better way.