Invoices are an essential part of running a business. From supplies and inventory to building repairs and professional services, your business relies on vendors to help it succeed and grow. In most cases, these supplies and services are billed through a vendor invoice.
Managing and paying invoices promptly—and with the proper verification procedures—is a critical part of accounts payable. Learn more about managing invoicing and why having a streamlined, automated invoice process for vendor payments is critical to your business’s success.
What is the invoice process?
The invoice process is how businesses receive, review, make, and document payments owed to vendors and service providers. For businesses, a reliable invoice process helps ensure regular and timely payments to vendors, builds stronger supplier relationships, and produces essential financial documents for tax submissions and cash flow management.
A well-organized invoicing process is important for the following reasons:
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Saves time and money. A sound invoice process improves operating efficiency, with streamlined workflows that save time and labor for each invoice processed.
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Greater speed and reliability. Good invoicing systems can process invoices faster and on set schedules, aiding cash flow management and helping ensure that you pay your vendors on time.
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Fewer errors. Automated invoice processing reduces many of the errors and typos associated with manual data entry, thus preventing overpayments or underpayments.
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Stronger vendor relationships. Prompt, accurate vendor invoice payments help build trust and strengthen relationships with vendors.
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Better financial data and documentation. Reliable invoice data is essential for managing cash flow, preparing tax payments, and producing other essential financial reports. Financial or invoice automation software can make that data easier to capture and use.
Key steps in the invoice process
- Receive the invoice
- Check for accuracy
- Resolve any discrepancies
- Approve the invoice
- Issue payment
- Record and archive
The invoice process usually consists of the following steps:
1. Receive the invoice
The process begins when the vendor submits an invoice. Invoices can come in any number of formats—paper invoices by mail, emailed PDFs, and online invoice submissions are all common—but most have a similar structure. The typical invoice includes:
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Date
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Invoice number
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Vendor details (name, contact info)
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Purchaser details (name, contact info)
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Invoiced goods or services, including descriptions and the amount owed for each item
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Total amount owed
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Payment details and deadline
To streamline the process, you may provide your suppliers with standardized rules for how to format and submit incoming invoices. This gives guidance to vendors and makes it easier for your team to check invoice details for errors.
2. Check for accuracy
Before approval, check your invoices against other records, documents, and financial transactions to verify that the payment should be authorized. A best practice at this stage is three-way invoice matching, where invoices are compared against purchase orders and delivery receipts. Alternatively, you can use documents such as vendor contracts, accounting entries, and past vendor invoices.
At this stage, you may also want to check for fraud or other improprieties by verifying that there are no duplicate invoices from the same vendor and double-checking the vendor’s tax ID. Automated workflows and invoice processing software make this stage of the process more efficient and accurate.
3. Resolve any discrepancies
If you flag errors or discrepancies on the invoice, pause the approval process until the issue can be reviewed and the invoice revised if needed. Contact the vendor or service provider as quickly as possible to resolve the discrepancy and avoid unnecessary payment delays.
Some of the most common invoice mistakes include incorrect invoice amounts, math errors, missing or duplicate line items, incorrect dates or addresses, and simple typos. Even minor mistakes can balloon into a serious dispute if you don’t catch them at this early stage.
4. Approve the invoice
After verification, an invoice is ready for approval. Approval processes vary depending on a business’s internal approval workflow. In practice, invoice approval is generally weighed against financial risk. Larger invoices usually invite greater scrutiny, which can slow the approval process.
Once you approve an invoice, it can move to the payment phase.
5. Issue payment
Once approved, the invoice is ready for payment. Issue payments under the terms you’ve agreed to with the vendor. These terms, which typically are spelled out in the invoice, may include a due date, often within 15 or 30 days of the invoice date. Some vendors offer early payment discounts to encourage payments before the official deadline.
Common methods for invoice payments include ACH bank transfers (as direct deposits), payment apps such as PayPal or Venmo, and physical checks for local transactions. Wire transfers are often necessary for international payments and usually require a fee.
