Invoice processing is an important to-do in accounts payable management. It is a function performed by the accounts payable team to efficiently handle vendor invoices. Invoice processing originates from the vendor invoice’s receipt and comes to a close once the payment is made and recorded in the books. It is also an important activity for managing the cash flow of businesses.
Meaning Of Invoice Processing For Businesses
Invoice processing is nowadays generally done with the help of the invoicing software, also called automated invoice processing or invoice automation. Invoices are available in various styles as PDFs, paper invoices, emails, and electronic means. In other words, invoice processing refers to the process of managing the vendor invoices or bills from the time of their receipt to the point of making their payment and accounting for the same in the books. You can invoice you customers in seconds at Zintego.
Relevance Of Invoice Processing In The Accounts Payable Process
Since olden times, it has been a business practice for the sellers to share invoices or bills for goods supplied or services provided to the accounts payable department of recipients. Once the bill or invoice is submitted to the accounts payable team, the following steps are taken for invoice processing:
- The team matches the invoice contents with the original purchase order shared with the seller or vendor to cross-check the basic order details with the purchase.
- If there appears any error or inaccuracy in the bill or invoice, the invoice is kept aside. The buyer then communicates with the supplier for the error in the invoice if it is something that the vendor can correct.
- Once the rectification is carried out and a fresh invoice is sent or debit or credit note is accordingly issued, the contents are once again verified.
- If the buyer no longer notices any error, the accounts payable department will process the bill or invoice for approval and, ultimately, release the payment.
All About The Invoice Processing Steps
Step 1: Verify the contents of the invoice upon receiving it
Sellers or vendors generally share invoices on the completion of their services or delivery of goods. Nowadays, they are mostly sent across to the buyer through an email attached as a PDF or in any other electronic form to promote faster communication.
On receiving the bill or invoice from the seller, the buyer’s team must verify if the invoice details are correct and complete. While verifying the vendor bill or invoice, one must carefully look for the presence and correctness of the following items or fields:
- Date of the invoice issue
- Basic details of the supplier or vendor
- GST Identification Number (GSTIN) of the supplier or vendor
- GSTIN of the buyer
- Billing and shipping address
- Particulars or description of the product or services supplied
- Value of goods or services supplied
- GST or taxes to be paid on the same
- Payment conditions and related information on penalties
- Due date by when the payment has to be made
This step also has an additional task for processing specific to Purchase Order (PO) invoices. The invoice is processed and verified by following the methods of 2-way, 3-way, or 4-way match processing to match against the purchase order with the pre-defined tolerances.
In a 2-way matching, the PO is matched with the invoice directly for variances and reported. In a 3-way matching, the invoice is matched against the PO and goods receipt document for correctness.
Step 2: Accounting or recording the bill or invoice in the buyer’s system
Once the invoice verification or validation is completed, an accounting entry of the invoice has to be made in the company’s books for recording purposes. Accounting entries usually have the risk of human and transcription error, resulting in inaccuracies in the books of accounts.
It is the main reason that businesses nowadays use customised accounting and invoicing software to reduce the risk of such errors. Moreover, it is always advised to keep a physical copy of the invoice or bill and the electronic copy on the cloud to prevent any future inconveniences.
Step 3: Approval of the vendor invoice
The process of approval followed usually suffered from certain serious problems or gaps before introducing invoicing software. It is because the paper invoices would either get misplaced or just stay on the approver’s table for ages, thereby slowing down the process of vendor invoice approval. The advantage of using invoicing software is that any count of invoice copies may be created and shared with ease.
Once the bill or invoice has been cross-checked by the accounts payable team and accounted for, the only work left is to share them for approval before the payment release. The process has been comparatively simplified with the invoicing software, generally cutting the approval time down to a few minutes. It produces major savings for the buyer firm with respect to time and costs.
Depending upon the size and hierarchy of a business, the invoice is sent for payment approval. In small business, there may be one or two people having the authority and responsibility to approve the bills or invoices for the payment release. In large organisations, a whole team would be responsible for signing off an invoice for payment.
Step 4: Releasing the payment of the invoice
Once the approval of the invoice is taken, one can understand that the green signal for releasing the payment has been received. The accounts payable team must make the payment as per the terms and conditions agreed upon and within such date as given in the invoice, as may be applicable. With the coming of digital banking, payments nowadays can be made in a matter of minutes through UPI.
Choosing Between Manual And Automated Invoice Processing
A manual invoice processing involves all the above steps to be carried out manually. In other words, beginning from invoice receipt to the payment release, when each of these steps in the invoice process is done manually, is known as manual invoice processing.
One must ensure to keep a copy of the vendor invoice safe and secure in its records. The invoice will have to be passed through each stage of the invoice process to different teams such as sourcing or procurement, finance, accounts payable and accounts team.
The authorization is essential at every stage of the invoice processing to ensure that every step is followed before the payment is released for the invoice.
On the other hand, automated invoice processing involves automatic tasks and steps along the invoice processing cycle. The tasks such as data extraction from invoice, data entry and invoice coding and invoice validation are all automated before the invoice is sent for the final approval.
It helps avoid human errors due to intervention and is effective where organisations are processing huge volumes of invoices every day.
Many cloud-based invoicing to payment collection software are available in the market to address issues arising during invoice processing and are cost-effective.
Author Bio: Ombir is SEO Executive at eRank Solutions. He is a SEO and Writer who has an experience of 2 years in these respective fields. He likes to spend his time doing research on various subjects.