Invoice Management

Invoice management is an accounting process that involves receiving, inputting, and tracking vendor invoices and the information that they provide. Invoices are an important document that convey detailed information about products and services that are acquired from other businesses.

This information is fed into the business’s accounting system and is used to help track purchases, payments, and the acquisition of products and services. How invoices are managed is integral to a business’s management of its accounting overall.

Invoice management may also be referred to as invoice processing. At the most basic level it involves receiving invoices and inputting the information that they provide into the business’s accounting ledgers. Historically, this has been done manually. In the modern business world, the volume of invoices and information that are processed by a business has multiplied, the speed with which this is being done has increased, and accounting automation is transforming the process with digital applications.

Invoice management involves various steps in the accounting process.

An invoice is a document generated by a business that provides a product or service to a customer. It provides the details of the transaction so the customer can have a record to support payment for the services or goods received. These items include:

• The name of the entity or unit providing the good or service

• The recipient of the good or service

• The good or service provided

• The date on which it was provided

• The quantity or amount that was provided

• The value of the resource that was exchanged

Because an invoice is a record of a product or service for which the business owes payment, processing invoices typically falls to the accounting team or individuals who are responsible for accounts payable.

The first challenge in invoice management is for the department or individuals responsible for acquiring the products or services contained in the invoice to coordinate the delivery of the invoice to the accounts payable staff.

How this information is communicated will vary depending on the size and complexity of the business. In larger operations, many departments or divisions will engage in purchasing. This can complicate the process of invoice management.

Invoice matching, sometimes also referred to as purchase order matching, is the process of comparing invoices with supporting documents to verify that the information is correct prior to payment. It is an essential part of the accounts payable process that ensures payments to vendors are made accurately and journaled correctly.

Typically, invoice matching occurs when a purchase requisition is generated. A purchase requisition is an internal document that is created by an employee who wishes to acquire goods on behalf of the business. The requisition is submitted for approval by a supervisor and the purchasing department. After it is approved, a purchase order is then created.

The purchase order will provide the details of the purchase, such as quantity and price. The purchasing department will send the order to the vendor who will then fill the order, create an invoice, and send it to the customer. This is the point at which matching occurs.

Invoice matching can be performed in different ways. It is performed at different levels, or tiers. Each tier involves a greater number of documents.

• At the first tier, 2-way matching is a basic comparison of details in the invoice with the same information provided in the original purchase order.

• At the next tier, 3-way matching compares the invoice with both the purchase order and the receipt that is provided after the order has been filled and paid for.

• Finally, 4-way matching includes all of the above. Additionally, the invoice is compared to the acceptance or inspection document, prepared by the receiving department once the order has been received by the business.

All forms of invoice matching are intended to find discrepancies that are outside of the business’s “tolerance.” An order is within a business’s tolerance if the quantity is equal to or greater than, and the price is less than or equal to, the amounts that were indicated in the original order.

In other words, invoice matching will only identify an exception when a vendor has charged more or delivered less than what was ordered. This puts the burden of accuracy on the vendor.

Accounting automation also aides invoice management. Digital applications can replicate and replace some of the manual processes involved, reducing processing time and increasing accuracy.

Having an enterprise resource planning (ERP) platform supports the development of a master standard of data entry protocols, which allows the business to gather information from invoices in varying document types and input the data in a consistent format.

Other digital processes, such as automated workflows, online transaction portals, and increased automation of manual processes also helps streamline the process of invoice management.