6. Record and archive
Once payment is completed, record the transaction in your business’s general ledger, an accounting record of all transactions, and archive the invoice. Although invoice processes often include automated recording, manual invoicing may require a bookkeeper to log this information. In addition to transaction amounts and dates, you may need key information such as general ledger coding and vendor contact details for future reference.
Using automated invoice processing
Automated invoice processing uses software and digital tools to manage the invoice process from start to finish—replacing manual steps with automated workflows. Automated invoice systems can process, validate, authorize, pay, document, and archive invoices with minimal human intervention.
Although automated invoice systems are favored in the business community, these systems do take more time to set up than manual invoice systems, and can be challenging for small businesses with fewer resources.
Automated vs. manual invoice processing
Manual invoice processes require an individual to verify each invoice, approve invoices through email correspondence or phone call, and manually record each transaction. Although manual systems are simpler to set up, manual data entry is more likely to result in data errors that lead to payment delays.
By contrast, automated invoice processing requires less day-to-day oversight. It processes everything digitally, verifies invoices more accurately, and documents invoice data for use with other financial data platforms in real time. Automated invoice systems also standardize the invoice process, which can provide extra protection against fraud, erroneous data, and duplicate payments.
Invoice processing automation in practice
In practice, a good automated invoice processing system requires only moderate management and upkeep. Invoices are centralized as you gather and route them through invoice processing workflows, which speeds up the invoice process and lets you issue payments on a set schedule. In the long run, managing and keeping up with your automated invoice system becomes a part of your business’s regular day-to-day responsibilities, instead of a series of one-off tasks.
The benefits of invoice processing automation are significant. Automated systems significantly reduce manual data entry mistakes, using technology such as optical character recognition (OCR) to digitize paper invoices and catch errors right away. Invoice processing software can extract data in real time, bringing valuable financial insights and tracking which funds are paid, what is owed, and how much is held in reserve.
Shopify has automated invoice systems built directly into its ecosystem. Shopify Bill Pay lets businesses receive, review, approve, and pay invoices from the Shopify admin, centralizing the invoice process. Shopify Balance works in tandem with Shopify Bill Pay, tracking outgoing invoice payments and your available funds. Shopify designed these tools to work seamlessly with other Shopify services, and they can integrate with many other financial tools and software.
How to make your invoice process more efficient
As invoice volume grows, efficiency becomes almost as important as accuracy for your invoicing system. The following invoice processing best practices can help you establish a well-run automated invoice system:
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Define clear roles and thresholds. To streamline your approval process, establish clear responsibilities for approving invoices and define what invoice details and scenarios will trigger greater scrutiny. You can also implement a segregation of duties among multiple people, splitting the responsibility of ordering, approving, and receiving to create a system of checks and balances.
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Centralize your invoice intake process. Make sure that every invoice arrives at the same intake point to avoid missed or double-counted invoice entries.
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Keep your vendor data updated. Manage your vendor data in one central location and update regularly to avoid costly transaction delays and miscommunication.
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Prioritize automation tools and software. Use automation tools to simplify the repetitive tasks of your workflows, and prioritize software that is compatible with your business’s other financial and data-based services.
Invoice process FAQ
What are the steps of invoice processing?
The steps of invoice processing include: 1) invoice receipt; 2) check for accuracy; 3) resolve any discrepancies; 4) invoice approval; 5) invoice payment; and 6) recordkeeping. A business’s accounts payable department often manages the process, routes invoices through the approval workflow, and distributes payments for approved invoices.
What is the billing and invoicing process?
The billing and invoicing process is how businesses receive, review, validate, and pay supplier and vendor invoices. As a core part of accounts payable operations, the billing and invoicing process helps ensure that incoming invoices are approved, paid promptly, and recorded within the larger accounting system, including accurate transaction data and consistent general ledger coding.
What is the three-way invoice matching process?
The three-way invoice matching process is a verification method frequently used by accounts payable departments before an invoice’s approval. The process compares an incoming invoice against purchase orders and receiving department records to verify that the invoiced items match across each document. Widely used to reduce errors in processing payments, the process is considered best practice for proper invoice processing.
