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Invoice Processing

What is invoice processing?

Invoice processing is the critical accounting process of receiving, reviewing, and paying invoices from suppliers. It’s an essential part of maintaining accurate financial records and ensuring that the company pays its bills on time.
Companies that do not have an efficient way to process invoices can cost their organizations money in late fees and fines, and even expose companies to broader risks like breaking covenants in their bank loans or creating reputational risk.

The basic steps in processing an invoice.

  • Receiving invoices: Invoices can be received in a variety of ways, including by mail, email, or electronic data interchange (EDI).
  • Bill creation: Where both the invoice data is included along with the requirements for the accounting system, like GL information categorizations and tags, whether it’s a recurring bill, vendor information, any amortizations, posting period, and approvers. This may involve manually entering the data or using an invoice processing software solution to automatically scan and extract the data from the invoice.
  • Matching invoices to purchase orders: Once the invoice data has been entered, the invoice must be matched to the corresponding purchase order. This helps to ensure that the invoice is for goods or services that have actually been received and that the price and quantity are correct.
  • Approving invoices: Once the invoice has been matched to the purchase order and reviewed for accuracy, it must be approved. This may involve a single approval or multiple approvals, depending on the organization’s policies and procedures.
  • Paying invoices: Once an invoice has been approved, it can be paid. This may be done manually or electronically, depending on the organization’s preferences.

Invoice matching.

Processing invoices begins by matching the invoice to a purchase order. There are two types of matching: two-way and three-way.

Two-way match.

A two-way match is the process of verifying and approving invoices by comparing them to purchase orders. This is the most common type of invoice processing and is a relatively straightforward process.

To perform a two-way match, accountants first need to ensure that all purchase orders are properly authorized and that all invoices are received from approved vendors.

Once the invoices have been received, the accountant will match them to the corresponding purchase orders. This includes verifying the invoice number, date, vendor information, item description, quantity, price, and tax amount.

If the invoice matches the purchase order, the accountant will approve it for payment. However, if there are any discrepancies, the accountant will need to investigate further before approving the invoice.

Three-way match.

A three-way match is a more rigorous invoice processing process that involves comparing the invoice to the purchase order and the goods receipt note (GRN). The GRN is a document that confirms that the goods or services have been received and accepted by the company.

To perform a three-way match, accountants first need to ensure that all purchase orders are properly authorized and that all invoices and GRNs are received from approved vendors.

Once the documents have been received, the accountant will match them to the corresponding purchase order. This includes verifying the invoice number, date, vendor information, item description, quantity, price, and tax amount.

If the invoice, purchase order, and GRN all match, the accountant will approve the invoice for payment. However, if there are any discrepancies, the accountant will need to investigate further before approving the invoice.

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Benefits of two-way and three-way match.

Both two-way and three-way match offer a number of benefits, including:

  • Reduced fraud: Matching invoices to purchase orders and/or GRNs can help detect and prevent fraudulent invoices from being paid.
  • Improved accuracy: Matching invoices to purchase orders and/or GRNs can help ensure that the company is only paying for goods and services that it has ordered and received.
  • Reduced costs: By automating the invoice processing process, accountants can save time and money.
  • Improved visibility: Two-way and three-way match can provide accountants with improved visibility into the company’s spending.

Invoice processing tips.

  1. Automate the process: There are a number of software solutions available that can help automate the invoice processing process. Automating the process can help save time and money, and improve its accuracy.
  2. Establish a clear process: The company should have a clear process in place for invoice processing. This process should be documented and communicated to all relevant employees.
  3. Train employees: Employees should be trained on the invoice processing process and how to identify and report suspicious invoices.
  4. Monitor the process: The company should monitor the invoice processing process on a regular basis to ensure that it is being followed correctly and that it is effective in preventing fraud and errors.
  5. Use a centralized system: Store all invoices, purchase orders, and GRNs in a centralized system. This will make it easier to match invoices and track the status of payments.
  6. Set deadlines: Establish deadlines for each step of the invoice processing process. This will help ensure that invoices are processed and paid on time.
  7. Review invoices regularly: Conduct regular reviews of invoices to identify any discrepancies or potential problems.
  8. Communicate with vendors: Communicate regularly with vendors about the invoice processing process. This will help to ensure that invoices are submitted correctly and on time.

How Airbase can help with invoice processing.

Airbase offers an automated invoice processing experience as part of its AP Automation and bill payment capabilities. Airbase converts the invoices that have accumulated in the invoice inbox into bills by extracting key information and either auto-populating (like auto-categorize) or offering sections to add.

The system matches the PO to the invoice and identifies where discrepancies exist. Additional features enhance invoice processing. For example, requiring a W-9 for vendors that will need 1099 income reported, automatic syncing of transactions to the GL, and finally a choice of payment options. These options include virtual cards, check, ACH, and vendor credits.

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