Invoice management: The ultimate guide

Welcome to our comprehensive guide to invoice management. In this guide, we’ll delve into all you need to know about invoice management. We’ll cover what invoice management is and outline all the most important aspects of invoice management.

In dedicated articles below, we’ll explore the importance and benefits of managing your invoices effectively – and how to choose the right tools for the job. Let’s get into it.

What is invoice management?

Invoice management is the process of tracking and paying vendor and supplier invoices. Effective invoice management ensures timely payments, maintains healthy cash flow and strengthens vendor relationships, making it a vital aspect of any company’s financial operations.

Broken down into its most basic form, the process of invoice management involves:

• Receiving an invoice from a third party
• Validating the legitimacy of the invoice
• Paying the vendor/supplier for the goods or services received
• Noting the payment in the company records

Invoice management is typically part of the accounts payable (AP) process. Once the invoice is received, the AP team is there to make sure that the invoice is validated, paid and recorded.

In theory, the invoice management process isn’t overly complicated. In reality, however, you’re likely to face far more challenges along the way than you’d think.

On its way through every step of the invoice management process, an invoice is typically handled by multiple people. This means that there are plenty of opportunities for things to go wrong – especially if the invoice is processed manually.

Manual invoice management is a resource-heavy process. Not just due to the steps it involves, but because AP spends a lot of time on manual data entry and fixing errors made by other people in the process. It doesn't take much for an invoice to be paid late. Not only does this affect your cash flow: it can also negatively impact your professional relationships with vendors and suppliers.

In short, ensuring that your invoice management process runs smoothly is a crucial aspect of running your company successfully – and this is where automation comes in.

To help you gain a thorough understanding of automation and effective invoice management, we’ve created this guide to take you through all you need to know.

We’ll cover the following topics:

1. Invoice processing
2. Invoice management software
3. E-invoicing
4. E-invoice solutions
5. Invoice validation
6. Invoice tracking
7. Accounts payable automation
8. Invoice approval workflow
9. Invoice data capture
10. OCR invoice processing
11. Invoice automation
12. Automated invoice processing software
13. Invoice reconciliation
14. Purchase order vs. invoice
15. Accounts payable workflow
16. Invoice matching
17. Vendor invoice management

Below, you’ll find a brief overview of each topic in our guide. We’ll dive deeper into each topic in the individual articles dedicated to them. Let’s get started.

The ultimate guide to invoice management

1. Invoice processing

Invoice processing is the process of managing incoming invoices from vendors or service providers. Specifically, the term refers to the steps that take place from the time a vendor invoice is received until it’s paid, recorded and archived.

There are five primary steps to invoice processing:

1. Receipt of invoice
2. Recording and matching
3. Approval of invoice
4. Payment and processing
5. Recording and archival

Invoices are typically processed through the use of software that automates repetitive and error-prone steps in the process. For that reason, invoice processing is often referred to as automated invoice processing or, simply, invoice automation.

Read more: What is invoice processing?

2. Invoice management software

Manual invoice management is a time-consuming, error-prone task. For that reason, many companies are turning to software solutions to automate their invoicing – solutions known as invoice management systems.

An invoice management system is a software that helps extract, process, store and manage invoice data. Invoice management systems offer numerous benefits to companies of all sizes, including time savings, increased accuracy and reduced invoice chasing.

There are many invoice management systems on the market – but not all solutions are the right fit for your business. Before choosing a solution, it’s important to do your research to make sure you’ve found the right solution for your business needs.

Read more: 6 top invoice management software in 2024

3. E-invoicing

E-invoicing, short for electronic invoicing, is a form of billing presented to the buyer as an electronic invoice: an invoice format that remains entirely digital throughout its lifecycle.

There are seven basic steps to getting started with e-invoicing. These vary depending on whether you are receiving or sending invoices. The steps are as follows:

There are e-invoicing regulations in place across much of mainland Europe. The exact details vary from country to country. However, simply digitising your invoicing process isn’t enough to be compliant within the EU. This makes it important to stay on top of how the regulations impact your country.

Read more: What is e-invoicing?

4. E-invoice solutions

Traditional invoicing is prone to errors and delays in every step of the invoicing process. Luckily, e-invoicing software is here to tackle these issues and help you streamline your invoicing.

