Receiving an invoice from a vendor or supplier is the first step in processing an invoice. Once that invoice is received, it needs to be funneled through several different people for approval, to finally being approved for payment.
What route the approval process follows depends on whether your business uses a procurement system. If you frequently purchase items without a purchase order, the invoice approval process will likely be different from that of a business that uses a procurement process to handle the initial purchase of items.
Receipt of Invoice
Invoices are received in a variety of ways. Some vendors still send paper invoices in the mail, while others may send electronic invoices. In either case, if you’re using a manual AP processing system, you will need to make a copy of the invoice and distribute it to the correct department to begin the invoice process.
Review Invoice for Accuracy
If there is a purchase order for the products or services ordered, the invoice will not likely need to be approved again, since it was approved for the initial purchase. If it was ordered without a purchase order, it will need to be approved.
If a purchase order was used, before entering the invoice for payment, you’ll have to complete the 3-way match, which matches an invoice to a purchase order and a delivery receipt, to ensure that all three match.
The good news is that if you’re using a procure-to-pay application like PLANERGY, the 3-way match is completed automatically. These are a few of the things that should be checked on every invoice.
Vendor information– before an invoice is sent for approval, vendor information should always be checked for accuracy. If it’s a new vendor, make sure they’ve been approved prior to processing the invoice.
Invoice number – An invoice number should be unique. Many software applications will flag a duplicate invoice number, but won’t notice the similarity if the original invoice number was not entered properly. When receiving an invoice from the same vendor for the same amount, always double-check to make sure it hasn’t been paid.
Purchase order number – If you use a procurement system, the purchase order number on the invoice should always match the actual invoice.
Product or purchase description – It’s important that the product description on the invoice match the product or service that was received.
Payment terms – Payment terms included on an invoice should always match those previously agreed upon by both the buyer and the seller.
Depending on your company policies and what was purchased, an invoice may need to be sent to a department manager for approval.
If you’re using a manual AP system, this process can cause significant processing delays, with invoices sitting in an in-box somewhere, particularly if an approver is unavailable.
Another cause of delays is when an invoice requires more than one approver.
After the invoice has been approved, the invoice is then returned to the AP team, where it will be assigned a general ledger code and entered into your accounting software application for payment.
The invoice should be reviewed to see if an early payment discount is offered and whether the discount can still be applied.
When entering the invoice, the clerk will also need to enter the appropriate due date for the invoice to ensure that it’s paid on time.
Payment Approval and Processing
AP clerks should run a detailed AP report weekly to see which invoices are due. When using a manual system, a manager or supervisor should choose which payments should be processed that week.
Once a payment is approved, the payment will be processed using the preferred payment method, which may be processing a check, using a credit card, or paying a vendor or supplier via ACH transfer or direct deposit.