What is invoice processing? A complete guide

Key takeaways

• An invoice is a business document communicating detailed information about a transaction or sale between a buyer and a seller.

• While manual invoice processing is time-consuming and prone to human error, automated invoice processing automates the most critical and time-consuming steps, such as data extraction, invoice coding, and approval routing. 

• Automated invoice processing solution reduces payment processing times, provides more accurate data, enhances visibility, improves vendor relationships, and simplifies reconciliation.

If you’re like most finance managers, invoice processing is one of those never-ending tasks that eats up far too much of your time. In our recent Simplifying global spend report, we found that 90% of the companies we surveyed spend more than a quarter of their time on manual finance operations, such as invoice processing.

From managing your cash flow to ensuring your vendors are kept happy with timely payments, invoice processing can be a major time-drain. If you’re focusing on growing your business, be sure to choose an invoicing solution that’s smart, reliable, and efficient.

The right platform will easily handle invoicing from global suppliers, multi-currency transfers, and your overall global employee and company spend management as part of an end-to-end financial solution.

Let’s explore what invoice processing is and the steps businesses can take to reduce the time and effort their teams have to spend managing it.

What is an invoice?

An invoice is a business document that communicates detailed information about a transaction or sale between a buyer and a seller. An invoice’s main purpose is to request payment for goods or services that a seller has provided to a buyer.

Invoices typically include several information items:

• The seller’s information: including the name, address, and contact information of the seller, often including identification numbers like a tax ID in the US, a Value Added Tax (VAT) number in the EU, or an Australian Business Number (ABN) in Australia.

• The buyer’s information: including the name, address, and contact information of the buyer of the goods or services.

• The date of issue: the date the invoice was issued.

• The invoice due date: the date the buyer must pay the invoice by.

• Description of the goods or services: including detailed information about what the seller has provided, including the quantity, cost, and total charges.

• Total amount due: the total amount the buyer needs to pay the seller.

• Payment terms: any terms and conditions that the buyer and seller have agreed on, like how the payment will be made, and whether there'll be any discounts for early payment or penalties for late payment.

Invoices play a critical role in the bill payments and wider accounting process. Not only do they act as an official legal record of sale, but they’re also important for managing accounts, tax compliance, inventory tracking, and ensuring businesses are tracking their cash flow and overall financial health properly.

What is invoice processing?

Invoice processing is a business function that’s usually performed by an organisation’s accounts or finance department. Let’s take a look at a traditional invoice processing workflow relying on manual work.

1. The buyer receives the invoice: Invoices are usually received via email or a digital automated invoicing system and are sent to the finance department.

2. The finance team verifies and validates the invoice: They ensure the invoice is correct and includes the seller's details, invoice number, date, and total amount due. They also check that the goods or services provided match the purchase order.

3. The team codes the invoice: They assign the appropriate general ledger codes to the invoice to categorise the expense. The team also determines if the invoice needs to be allocated to a specific department or project.

4. The team sends the invoice for approval: They forward the invoice to the relevant manager or department for approval. The manager or department ensures it aligns with the budget and authorises it for payment.

5. The team prepares the invoice for payment: They enter the approved invoice into the accounting system and schedule it for payment according to the due date.

6. The team pays the invoice: They process the payment via cheque, bank transfer, electronic funds transfer like Automated Clearing House (ACH), or other methods. They record the payment and update the accounts payable ledger.

7. The team files and archives the payment: They store the invoice and related documents in the general ledger for future reference or auditing purposes.

How does invoice processing work?

You can process invoices via both paper-based workflows and automated methods using invoice processing automation software. Automated accounts payable processes and cross-border payment solutions offer a wide range of benefits for global businesses, including less room for human error, faster payment processing, more accurate records, streamlined approval workflows, and improved financial reporting insights.

How manual invoice processing works

In paper-based invoice processing workflows, accounts payable teams physically receive invoices and manually review them for accuracy, including the vendor’s information and payment amounts.

