Efficient invoice processing is the backbone of a healthy Accounts Payable (AP) function. Done well, it ensures vendors are paid on time, cash flow is managed effectively, and financial records remain accurate. Done poorly, it leads to delays, duplicate payments, compliance risks — and strained supplier relationships.

In this blog, we’ll walk you through how invoice processing works from the AP side, the typical workflow, common challenges, and tips for optimizing the process.

What is Invoice Processing?

Invoice processing is the procedure followed by an organization to handle incoming invoices from vendors or suppliers. It includes receiving, verifying, approving, and recording the invoice before payment is issued.

This process is typically managed by the Accounts Payable department, which ensures accuracy, policy compliance, and timely payment.

The Invoice Processing Workflow (Step-by-Step)

Here’s what a typical invoice processing workflow looks like from the AP perspective:

1. Invoice Receipt

Vendors submit invoices via email, mail, or through an electronic invoicing system (e.g., EDI or supplier portal). The AP team collects and organizes these invoices for processing.

Best Practice: Use a centralized mailbox or AP automation tool to reduce lost or duplicate invoices.

2. Invoice Logging or Data Entry

Invoices are logged into the accounting or ERP system. This can be done manually or automatically, depending on the system.

Key details entered include:

• Vendor name

• Invoice number

• Date

• Amount

• PO number (if applicable)

3. Invoice Matching

This is where the AP team ensures the invoice is valid and matches internal documentation.

There are typically two or three documents involved:

• Invoice (from the supplier)

• Purchase Order (PO) (issued by the company)

• Goods Receipt Note (GRN) (confirmation that goods/services were received)

This process is known as a 2-way or 3-way match.

Example:

• 2-Way Match: PO ↔ Invoice

• 3-Way Match: PO ↔ Invoice ↔ GRN

If there’s a mismatch (e.g., quantity, price, or item differences), it must be resolved before moving forward.

4. Approval Workflow

Once matched, the invoice is routed for approval. The approver may be:

• A department head who requested the goods

• A finance team member responsible for budget control

Automation tools can help route approvals based on invoice type, value, or department.

5. Payment Scheduling

After approval, the invoice is queued for payment based on payment terms (e.g., Net 30, Net 45). The AP team prepares the payment run and ensures funds are available.

Payment methods may include:

• Bank transfer (ACH/wire)

• Corporate card

• Paper check

• E-payment platforms

6. Payment Execution

Payments are issued on the scheduled date. Remittance advice is often sent to the vendor to confirm the transaction.

The system records the payment and updates the vendor ledger accordingly.

7. Archiving and Audit Trail

All invoices, approvals, and payment records are stored for future audits, tax filing, and compliance checks. Many companies now use digital archiving systems for easy retrieval.

Common Challenges in Invoice Processing

Despite being a routine task, invoice processing can be fraught with problems:

• Missing or duplicate invoices

• Incorrect data entry

• Unclear invoice formats

• Manual approval delays

• Fraudulent or unauthorized invoices

These issues can lead to missed payments, late fees, or compliance violations.

Benefits of Automating Invoice Processing

Automation can dramatically improve the AP invoice process:

✅ Faster turnaround times
✅ Reduced manual errors
✅ Improved compliance and controls
✅ Real-time visibility into liabilities
✅ Lower processing costs per invoice

Popular tools include SAP Concur, Tipalti, Coupa, Bill.com, and Oracle Cloud.

Best Practices for Efficient Invoice Processing

• Centralize invoice intake to avoid duplication or loss

• Standardize invoice formats and requirements for vendors

• Use 3-way matching to improve validation

• Automate approval workflows with clear escalation paths

• Train staff on fraud prevention and policy compliance

• Measure KPIs, such as invoice cycle time and cost per invoice

Final Thoughts

Invoice processing is more than a back-office task — it’s a vital part of your financial workflow. A well-structured AP invoice process helps ensure cash flow reliability, vendor trust, and clean financial statements.

Whether you're a growing business or a large enterprise, streamlining invoice processing can deliver major returns in both time and cost savings.