Invoice Processing

Invoice Processing

Receiving supplier invoices, authorising them, setting a remittance date, paying the invoice, and finally entering it in the general ledger are all parts of the invoice processing process. It is an essential component in managing a company.

Late payments to vendors can disrupt your supply of services, goods, and raw materials as well as harm your relationships with your suppliers. One or two late payments could be excused, but persistent tardiness can harm your company.

Technology has advanced to the point where justifications like “the check is in the mail” are no longer acceptable when it comes to processing invoices. Your suppliers are aware that the majority of businesses utilise an automated system to receive, record, and include invoices in payments. Your suppliers are aware that the majority of businesses utilise an automated system to accept, store, and move invoices through the payment pipeline.

Your suppliers will take steps to safeguard their balance sheets if you don’t pay them on time.

What Is Invoice Processing?

The procedure that occurs from the moment a supplier invoice is received until it is paid and entered in the general ledger is known as invoice processing. This process includes tracking and paying supplier bills.

Whether you get an invoice via mail, as a PDF attached to an email, or as an electronic invoice, you must first manually or automatically scan the data it includes into your accounting system. The invoice then proceeds through a certain procedure of approval and payment.

Invoice Processing Workflow

Setting up a procedure for the effective processing of invoices is essential. Basic components of this workflow are as follows:

Receipt of Invoice: The accounting division will confirm that the product or service was purchased. The amount billed and the amount on the original purchase order (PO) will next be compared. Before sending the invoice for approval, any differences between the amounts charged and the PO must be settled with the supplier.

The invoice is subsequently sent for approval in accordance with corporate regulations if the information is accurate.

Payment of Invoice: Following approval, the invoice will be paid in accordance with the conditions agreed upon with the vendor. In some circumstances, businesses may decide to pay an invoice in full up front in order to benefit from a discount (such as 1% Net 10, or a 1% savings if you pay the bill in full up front in 10 days or fewer).

Your accounts payable department will be more effective as they keep track of what is due to suppliers, make sure payments are correctly approved, and execute payments if they have a set methodology for processing invoices. To create an accurate balance sheet, precise accounts payable information is necessary.

When can an invoice be processed?

Once the aforementioned procedures have been followed and the invoice has been accepted and uploaded into the system, it may then be processed for payment.

How Do You Process an Invoice for Payment?

Steps involved in accounts payable invoice processing

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

Invoices are often sent by suppliers or vendors once their services are complete. Today, in order to speed up communication, they are typically transmitted through email, PDF, or another electronic format.

The business must check the accuracy of the invoice data after receiving the invoice from the supplier. The following details need to be carefully examined while examining the invoice:

  • Date on the bill
  • Basic information about the provider
  • GSTIN for the provider
  • Description of the given products or services
  • Value of the offered products or services
  • Taxes due using the same payment method and accompanying information
  • Date by which the payment is due

Step 2: Recording the invoice in the system

The invoice must be included in the company’s records for accounting reasons after the invoice has been verified. Human mistake can frequently result in accounting entries, which can cause errors in the books of accounts.

To reduce the likelihood of such errors, firms increasingly utilise specialised accounting and invoicing software. Additionally, it is usually preferable to keep both a physical and an electronic duplicate of the invoice in order to prevent future annoyances.

  • Step 3: Invoice approval

Prior to the development of invoicing software, the approval procedure used to experience a number of significant issues. This is because the approval process is slowed down by the paper invoices, which either get lost or merely sit on the approver’s table for a long time. The benefit of utilising invoice software is that it is simple to create any number of invoice copies.

The sole remaining step before releasing the money is to transmit the invoice for approval once it has been documented and validated by the accounts payable staff. Using invoicing software, this process has been significantly streamlined, frequently cutting the approval time to just a few minutes. The firm saves a lot of money and time as a result of this.

  • Step 4: Payment of the invoice

It is thought that permission has been granted for the payment to be made once the invoice has been approved. The payment must be paid in accordance with the agreed-upon conditions and within the deadline indicated in the invoice, if any. Nowadays, payments may be done in a matter of minutes thanks to the development of digital banking.

Here are the steps for invoice processing:

  • Document, such as a purchase order or delivery receipt, and general ledger (GL) code it.
  • Send invoices to those who have the authority to accept or reject them.
  • Authorise and send invoices to a financial system for payment.
  • Process invoices for payment using standard payment methods as a wire transfer, ACH, or cheque.
  • Keep records of payments and invoices in the GL for future reference and auditing.

