Business & Finance

How to Process Invoice Payments Effectively

Managing invoices is an essential part of any business. An effective invoice payment processing system can help businesses streamline accounting procedures, avoid missing payments and discounts, and maintain accurate records. Invoices must correspond with other papers, such as a purchase order and the products received in the note, to guarantee that the correct data is recorded. Here are a few measures for successful invoice payment processing to speed up the procedure:


Approve the Invoice

Whether it arrives as a paper document, a PDF attached to an email, or a software application, an invoice must be filed, recorded, and processed before it can be paid. This process can be simplified with the right workflow automation solution. Verifying the data on a bill is accurate is the first stage in this procedure. It typically includes a 3-way match against the original purchasing details, the delivery receipt or inspection report, and the invoice. Any discrepancies have to be resolved as soon as possible to prevent incorrect payments from being made. Once all the invoice details have been verified and the invoice matched against the appropriate documents, the account payable department can proceed with coding and approving the invoice for payment. It usually involves a round of approval from a senior staff member in larger companies. It ensures that the business is only spending money that it can afford to pay. Furthermore, it avoids misplacing an invoice or needing to track down a signature when making a payment.

Match the Invoice to the Purchase Order

A company must ensure that the purchase order and invoice information match before sending payment. This step ensures that the vendor receives money for all goods or services delivered and helps prevent overpayment and fraud. By utilizing invoicing and payment processing software, you can simplify your invoicing process and promote consistency among employees, ultimately reducing the occurrence of invoice errors.

During three-way matching, the application compares each line of the purchase order to each line of the invoice and verifies that all the details are correct. It includes the quantity, item description, unit cost, tax amount, shipping and handling charges, other fee amounts, and general ledger coding.

If an exception occurs, the application records a value in the Status field. It marks the line as N (no exception), P (price exceptions), Q (quantity exceptions), or R (invoice receiving exceptions). A status field also exists for distribution profiles applied to invoice lines for file and non-file items; this allows you to track what percentage of an invoice line is distributed to the distribution profile.

Verify the Invoice

If you’re like many companies, your business sends out invoices to customers for work completed or products/services provided. Invoices can arrive as paper documents or PDF attachments and must be verified, recorded, and approved before payment. This process can be time-consuming and inefficient when manually managed. The first step in invoice payment processing is to verify the information on the document to ensure it’s accurate and complete. It involves checking each line item against other documentation, such as the original purchase order and the delivery receipt. If there are any discrepancies, the invoice must be disputed with the supplier to avoid unnecessary fees. To streamline this process, let’s set up a centralized invoice-processing team to review all documents before they’re submitted for approval. It may also help create a formal invoice-processing policy, so all staff understand the company’s requirements. Your staff will find it simpler to identify possible invoicing issues and address them by taking the appropriate remedial action. Consider setting up automatic audit or review rules to flag specific invoices for extra attention, such as those over a specified amount or the first invoice from a new vendor.

Send the Invoice to the Vendor

Whether received by mail or in an email attachment, supplier invoices must be checked, approved, and scanned into the company’s accounting system. They then need to be assigned GL account coding and scheduled for payment. Inefficient invoice processing workflows can lead to missed payments and cost the company money. In many smaller businesses, an accounts payable clerk hands the paper or electronic invoice to an approver who initials or signs it. It is a bad idea because invoices left hanging in an approver’s inbox can get lost or forgotten, leading to late payment penalties. Additionally, this is an excellent opportunity for fraud as it is not hard for a bad actor to forge an initial or signature on an invoice.

Automated invoice processes allow companies to set rules-based approval workflows that route invoices to the right person based on their value. It creates more consistency in the invoice process and enables organizations to leverage early payment discounts. Typically, these discounts amount to significant savings that can make or break a business. Faster invoice processes also reduce the time and expense of paying bills, printing checks, and preparing for audits.

Pay the Invoice

It’s time to pay once the invoice is deemed correct and approved. It is typically done via check or online, depending on the agreed terms with your vendor. Regardless of how the payment is made, keeping records of the transaction, such as a confirmation number for online payment, is essential. To ensure on-time payments, consider setting payment terms that align with yours for your clients. It can help create a mutually beneficial relationship between your business and vendors. Another way to speed up invoice payments is by allowing clients to pay with their bank account. This method allows for quick, easy processing and offers high security for both parties. Finally, you can encourage on-time payments by sending courtesy reminders or monthly statements to clients who have yet to pay their invoices.