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Accounts payable invoice processing

Updated on :  

08 min read.

Invoice processing in accounts payable management is a function carried out by the accounts payable team in efficiently handling supplier invoices. Managing cash flow is often a big worry for businesses. Therefore, invoice processing originates from the invoice’s receipt and comes close once the payment is made and recorded in the books.

What is invoice processing for businesses?

Today, invoice processing is usually carried out with the help of invoicing software, also known as automated invoice processing or invoice automation. Invoices are provided in various forms, PDFs, paper invoices, emails, and other electronic means. In simple words, the process of handling the invoices from their receipt to the point of fulfilling their payment and recording the same in the books is termed invoice processing.

It is an age-old business practice for the suppliers to send the invoice for services provided to the accounts payable department. Once the invoice is submitted to the accounts payable department, the following process emerges:

  • Matching the invoice contents received with the original purchase order sent to the supplier to verify the basic details.
  • In case there appears any inaccuracy or error in the invoice, the invoice is set aside. Communication is then made with the supplier, where the error in the invoice is something that he has to rectify.
  • Once the rectification is made and a fresh invoice is sent, the contents are verified once again.
  • If there are no errors, the accounts payable department will process the invoice for approval and, eventually, payment.

Steps involved in accounts payable invoice processing

  • Step 1: Verifying the details of the invoice on receipt

Suppliers or vendors usually send an invoice on the completion of their services. In the present day, they are usually sent over an email via a PDF or any other electronic form to facilitate faster communication.

On the receipt of the invoice from the supplier, the company has to verify whether the invoice details are accurate. At the time of verifying the invoice, a careful eye must be cast over the following points:

  • Date of the invoice
  • General details of the supplier
  • GSTIN of the supplier
  • Description of the goods or services provided
  • Value of goods or services provided
  • Taxes to be paid on the same
  • Mode of payment and related information
  • Date by which payment has to be made
  • Step 2: Recording the invoice in the system

Once the verification of the invoice is complete, the entry of the invoice has to be made in the company’s books for accounting purposes. Accounting entries often carry the risk of human error, leading to inaccuracies in the books of accounts.

This is the primary reason businesses today use customised accounting and invoicing software to minimise the risk of such errors. In addition to this, it is always advisable to maintain a physical copy of the invoice and the electronic copy to avoid any inconveniences in the future.

  • Step 3: Invoice approval

The approval process used to suffer certain serious problems before the introduction of invoicing software. This is because the paper invoices either get misplaced or just lie on the approver’s table for ages, thus slowing down the approval process. The upside to using invoicing software is that any number of invoice copies may be generated with ease.

Once the invoice has been verified by the accounts payable team and recorded, the only task left is to send it for approval before releasing the payment. This process has been relatively simplified using invoicing software, often reducing the approval time down to a few minutes. This yields significant savings for the company in terms of time and costs.

  • Step 4: Payment of the invoice

Once the approval of the invoice is done, it is understood that the green light for making the payment has been obtained. The payment will have to be made as per the terms agreed upon and within the date specified in the invoice if any. With the advent of digital banking, payments today can be made in a matter of minutes.