We saved more than $1 million on our spend in the first year and just recently identified an opportunity to save about $10,000 every month on recurring expenses with PLANERGY.
Paying bills on time is one of the main responsibilities that the accounts payable department is tasked with.
Busy AP departments can receive an untold number of incoming invoices daily that have to be processed for payment, and management expects them to be processed accurately and on time.
But before an invoice is sent for payment, it must be verified.
The invoice verification process is exactly as it sounds. Once an invoice is received, it needs to be verified before it moves forward in the AP process.
Invoice verification involves verifying that the vendor or supplier sending the invoice is legitimate.
This is particularly important when a new vendor or supplier is used. Depending on the type of invoice received, the process may also include verifying the terms and conditions of the invoice.
This is particularly important for any long-term contracts or subscriptions where pricing may change.
Once the supplier validation is complete and terms and conditions approved, the AP staff can complete three-way matching, which compares an invoice to a purchase order and shipping receipt to confirm that the information matches all relevant documents.
During the three-way matching process, AP staff must verify that the product or service ordered has been received in the quantity stated and that pricing is accurate.
If the invoice appears legitimate, it will move on to the next step in the AP process.
If the invoice is not correct, it will need to be returned to the vendor or supplier for correction.
Once a correction has been made, the revised invoice will need to be reverified to ensure that it’s ready for the invoice approval process.
The invoice verification process can be different based on the processes used by the AP department. The three most common invoice verification types include:
When verifying an invoice with a purchase order, the three-way matching process is utilized, which matches the information on the invoice to the corresponding purchase order.
For goods and supplies received, you’ll also match the invoice and purchase order to the shipping receipt. However, if services were ordered using a purchase order, you will typically match only these two documents.
If your business only uses purchase orders for ordering supplies or doesn’t use a purchase order system at all, the invoice verification process usually involves verifying the service was received by the appropriate department.
For example, if the admin department contracts with a cleaning service to clean the offices once a week, they may not use a purchase order. In that instance, having the admin department verify the expense may be helpful.
This can also apply to maintenance and repair expenses that may not have gone through procurement or used a purchase order.
If you order materials and supplies that are received in multiple shipments, you should also receive a separate invoice for each shipment, with the appropriate line items included.
While this is an acceptable practice, make sure that you don’t receive an additional invoice for all of the products combined.
Depending on the type of business you own, you may need several documents to completely verify invoice data.
For example, if you’re verifying an invoice from a software provider, you may need to have a copy of the contract handy, where you can view terms and conditions, as well as monthly billing amounts.
Subscription services or regular or one-time maintenance may also require contract review. Other documents needed for invoice verification include:
Having these documents in place makes invoice verification an easier task.
When verifying invoices, it can help to refer to a checklist to ensure that an area is not missed during the verification process, and should include a variation of the following:
You can add other areas that are relevant to your business when you create your own checklist.
In most cases, invoice verification can be completed using the following steps when processing invoices.
If you have all of your supporting documents in place, you’re ready to begin the invoice verification process.
Before you begin to compare invoice information against a purchase order or shipping receipt, you should first examine the invoice itself to ensure that it’s not a forgery.
Today, fraudulent invoices are often professional in appearance and designed to fool even the most discerning eye. In other cases, a fraudulent invoice may be spotted just by looking at the appearance of the invoice.
Fake invoices usually include telltale signs such as inaccurate or missing logos, typos, and mismatched colors, but in some cases, a fake invoice may look exactly like your regular vendor or supplier invoices.
If you’re unsure if an invoice is authentic, you can conduct further research by comparing the current invoice to past invoices from the same vendor or supplier.
Take a few minutes to compare the vendor contact information such as purchase order number, service provider, return address, and email to see if it matches the ones listed in the vendor file.
If it doesn’t, you may need to contact the vendor or supplier directly for verification.
You can confirm this by searching invoice numbers to see if there’s a match. This is a simple process for those using an automated AP system, like PLANERGY, that will flag duplicate invoice numbers immediately.
However, for those using a manual system, invoices are often paid twice because the invoice number has a typo or is recorded differently.
