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Invoice processing

The process of handling an invoice in the Accounts Payable (AP) department typically involves several sequential steps. Here's a breakdown of the key stages an invoice goes through, from receipt to payment. Each of these steps is crucial in maintaining accuracy, efficiency, and compliance within the Accounts Payable function, contributing to the overall financial health and operational smoothness of the organization.
Monday, February 19, 2024
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Receipt of invoice

Upon receipt, the invoice is logged into the AP system or software, regardless of whether it's received physically (as a hard copy) or digitally (via email or electronic invoicing). AP automation software, utilizing AI or OCR technology, can automatically transfer invoice information to your ERP system.

The AP team then reviews the invoice for accuracy, checking for discrepancies, correct pricing, quantities, terms, and adherence to company policies. The details of the invoice are cross-checked with purchase orders (POs) and receiving reports to verify that the goods or services were received as specified.

With the appropriate software, these processes can be automated, allowing invoice details to be matched with POs, payment terms, and purchasing agents. This automation prepares the invoice for the next step automatically, leaving only discrepancies to be handled by the AP staff.

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The approval process

Once the invoice details are entered into the finance system, it moves to the next critical step: approvals. Depending on the company's structure, approval may be required from one or more individuals, such as department heads, managers, or other stakeholders. Traditionally, approvers were manually notified about pending invoices, but modern practices typically involve digital approval workflows within AP software. The most advanced software automates the entire approval process based on invoice data and predefined company rules.

Coding and payment processing

The invoice is then coded to assign the expenses to the appropriate accounts or cost centers in the company's accounting system.

After approval and coding, the invoice is scheduled for payment based on the vendor's terms. Handling payments can vary widely, and manual processing is time-consuming. Maintaining a clear overview of all payments in the finance system is crucial, and direct bank communication facilitates a quicker and more efficient payment process.

Following payment, the AP team reconciles the payment with the invoice and updates the financial records accurately. In the event of discrepancies or issues, the AP team communicates with the vendor to resolve any outstanding matters, ensuring clear and effective communication throughout.