Accounts payable

What is invoice processing in accounts payable?

Apr 05, 2024

Given the amount of invoices that businesses have to pay and process each month, it’s no surprise that accounts payable invoice processing is a key component of your business operations.

In fact, invoices are the backbone of your operations, as they are often viewed as a way to manage your bill payments.

Regardless of the size and industry of your business, AP invoicing, or invoice processing, is a procedure that you want to do efficiently and effectively, as this will positively affect other areas of your business.

What is invoice processing in accounts payable?

Put simply, accounts payable invoice processing refers to the cycle that every invoice your business receives goes through. The process starts with the reception of the invoice, continuing to logging, validating, and then processing the invoice for payment. Invoice processing in accounts payable wraps up with the documentation of each invoice and its corresponding payment. 

Given the importance of the invoice-to-pay process in your overall business operations, businesses must be able to perform the process, also known as AP invoicing, effectively and efficiently.

What are the basics of AP invoicing?

There are many steps involved in the AP invoicing process, but every business must be aware of these key basics to achieve effective invoice processing.

1. Invoice receipt

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. 

2. Invoice validation

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.

3. Invoice recording

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.

4. Approval workflow

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?

5. Invoice matching

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.

6. Payment processing

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. 

7. Documentation

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. 

What is the significance of AP invoicing?

While invoice processing may seem like a basic process, whether or not you have an effective AP invoicing process impacts a lot of areas in your business. Here are some of the significant benefits of having good AP invoice processing. 

Financial control

The better your accounts payable invoice processing is, the better control you will have over your finances.

You want to make sure that you are always keeping yourself updated on what invoices you have, what bills you owe, and when you have to pay them. This allows you to use your resources efficiently and plan better. 

Cash flow management

Every business needs to have good cash flow management to ensure that daily business operations can run smoothly. To achieve this, effective invoice processing is necessary.

You want to properly plan when your invoices are to be paid to ensure that you have positive cash flow at all times. 

Vendor relationships

Being able to manage your invoices and vendor payments well will improve your relationships with your vendors.

Naturally, vendors will want to do business with organizations that are trustworthy and able to make their payments on time.

Making sure you do so will ensure vendors keep on happily doing business with you.

Compliance and accountability

Having accurate documentation of all your invoices and their corresponding payments will help you during tax and audit seasons.

You won’t have to worry about missing data and non-compliance with the regulations due to it.

With everything considered proper, you can ensure that everyone can be held accountable for the processes. 

Cost reduction

A disorganized process is costly, especially when you factor in its cost in errors and mistakes. Late payments, for example, will incur late fees.

Undetected double or overpayments can also add up over time. Invoice processing in accounts payable presents ways to rectify that and ultimately reduce the costs of your invoices. 

Data for decision-making

Given that invoice processing is a meticulous procedure that involves attention to detail during the validation, matching, and documentation stages, you can be assured that you have accurate and real-time data.

This will help you make better and more well-informed decisions around your accounts payable, procurement, and other processes.

How is invoice processing relevant to the accounts payable process?

1. Document verification

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. 

2. Expense tracking

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

3. Approval workflow

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.

4. Payment timing

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.

5. Cash flow management

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

6. Vendor relationships

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. 

7. Financial reporting

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.

8. Compliance and auditing

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.

9. Cost control

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.

10. Data analysis

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.

Embrace invoice processing automation

Supercharge your workflow with invoice processing automation
Automate now

What are the steps involved in accounts payable invoice processing?

Get to know the details of each step involved in invoice processing. There are different variations of how you can do these, but these are the things that you want to achieve by performing each step.

1. Receipt of invoices

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.

2. Invoice validation and data entry

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.

3. Purchase order matching

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.

4. Invoice approval workflow

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.

5. Invoice authorization

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.

6. Resolution of discrepancies

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. 

7. Coding and account allocation

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.

8. Payment execution

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.

Discover more - B2B payments: All you need to know

9. Payment scheduling

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.

10. Document retention and storage

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.

11. Reconciliation and reporting

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

12. Vendor communication

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.

13. Compliance and documentation

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.

14. Continuous improvement

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.

What are the challenges of traditional invoice processing?

Manual data entry

There are many issues with manual data entry. Not only is it time-consuming, but it also has a higher risk of errors.

While it’s necessary that you record your invoice information, each invoice could take a while to process when you rely on manual data entry.

Invoice delays

With the number of steps involved in accounts payable invoice processing, taking too long on any component could cause delays in paying your invoices.

This will negatively impact your relationship with suppliers and can incur late fees, which will add up over time.

High processing costs

Each invoice gets more expensive if you have to factor in late payments on top of the base amount.

But even without these fees, traditional invoice processing is often still expensive due to the labor and training costs.

Invoice matching challenges

Effective invoice processing in accounts payable requires you to perform 3-way invoice matching to ensure all your invoices are correct.

However, doing this traditionally isn’t the most efficient, as it involves challenges like a lack of time and data entry accuracy. 

Inefficiencies in workflows

You’re wasting so much of your time by going from desk to desk to get your invoices approved. This traditional process is inefficient and will lead to delays.

It can also be demotivating for your accounts payable staff to have to chase after approvers.

Lack of visibility

Given the amount of documents in the AP invoicing process, you could easily lose or misplace important information along the way.

This can result in a lack of visibility over your spending. It adds risks like fake invoices and overspending.

Limited accessibility

You have to be at the office to view your documents and process your invoices when you do things the traditional way.

It makes it difficult to get fast approvals and do thorough reviews when concerned personnel are away on business trips or working remotely.

