What is Invoice Processing? Definition, Steps, and Procedure

Bill processing is a crucial aspect of business. To continue operating, every business must receive payments for the goods and/or services it supplies. An invoice is an important facilitator of the entire payment process. It is an itemized list of all products and/or services and their total costs supplied by a vendor and received by the customer. It contains a record of the products and/or services supplied, as well as other vital information such as the date, amount due, and method of payment. Invoices are a tool that assists businesses in keeping track of accounts payable (AP).

So what is invoice processing in accounts payable? How do you process an invoice? Not only will this post define invoice processing and how to process invoices, but it will also provide insight into related areas such as the need to streamline invoice processing, what invoice reconciliation entails, invoice processing services, perceptive invoice processing, high volume invoicing, when to consider an invoice processed, and more.

What is Invoice Processing in Accounts Payable?

Invoice processing (also called vendor invoice processing) is an accounts payable component that encompasses the procedures involved in the entire invoice life cycle, which includes invoice receipt, invoice approval or rejection, invoice payment, and invoice archiving. It is a crucial aspect of the procure-to-pay (P2P) process and usually the last step in procurement.

An invoice processor may refer to a business that offers invoice processing services by utilizing purchase information to process or sort out invoices. Several large organizations partner with invoice processors to assist them in processing and sorting their invoices. An invoice processor may offer additional services, such as checking for duplicate invoices and processing other business documents. An invoice processor may also be an individual accounting professional who manages the customer invoicing process at the finance or accounts departments of companies. Their responsibilities may include developing and implementing an effective invoicing procedure, database management, and handling multiple client requests or accounts. They may also scrutinize slow approvals, approve invoices, and archive invoice data.

Importance of Invoice Processing

Today, invoicing software programs are usually deployed for invoice processing. This concept is also known as invoice automation or automated invoice processing. Such programs include perceptive invoice processing solutions that offer a range of functionalities which help streamline invoice processing, increase accuracy, and limit the indulgence in time-consuming manual tasks, thus freeing up employee time for value-added tasks that can boost a company’s bottom line.

Another interesting aspect of automated invoicing solutions is that they can integrate seamlessly with your core applications, providing both users and approvers with easy access to invoices and supporting documents, speeding up approvals, and facilitating prompt reimbursement. They also assist in high-volume invoice processing which involves handling large numbers of invoices at a particular time. Without solutions such as automation, electronic invoicing, and online payments, high-volume invoice processing would have been a more serious challenge for businesses of all sizes.

In a nutshell, it is incredibly important for organizations to streamline and optimize their invoice and other billing processing mechanisms for greater efficiency and better outcomes in today’s digitized business environment. Creating a systematic plan to streamline invoice processing leads to:

• An efficient supply chain
• Better cash flow management
• Timely vendor payments and the possibility of early payment discounts
• Improved vendor relationships
• Quicker payment times
• Less labor
• Time-savings
• Higher productivity
• More profitability

Steps in Invoice Processing

When it comes to the processing of invoices or any other business monetary transactions, care must be taken to ensure accuracy and avoidance of errors. If you’ve been in the dark or not sure of how to process an invoice, here are the steps in invoice processing:

1. Invoice Receipt and Checking

The customer invoicing process commences with the receipt of the invoice by the accounts payable section or department. This phase also includes the invoice-checking process. Invoices can be sent and received in a variety of ways such as:

• Paper documents via posted mail
• Emails with a PDF or other attachment
• Electronic documents received through accounts payable software
• Faxed documents

Irrespective of how a company receives an invoice, it should have a centralized system of invoice processing capable of quickly and accurately handling all kinds of invoice formats. Differing workflows can increase human errors, impact negatively on efficiency, and may lead to confusion.

During the invoice checking process, the AP team scrutinizes data such as:

• The date in the invoice
• Contact information of both parties
• Product/service description
• Product/service amount
• Pricing and total amount owed

The invoice may also include other payment details, such as shipping information. To verify its accuracy, all information in the invoice must be cross-referenced with other documents. If any inconsistency or discrepancy is observed, AP must contact the vendor immediately.

2. Invoice Reconciliation

After the invoice checking process comes invoice reconciliation. Invoice reconciliation involves recording data in the invoice and then matching them with the appropriate paperwork necessary for approval. A general ledger (GL) code must be assigned to the invoice and the invoice must also be matched with the corresponding purchase order, delivery receipt, and/or inspection report, where necessary.

The billed amount must correspond to that on the original purchase order. If this is not the case, the inconsistency has to be resolved with the vendor before proceeding with the approval process. Formally verifying invoices helps in avoiding duplicate payments or fraud.

3. Invoice Approval or Rejection

Accounts payable mechanisms for approving invoices tend to vary according to invoice type, company, ICT infrastructure, industry, and organizational policy. Automatic approval can be used in some cases while others may require final approval before payment. Two or three executives can be tasked with approving or rejecting a payment, though the exact number will depend on company size.

Years ago, invoice approval used to be slow. This often resulted in penalties and late payments. Paper invoices were sent through interoffice mail to physical inboxes. The emergence of email technology saw invoices being attached as digital documents and sent to virtual inboxes.

Nowadays, the trend is shifting to automated AP invoice approval processes. Automated approvals have the advantage of keeping workflows in the invoice processing system and creating a definite timeline for when each specific task will take place. This transparency ensures that the accounts payable section/department has an idea of the length of time required to have an invoice processed, if someone has been wasting time on the document, and how to facilitate timely payments, among others.

4. Process Invoice for Payment

To process invoice for payment, an accounts payable professional will need the following details:

• The total amount owed
• Information about the vendor
• Payment identifiers such as invoice number and account number
• Acceptable payment methods

Previously, checks used to be the most common method of sending payments. Today, ACH or wire transfers are gaining more traction, especially for companies engaged in international transactions. Payment for approved invoices is usually based on terms agreed upon with the vendor. In some cases, a business may decide to pay an invoice early in order to benefit from a discount.

5. Invoice Archiving

After the process invoice for payment phase, the invoices and payment information can then be archived in the GL for audit or other purposes. At this stage, GL entries for the payment debits and any other necessary accounting can be implemented.

In addition, images of the invoices and supporting documents such as purchase orders or shipping receipts can be stored in a secure and searchable document repository. This makes for a convenient audit trail that can easily and quickly be accessed whenever necessary. It is after successful archival that you consider an invoice processed.

Automate Your AP Processes With Basil

As noted above, software programs are becoming increasingly crucial to modern-day businesses. This is hardly surprising because of the numerous benefits every business that embraces them stands to reap. Basil Practice Management Software for accountants, CPAs, and other tax professionals is a client cloud collaboration software with a host of possibilities that enhance bookkeeping/accounting and boost your invoice processing experience.

• Easily keep track of all tasks and projects.
• Send automatic reminders to clients about yet-to-be-completed tasks.
• Unlimited eSignatures allows you to electronically sign all your documents
• Concentrate all client information in a centralized database. Access contact information, notes, and project history in seconds.
• Communicate and collaborate with team members and clients via the chat feature.
• Enjoy peace of mind with the 256-bit encryption and secure storage on AWS.

These are just some of the features of this refreshingly simple, affordable, and efficient all-in-one software for accounting professionals. Sign up to Basil now for more!