Invoice processing steps: here’s everything you need to know

Processing invoices is an important task in managing accounts payable. This is a function performed by the Accounts Payable team to effectively manage vendor invoices. Invoice processing starts from receipt of supplier invoice and ends once payment is made and recorded in the books. It is also an important activity for corporate cash management.

Meaning of invoice processing for businesses

Invoice processing is now generally done using the invoicing software, also known as automated invoice processing or invoice automation. Invoices are available in different styles in PDF, paper invoice, email and electronic means. In other words, invoice processing refers to the process of managing vendor invoices or invoices from receipt to the time of payment and posting to the books.

Relevance of Invoice Processing in the Accounts Payable Process

Since ancient times, it has been a commercial practice for sellers of split bills or bills for goods provided or services provided to the recipients’ accounts payable department. Once the invoice or invoice is submitted to the Accounts Payable team, the following steps are followed for invoice processing:

  • The team matches the contents of the invoice with the original purchase order shared with the seller or supplier to cross-check basic order details with the purchase.
  • If there is an error or an inaccuracy in the note or the invoice, the invoice is kept. The buyer then contacts the supplier for the error in the invoice if it is something the seller can correct.
  • Once the rectification has been made and a new invoice sent or a debit or credit note issued accordingly, the content is checked again.
  • If the buyer no longer notices an error, the Accounts Payable department will process the invoice or invoice for approval and ultimately release payment.

All about the invoice processing steps

Step 1: Check the contents of the invoice upon receipt

Vendors or vendors usually share invoices upon completion of their services or delivery of goods. Nowadays, they are mostly sent to the buyer via an email attachment in PDF format or any other electronic form to promote faster communication.

Upon receipt of the invoice or invoice from the seller, the buyer’s team must check whether the details of the invoice are correct and complete. When verifying the invoice or supplier invoice, one should carefully look for the presence and accuracy of the following elements or fields:

  • Invoice issue date
  • Basic supplier or seller information
  • Supplier or Vendor GST Identification Number (GSTIN)
  • Buyer’s GSTIN
  • Billing and delivery address
  • Details or description of the product or services provided
  • Value of goods or services provided
  • GST or taxes payable on the same
  • Payment Terms and Penalty Information
  • Due date by which payment must be made

This step also includes an additional task for processing specific to Purchase Order (PO) invoices. The invoice is processed and verified following the 2, 3 or 4 way matching processing methods to match the purchase order with the predefined tolerances.

In a 2-factor reconciliation, the PO is matched against the invoice directly for discrepancies and reported. In a three-way match, the invoice is matched against the purchase order and the goods receipt document to ensure that they are correct.

Step 2: Accounting or saving the invoice or invoice in the buyer’s system

Once the verification or validation of the invoice is completed, an accounting entry of the invoice must be made in the books of the company for recording purposes. Accounting entries generally carry the risk of human error and transcription, resulting in inaccuracies in the books of accounts.

This is the number one reason businesses use custom accounting and invoicing today. Software to reduce the risk of such errors. Also, it is always advisable to keep a physical copy of the bill or invoice and the electronic copy in the cloud to avoid any future inconvenience.

Step 3: Approval of the supplier invoice

The approval process followed generally suffered from some serious issues or shortcomings before the introduction of the invoicing software. This is because paper invoices would either get misplaced or sit on the approver’s table for an eternity, slowing down the supplier invoice approval process. The advantage of using invoicing software is that any number of copies of invoices can be created and shared easily.

Once the note or invoice has been cross-checked by the accounts payable team and accounted for, all that remains is to share them for approval before the payment is released. The process has been relatively simplified with the invoicing software, generally reducing approval time to minutes. It produces significant savings for the buying company in terms of time and costs.

Depending on the size and hierarchy of a company, the invoice is sent for payment approval. In small businesses, there may be one or two people with the authority and responsibility to approve invoices or invoices for payment release. In large organizations, a whole team would be responsible for signing an invoice for payment.

Step 4: Release the bill payment

Once the approval of the invoice is taken, we can understand that the green signal to release the payment has been received. The Accounts Payable team must make payment according to the agreed terms and conditions and within the time frame indicated on the invoice, if applicable. With the advent of digital banking, payments today can be made within minutes through UPI.

Choose between manual and automated invoice processing

Manual invoice processing implies that all of the above steps must be performed manually. In other words, from the receipt of the invoice to the release of the payment, when each of these steps in the invoicing process is done manually, it is called manual invoice processing.

Be sure to keep a copy of the supplier’s invoice securely on file. The invoice will need to be passed through each step of the invoicing process to different teams such as Procurement or Procurement, Finance, Accounts Payable and Accounts team.

Authorization is essential at every stage of invoice processing to ensure that each step is followed before payment is released for the invoice.

On the other hand, automated invoice processing involves automatic tasks and steps throughout the invoice processing cycle. Tasks such as invoice data extraction, data entry, invoice coding and invoice validation are all automated before the invoice is sent for final approval.

It avoids human errors due to intervention and is effective when organizations deal with huge volumes of invoices every day.

Many cloud-based invoicing and payment collection software are available in the market to solve the problems that arise while processing invoices and are cost effective.


Authors biography : Ombir is SEO Executive at Electronic filing solutions. He is an SEO and Copywriter who has 2 years of experience in these respective fields. He enjoys spending his time researching various topics.

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