Data security risks

When you aren’t storing all invoice data in a centralized and secure place, you could misplace your documents or get them stolen.

This is a huge risk for your business. It could also lead you to not having the right papers for taxation purposes.

Transform your invoice processing with automation

Experience efficient, accurate, and timely invoice processing
Automate now

What is AP invoice automation and how does it work?

As the name suggests, AP invoice automation is the process of automating your accounts payable tasks—including invoice processing. It aims to eliminate manual and administrative tasks, cutting back on the inefficiencies of the process by replacing it with automated tools that can do the job much faster and more accurately.

To achieve this, you’ll need accounts payable invoice processing software or similar tools in that vein. 

Like traditional invoice processing, your automated process still begins with receiving the invoice from your vendor. Ideally, you would want your vendors to send them directly to your invoice automation software via a dedicated email address. This will automatically route the invoice to be scanned by optical character recognition (OCR) technology.

However, the invoices can also be received through mail. All you’ll need to do is snap a picture or scan each paper invoice for automatic data capture.

The rest of the automated process will also have similar steps as the traditional counterpart, just faster and more streamlined. For example, invoice approval will no longer require going from desk to desk to get signatures.

Instead, route your invoices through a digital approval workflow. Each approver will be notified of any requests and will be able to review invoices through their electronic devices in just a few clicks.

What are the benefits of automated invoice processing?


Efficiency and time savings

Save time and increase your team’s productivity by automating your accounts payable invoice processing. Your employees won’t have to be stuck with boring and tedious jobs like manual data entry.

Instead, every employee can focus on things that require more attention, improving efficiency within the team. Process your invoices faster this way!


Error reduction

Between traditional data entry and manual invoice matching, you’re bound to run into several human errors. The best way to reduce these errors is by automating your processes and eliminating manual touchpoints.

As a result, you’ll have no more typos, extra zeroes, or missed data in your records. 


Cost savings

While there will be an initial cost when implementing and setting up new AP invoice processing automation software, you will be saving money in the long run.

You can cut back on labor and training costs when you automate processes like data entry. Plus, the fewer errors, the less money you’ll have to spend fixing them.


Improved vendor relations

When you’re not running into invoice processing delays, you’ll find it easier to ensure that all vendor payments are made on time.

Not only does this reduce costs, but it will also improve your relationship with vendors. You won’t have to trouble vendors by asking for extended deadlines and they’ll find you more trustworthy.


Enhanced visibility

The last thing you want is to be surprised by how much money you owe vendors past the payment deadlines. Employing automation tools helps you gain better visibility in real-time.

All it takes is a few clicks to track where your invoices are in the process. You can also easily check what payments you have made already.


Compliance and audit trail

Ensuring compliance and smooth auditing isn’t a problem at all when you’re utilizing automation tools for your AP invoicing process.

You’ll have a digital audit trail ready for you without needing to manually piece everything together. Take advantage of your software to help you get all the complete and necessary documentation.



As your business grows, the number of invoices you have to process will grow along with it. This makes it harder for traditional processes to keep up.

If you automate your accounts payable invoice processing, scaling will not be an issue. All it takes is a few additional minutes to process double or triple the invoices!


Streamlined workflow

No more chasing around approvers from desk to desk. You can cut down the time it takes to route invoices through any approval workflow by using AP invoicing software.

Customize your approval workflows straight on the platform and route invoices. Approvers will automatically get notified if they have invoices that they need to review.


Reduced paper dependency

Paper is not only a bad choice for environmental sustainability, but also a poor way of saving money. Not to mention it’s often also an inconvenience.

With invoice processing automation software, you won’t have to worry about not having paper on hand and the added costs of getting more paper. 


Data analytics and insights

A platform designed specifically to automate your invoice processes will have data analytics capabilities. Get access to a dashboard that can help you visualize and analyze your data better.

In just a few clicks, you can also filter what you want displayed to you. This will give you better insights into your accounts payable.


Enhanced reporting

Financial reports are a necessary part of accounts payable, both for reviews and forecasts.

However, generating them can be time-consuming. With automation tools, you’ll be able to easily access, view, and filter your data accordingly.

Generate reports automatically based on this information, allowing you to focus more on making informed decisions.


Security and fraud prevention

Invoice processing automation software providers are experts in the field.

By picking a software provider that has industry-standard certifications, you’re ensuring that you have the best security possible for your data.

You will also get fraud prevention measures and can set up automatic alerts for any invoices that are flagged as suspicious.

How Volopay helps businesses in AP automation

You don’t want to have to rely on the traditional manual invoice processes when you have a business to grow. It’s not scalable, and you’ll just end up spending too much of your time on administrative tasks rather than focusing on the things that actually require your attention. Instead of wasting time worrying about this, allow Volopay to help you automate your accounts payable.

Volopay is an all-in-one financial management solution that will streamline your processes. Make them so much simpler with Volopay’s automation tools and features such as optical character recognition, automated three-way invoice matching, customizable approval workflows, and many more.

Everything is easily accessible on a single platform, centralizing all your tasks and documents. Store all your data on a cloud server, meaning that you won’t have to worry about going through rows of file cabinets anymore!

With a web dashboard that can be opened from anywhere with an internet connection and a mobile application to boot, Volopay is the answer to making your accounts payable invoice processing easy to do. With our invoice management software, set up notifications for whenever an approval request comes in. Track, review, and approve your invoices in just a few seconds. 

Get faster processing and better visibility with no hassle with Volopay.

Streamline your invoice processing with automation

Enjoy the benefits of streamlined invoice processing with Volopay
Get Volopay