The best way to manually verify if an invoice has already been paid is to search recent payments to that vendor or supplier or search invoice payments made for the same amount.
If the invoice is from a new vendor, be sure to first verify the authenticity of the vendor before moving on to verifying invoice information.
This can be done by checking the vendor file, making sure the vendor was approved properly, and then checking with the department that ordered the product or service to verify that the order is authentic.
If you have a shipping or goods receipt, delivery confirmation can be completed during the three-way matching process.
But if you receive an invoice for services rendered, whether it’s to repair a leaking roof or for temp services in the admin department, you’ll need to confirm with the appropriate parties that the services were delivered as described in the invoice.
Be sure to check delivery notes on the receipt if they’re available.
Once you’ve determined that both the invoice and the vendor are authentic, you can then move on to verifying the rest of the invoice.
This is done using three-way matching, which matches invoice information to a purchase order and delivery receipt.
If no issues are found during the review, the invoice can be sent for approval or payment processing.
However, if a discrepancy is found, the vendor will need to be contacted to make any necessary changes, including adjusting the due date, before the invoice can be paid.
Incorrect payment terms can cause a delay in invoice verification and payment approval, resulting in late charges and other penalties.
It’s important to confirm that the payment terms listed on the invoice are the same terms that have been previously negotiated.
Many times, a salesperson can agree on payment terms with a customer only to have the terms overridden by a manager.
For example, if you negotiated Net 60 terms with one of your vendor’s salespeople, but the company only offers Net 30 terms, there will be an issue when payment is due.
Having an invoice checklist handy can help AP staff remain vigilant about processing invoices properly, avoiding potential late payments.
Invoice errors are prevalent in the IT industry, particularly when dealing with software subscription services.
This is due to fluctuating pricing and plan levels and plan discounts that are communicated to and agreed upon between the IT company and the consumer.
The problem is that those negotiated terms are not communicated to the billing department.
As a result, even though a company’s subscription recognizes and accounts for these differences, in many cases, the billing department is unaware of the changes, resulting in inaccurate invoices and a lot of disgruntled customers.
But it isn’t only the IT sector that may cause invoicing issues. Other causes include:
If you have vendors or supplies that are merging with another company or have recently upgraded their software or ERP system, be sure to keep a close eye on any invoices received during this time.
Incorrect balances forward, products invoiced for the wrong amount, and inaccurate due dates are just a few of the issues you may encounter during the transition.
E-invoicing, or electronic invoices, contain few errors and are the easiest way for vendors and suppliers to prevent invoice mix-ups.
Unfortunately, for those using manual systems, the likelihood of invoice errors increases substantially.
Some of the more common errors you’re likely to encounter from vendors and suppliers still using a manual invoicing system are:
Typos and invoices sent to the wrong address are additional problems you may encounter when dealing with manual billing systems.
If you typically do business globally, it’s important to verify that the charges on the invoice are being billed using the proper currency.
It’s a simple mistake to make, and even automated systems can churn out inaccurate invoices if the vendor or supplier doesn’t properly notate the correct currency in the system.
Both invoice verification and invoice auditing are important components of a well-functioning accounts payable department.
While invoice verification is a routine practice that should be completed for each invoice received, invoice auditing involves a review of a specific set of invoices to search for possible errors, overpayments, and accounts payable fraud.
Verifying supplier and vendor invoices manually is a time-consuming process that can create bottlenecks in the entire payable process increasing your invoice cycle time and the cost of processing an invoice.
Instead, look to process automation to streamline the entire workflow process including invoice receipt, three-way matching, and payment processing by implementing an automated AP software application like PLANERGY.
Using real-time technology, PLANERGY can match invoices with purchase orders and shipping receipts, route verified invoices for approval and payment, and automatically flag invoice exceptions that need further additional verification.
Browse hundreds of articles, containing an amazing number of useful tools, techniques, and best practices. Many readers tell us they would have paid consultants for the advice in these articles.
Stay up-to-date with news sent straight to your inbox
Sign up with your email to receive updates from our blog