They then code the invoice to the appropriate account or general ledger code, and send it to the relevant manager for approval. Once the invoice is approved, they make the payment, often by bank transfer, electronic funds transfers like Automated Clearing House (ACH), or cheque. The finance department then manually enters the invoice’s data into the accounting system and files a physical paper copy for record-keeping.

This process is time-consuming and also leaves businesses open to human error, lost invoices, slow approvals, and physical space being taken up by paper records.

How automated invoice processing works

In our Simplifying global spend report, we found that:

• 51% of the Singaporean businesses we surveyed said manual data entry tasks were a significant burden.

• Over half (51%) of the Australian companies we surveyed reported spending more than half of their time on manual operations related to spend management.

• 41% of the UK companies we surveyed reported delays in invoice and bill payments due to disconnected tools and fragmented payment workflows.

• Only 13% of the companies we surveyed in Hong Kong said that their current software tools help them work more efficiently.

Automated invoice processing revolutionises the manual process. It eliminates tedious data entry tasks by automating the most critical and time-consuming steps, such as data extraction, invoice coding, and approval routing.

Using technologies like Optical Character Recognition (OCR) and integrations with other small business accounting software, automated invoice processing removes inefficient processes to save time. Here’s where automated invoicing can improve processes:

Teams receive invoices by uploading or emailing them

Your staff likely spend hours every week gathering, chasing up, organising, and scanning invoices into your current invoice processing system. Automated invoice processing gives your team this time back to focus on more strategic tasks, by making it easy for them to just upload or email bills to the platform.

OCR captures and extracts data automatically

Once your invoices have been received by your automated system, Optical Character Recognition (OCR) technology will capture and extract the invoice data. This means no more tedious manual data entry and less errors.

APIs are used to automate general ledger coding

Integrating an Application Programming Interface (API) with your invoice processing software lets you synchronise your invoices with your financial system. They’ll automatically be categorised and coded according to your general ledger.

Three-way matching is automated

Financial teams usually follow the three-way matching process to prevent fraud. The process involves verifying an invoice against the purchase order and the goods receipt to ensure that only authorised purchases are made. And when approving invoices manually, this task can become very time-consuming.

Automated invoice processing software completes three-way matching for you by automatically reading invoice data and then searching your financial ecosystem for matching data in Purchase Orders (POs) or other documents.

Approval routings are automated

Manual invoice approvals can often involve several email ‘forwards’ to make sure the right person approves the invoice, and then several follow-ups to make sure they get it done. Automated invoice processing streamlines approval routing entirely, following custom approval workflows to stay in line with company spend policies, increase oversight, and reduce risk.

Global payments are automated

The best automated invoice processing software will make it easier and more cost-efficient to pay your vendors across the globe, allowing you to pay hundreds of bills to vendors across countries and currencies in one go – without having to enter payment details into your bank.

Benefits of automated invoice processing

Automated invoice processing brings a range of operational success benefits, allowing you to streamline your finance function and grow faster, more sustainably.

The best choices for automated invoice processing will also offer businesses access to other solutions as part of an end-to-end financial management platform, such as corporate cards and expense management tools.

Reduced processing time

With automation, invoices are quickly captured, validated, and routed for approval using custom multi-layer workflows, speeding up the entire process. This efficiency not only saves teams time, but also reduces manual labour costs,  leading to an improved bottom line.

More cost efficiency

Automated solutions built for global businesses save you money by bypassing foreign transaction fees when you pay invoices from multi-currency balances. For example, with Airwallex, you can hold multiple currencies in your Global Account, only converting funds when needed. When you convert funds for invoice payments, you have access to 60+ trade currencies at interbank rates, and can save up to 80% on FX fees.

More accurate data

Automation minimises the potential for human error in data entry, ensuring that information is accurate across systems. This reduces costly mistakes, such as overpayments or missed discounts, as well as ensuring reliable financial records. Accurate data ensures that strategic decisions are made based on solid financial data.

Enhanced visibility into financial data

Fragmented and disconnected systems make it difficult for finance teams to gain a consolidated view of their global spend. A staggering 98% of businesses surveyed in our Simplifying global spend report said a lack of robust spend controls negatively impacts financial management.