What Is the Journal Entry for Invoice Processing?

A vendor invoice has to be put into your business’s accounting software as soon as it is received. The invoiced amount, which is listed as a liability on the balance sheet, develops into an accounts payable (AP) and is frequently deducted as an expense on the income statement.

How to Enter an Invoice Into the Accounts Payable System in 5 Steps

To input an invoice into the accounts payable system, follow these five simple steps:

  • Enter the invoice as a credit in your general ledger’s accounts payable account when it has been authorised (using the procedures described above).
  • The item is designated as a “open invoice” once it has been entered.
  • Based on the specified terms, enter the invoice’s payment due date (and take advantage of any offered discounts).
  • In most situations, AP items are recorded as costs on the income statement; however, there are some circumstances where an offset can be recorded to prepaid assets or fixed assets. Debit the amount to the relevant accounts.
  • When an open invoice is paid, accounts payable removes it with a debit and an offsetting credit to cash.

Invoice Processing Automation

Processing invoices manually takes time, costs money, and is prone to mistakes. According to Levvel Research, 24% of businesses scan and email their invoices, while 23% still rely on manual procedures, and 50% of businesses have not yet automated their accounts payable operations. The cost of these human operations is high: instead of spending $10 to manually process one invoice, invoice processing automation software reduces that cost by 79% to just $2.07 each invoice.

Accounting teams can: by automating the invoice management process:

  • Process vendor invoices more quickly and effectively every time.
  • Avoid losing invoices and the need to look for them or contact the vendors again.
  • Eliminate the late penalties that suppliers impose when payments aren’t made on schedule.
  • Utilise the discounts for early payment that many vendors provide in exchange for paying invoices within 10-15 days of receipt.
  • Eliminate manual data re-entry across many systems, which wastes time, resources, and labour.
  • In a world where the next customer is just a screen touch or mouse click away, support strong supplier connections.
  • By ensuring that suppliers are paid and materials/supplies are arriving at your business as anticipated, you can keep the supply chain going.
  • Concentrate on undertaking tasks that are more crucial to the company’s success. (versus repetitive data-entry tasks).

Invoice Processing Automation Software

Companies may handle their accounts payable more “hands off” thanks to automated invoice processing technologies. Additionally, it helps free accounting personnel up to concentrate on other crucial activities. Standardised coding, automated review procedures, and dashboards that display which suppliers have been paid, which invoices are scheduled for payment, and which still require approval are some examples of key software features.

Some technologies for automating invoice processing include direct integrations with ERP platforms, which improves payment accuracy and timeliness. These software platforms aid businesses in improving their cash management and speeding up the financial close process by streamlining the accounts payable process.

The Benefits of Automated Invoice Processing

The accounts payable department uses automated invoice processing software to speed up the processing of vendor bills, optimise invoice procedures, and offer additional control over internal processing operations with tracking capability. Software for automated invoice processing is similar to AP Automation. In addition to automatically assigning approvers and moving invoices into financial systems for payment, these automated invoice processing solutions assist accounts payable teams in automating the collection, coding, and transmission of invoices for approval.

What is invoice processing used for?

The accounts payable component of invoice processing manages the whole invoice life cycle, including receipt, approval or rejection, payment, and archiving activities. 

What are the steps for invoice processing?

Here are the stages in processing an invoice:

  • Capture. Invoices from vendors are received by fax, mail, email, or by having an accounts payable system collect them.
  • Register. Coding and amending the invoice data are steps in the preparation of invoices for approval.
  • Dispatch. Invoices are issued to authorised approvers for payment consideration.
  • Approval/Rejection. The delivered invoice will be approved or rejected by approvers for payment.
  • Payment. Following approval, the bills are processed for payment.
  • Archive. Invoice processing history is kept with paid invoices in a file cabinet or online system for future reference or audits.

What is invoice processing software?

Accounts Payable uses invoice processing software to electronically manage vendor bills from reception to archiving. This is done in contrast to the traditional paper procedure.

What is automated invoice processing?

Automated invoice processing, also known as invoice processing automation, uses software to carry out tasks such as data collecting and dispatch for approval automatically. It should be noted that accounts payable can either do manual or automated invoice processing software on a computer.

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