What is invoice processing in accounts payable?

During or after the delivery of goods or services by your vendor, you will receive an invoice, which will have the item and quantity details alongside the amount you owe your vendor. This is the beginning of the accounts payable invoice processing procedure. 

One of the key fundamental components of accounts payable invoice processing is validating the invoice data. This means that you are checking that the source of your invoice is legitimate and that the invoice contains correct information. It should be dated accurately.

After receiving and validating any invoice, it’s important that you record it immediately so as not to lose or miss any information in the process. This can be done manually with a traditional data entry process or automatically with invoice processing tools.

Any effective accounts payable invoice processing will need the appropriate approval workflows. Establishing these workflows as a key part of your AP invoicing process guarantees that every invoice goes through a thorough check and is reviewed accordingly before a payment is made. 

Related read: How to easily automate expense approval process?

While invoice validation requires you to make sure that the source of your invoice is trustworthy, you won’t know whether or not the details on it match its corresponding purchase order and delivery receipt unless you perform a 3-way match. This ensures that all invoice data is accurate.

To settle your invoices, you will have to create corresponding payments in a timely fashion. Every business will have its own payment process, but it will generally involve creating or scheduling a payment according to its invoice and getting it approved to be released. 

No accounts payable invoice processing management is complete without the right documentation. It’s essential that you record every invoice and payment you process to give you a sufficient audit trail. This will also come in handy when you need to file your tax returns. 

In accounts payable, you will have to record your invoices and payments. Having proper accounts payable invoice processing means that you need to validate your invoices, which helps you ensure that all documents are verified.

This will be useful when you have to put together an audit trail or file your tax returns. 



With the amount of bills you’ll have to pay, it’s necessary that you keep track of your expenses to avoid any overspending.

The invoice processing procedure helps you perform better expense tracking, and the logging, recording, and archiving of invoices and their respective payments are already part of the process. 

Related read: Best business expense tracker app of 2023

Setting the appropriate approval workflows for your invoice processes guarantees that every invoice you process and pay is correct and legitimate.

For reasons such as compliance, fraud prevention, cost control, and many more, you want to be sure that all parts of your accounts payable process are approved by the right people.

Given that the accounts payable process centers around amounts due to vendors and suppliers, it’s very important that you manage your payment timings well.

Vendors should receive the amount owed before or by the deadlines given. Accounts payable invoice processing is how you can ensure that all your payments are made according to the deadlines.

Accounts payable is one of the key processes that you need to pay close attention to when managing your cash flow. You want to make sure that you don’t have more upcoming expenses than incoming customer payments.

Invoice processing in accounts payable will allow you to plan for your cash flow according to your payment deadlines. Additionally, a robust cash management system can aid in optimizing your cash flow management, allowing you to keep a proper track of your cash inflows and cash outflows.

You might also be interested to read: Everything you need to know about cash flow statement

Your accounts payable team will be keeping in close contact with your vendors, especially with regard to bills being paid.

Whether or not you are processing your invoices on time will have an impact on how your accounts payable team communicates with your vendors. Communication will be smoother with proper invoice processing. 

Without proper accounts payable invoice processing, you’ll have a hard time piecing your data together to create cohesive and comprehensive financial reports.

A process like AP invoicing gives you standardized procedures and data records, which will in return help you generate better accounts payable-related reports. This is useful for making informed decisions and keeping stakeholders in the loop.

Getting into tax and legal complications can spell trouble for your business, which could happen if you don’t have the right processes.

Accounts payable invoice processing guarantees that you not only have the right information ready on hand for audits but also are in compliance with tax regulations on your invoice payments.

Every business wants to keep its costs as far down as possible. Knowing what is invoice processing in accounts payable helps you do this by granting you better cash flow management, payment timings, and expense tracking.

Having good visibility on the whole invoice process allows you to pinpoint where you can cut costs effectively.

While processing your invoices is important for maintaining timely payments and smooth operations, it is also valuable for accounts payable data analysis.

You will already have steps focusing on logging and archiving your invoice data during accounts payable invoice processing, meaning that you can easily access the necessary data for analysis.

To start the accounts payable invoice processing procedure, you’d have to first receive an invoice from your vendor or supplier.

An invoice will typically be sent during or after the delivery of your order. This could be a paper invoice or one sent through email.

You’ll have to check that every invoice has the date, name, and quantity of items, amount owed, vendor’s account details, as well as payment due date.

Once you’ve clarified all those details, you want to enter the invoice data into your system.

You don’t want to be overpaying your invoices. This is why it’s important that you perform invoice matching, meaning that you should compare each invoice you get with its corresponding purchase order.

The total billed should be equal to or less than the purchase order amount.



Your invoice will have to be approved before you can go ahead with settling its payment. Establish approval workflows to route each of your invoices through.

Make sure that everyone on the team knows who should be approving which invoices.

Once an invoice has gone through the approval process, —which could consist of just a single level or multiple levels of approval—you’ll be authorized to process it to payment. This requires that every detail on an invoice is valid and accurate.

If there are missing data or certain invoice details that don’t match with the purchase orders, you won’t be able to immediately authorize it for payment.

Instead, you’ll have to resolve these discrepancies and communicate issues with your vendor. 

You’ll want to establish codes for your accounts to help you classify and categorize financial transactions.

Each invoice should be assigned a code and allocated correctly when doing your accounting. There are some tools that can help you set up rules and templates.

Scheduling your payments alone won’t guarantee that your vendors receive them on time.

The next step after scheduling is to make sure that you are executing your payments. This will depend on what your payment method is, but you can execute payments automatically with electronic methods.

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Try to schedule your payments ahead of time, as this will allow you to make sure that you’re making every payment at the correct date.

With some payment methods, you can also get automatic payment execution on the scheduled date.

It’s important that you keep your accounts payable invoice processing data for tax and audit purposes.

Regardless of whether you do the process manually or digitally, make sure that you have established storage systems and policies for document retention.

As with every other accounting process, you’ll want to reconcile your accounts payable data to make sure that your ledgers are accurate.

Compare your accounts with past invoices and purchase order data. After that, generate the necessary reports for future forecasts. 

Also read, What is account reconciliation, its types, and best practices

Make sure that you’re communicating with your vendors throughout the entire AP invoicing process.

They don’t need to know every detail, but if there are issues or updates that your vendors have to know, you want to clearly communicate these with them.

It’s not enough to just store the documents from your invoice process. You want to also compile them neatly and get them ready as a cohesive audit trail. This will help you ensure that you are in compliance with all the regulations.

As time goes on, you want to be sure that you’re making improvements to your accounts payable invoice processing.

Not only will there be new strategies and technologies that you could employ, but your business will also have new needs as you grow.