With automated systems, businesses gain enhanced visibility into their accounts payable so they can control their global expenditure. Real-time tracking and reporting allow for more accurate management and analysis of financial data. This visibility also helps ensure compliance with internal controls and regulatory requirements, as automated systems can be programmed to follow strict guidelines and audit trails.

Smoother relationships with vendors

Finally, automated invoice processing fosters improved ongoing relationships between vendors and businesses. Faster, more accurate payments help build trust and strengthen partnerships with suppliers, ensuring timely settlements that could lead to‌ better terms (and negotiating power) in the future.

Easier reconciliation

When integrated with accounting software, automated invoice processing also makes things easier for teams come tax time. By importing data like charts of accounts, and syncing bills and payments back to accounting software, reconciliation is easier and faster for finance teams to manage.

Invoice processing best practices

Optimising invoice processing can save finance teams a lot of time, reduce accounting and data entry mistakes, and support organisations to scale faster.

1. Adopt invoice processing automation software: Take repetitive tasks like entering data, matching invoices, and routing them for approval off your teams’ plate. Choose a system that works well with your existing accounting tools for a seamless experience.

2. Standardise invoice formats: Ask your vendors to use a consistent format for their invoices to better capture data faster and more accurately.

3. Set up clear approval workflows: The best invoice processing software will allow you to customise invoice approvals to match your business needs. You can create multi-layer approval flows based on bill currency and amount thresholds, as well as setting specific approvers or approver roles at each layer to make sure the right people are reviewing and approving. This workflow keeps things moving quickly and reduces bottlenecks.

4. Conduct periodic reviews: No matter how automated and streamlined your invoice processing workflow is, it’s still important to audit it regularly to help you spot any inefficiencies, fix errors, and ensure everything’s on track.

5. Communicate with your vendors: Make sure they know exactly how to submit their electronic invoices to you and are kept in the loop about any changes. Good communication can prevent any misunderstandings with your suppliers.

Automate your invoice processing with Airwallex

Manual invoice processing slows down your team and makes it harder to stay on top of cash flow. And with 82% of finance leaders in Australia feeling overwhelmed by the number of tools they use, and 96% of UK businesses reporting a lack of automation, there’s a clear need for a better way to manage business spend.

Airwallex Bill Pay lets you upload, approve, pay, and reconcile invoices from a single platform. You’ll reduce costs, improve accuracy, and free your finance team to focus on more strategic work. And, because it integrates with popular accounting software like NetSuite, Xero, and QuickBooks, and supports global payments at market-leading FX rates, you can ensure your operations stay efficient as you scale.

Our solution also integrates with other spend management tools like Expense Management and Corporate Cards, giving you total visibility into your company and employee spend. You can manage your entire global cash flow all from one place.

Frequently Askes Questions (FAQs)

What's the difference between an invoice and a bill?

An invoice is a detailed document sent by a seller to request payment for goods or services provided, usually with payment terms and due dates. A bill, on the other hand, is a simpler request for payment, often used in everyday transactions and indicating that payment is due immediately.

How long should I keep processed invoices?

Processed invoices should generally be kept for at least seven years to comply with tax and legal requirements, ensuring businesses have a record for auditing, past financial analysis, and any potential disputes that may arise in the future.

What is three-way matching in invoice processing?

Three-way matching in invoice processing is the process of comparing three key documents: the purchase order, the goods receipt note, and the invoice. This comparison ensures that the details on the invoice match the agreed-upon terms in the purchase order (PO) and the actual goods or services received. By performing this match, businesses can avoid overpayments, detect discrepancies, and ensure proper financial control of their payments.

Can I process invoices electronically even if my vendor sends paper invoices?

Yes, you can process invoices electronically even if your vendor sends paper invoices by scanning or digitising the paper invoices. Many automated invoice processing systems can capture the data from scanned invoices using Optical Character Recognition (OCR) making it easy to process them electronically.