An e-invoice software solution is a digital system or platform that enables businesses to do their invoicing electronically. With an e-invoicing solution, businesses are able to replace traditional paper invoices with electronic versions. These invoices can be created, transmitted and processed more efficiently – a vital asset for businesses of all sizes.

There are many e-invoicing software solutions on the market – but not all solutions are the right fit for your business. Before making your choice, it’s important to explore your options to make sure you’ve found the right match for your business needs.

Read more: 5 best e-invoice solutions in 2024

5. Invoice validation

It’s crucial to ensure that your invoices are accurate and free of errors and fraud – and that’s the purpose of invoice validation.

Invoice validation is the step in the invoice management process wherein all vendor invoices are carefully reviewed for errors or discrepancies. The invoice validation process can be divided into three key components:

1. Data verification
2. Invoice matching
3. Vendor validation

Most businesses are using invoicing software to automate their invoice validation, saving valuable time and resources throughout the process.

Read more: What is invoice validation – and how do you benefit?

6. Invoice tracking

Invoice tracking is the process of monitoring the status of an invoice – from the moment it’s received until it’s been paid and recorded. Though not its only purpose, the primary focus of invoice tracking is to keep track of whether the invoice has been paid.

Invoice tracking brings numerous benefits to your business, including:

• Timely payments
• No late fees
• Stronger relationships
• Better expense management
• Improved efficiency

Most companies automate their invoice tracking through an invoice management system. These systems can monitor both incoming and outgoing invoices, determine whether an invoice has been paid and how many days an invoice might be outstanding.

Read more: Invoice tracking: How to keep track of your invoices

7. Accounts payable automation

Accounts payable (AP) invoice automation refers to the use of software solutions to streamline and automate the management and processing of your vendor invoices.

They key components of accounts payable automation include:

1. Invoice capture
2. Matching and verification
3. Approval automation
4. Payment processing
5. Reporting and analytics

With accounts payable invoice automation, your invoices can be processed by software regardless of how the invoice arrives. This simplifies the invoicing process and leads to more accurate, efficient and cost-effective operations.

Read more: What is accounts payable automation?

8. Invoice approval workflow

The invoice approval workflow functions as a checklist: it’s a structured process used to review, validate and approve invoices from your vendors before payment is made. This allows you to clear your vendor invoices quickly and simultaneously ensure that they’re accurate, legitimate and comply with your company policies.

An invoice approval workflow typically includes the following steps:

1. Invoice receipt
2. Validation and matching
3. Approval routing
4. Scheduling and payment

An effective invoice approval workflow is key to running a successful business. For that reason, many businesses are turning to automation to ensure an optimised invoice approval workflow.

Read more: A complete guide to invoice approval workflow (2024)

9. Invoice data capture

Invoice data capture is the process of capturing key data from invoices – one of the first steps in the invoice approval workflow. It’s an essential function of accounts payable that enables you to validate invoice data against purchase orders and delivery receipts to verify the accuracy and legitimacy of the invoice.

There are four primary steps in the invoice data capture process:

1. Receipt of invoice
2. Data extraction
3. Validation
4. Data integration

Depending on the technology or systems in place, a company’s invoice data capture process can be manual, semi-automated or fully automated.

Read more: What is invoice data capture – and why is it important?

10. OCR invoice processing

Optical Character Recognition (OCR) is technology that automates the extraction of data from documents, converting digital documents into editable and searchable data. This makes OCR a powerful tool for invoice processing.

OCR is typically used in combination with other advanced technologies, including:

• Machine learning and artificial intelligence
• Natural language processing
• Template-based recognition

OCR technology offers a variety of benefits to companies of all sizes, including efficiency, accuracy, cost savings, improved productivity and much more.

Read more: OCR invoice processing: How does it work?

11. Invoice automation

Invoice automation, also known as automated invoice processing, is a technology-driven approach to managing the end-to-end process of handling invoices.

Automated invoice processing typically includes the following steps:

1. Invoice receipt
2. Data capture and extraction
3. Data validation
4. Invoice approval
5. Payment processing

Processing invoices is an important aspect of keeping business operations running smoothly – but it’s also a time-consuming task. The purpose of invoice automation is to optimise that task, improving the efficiency, accuracy and overall effectiveness of the invoicing process.

Read more: Guide: All about automated invoice processing

12. Automated invoice processing software

Automated invoice processing software is here to improve invoicing for AP teams across the globe. Not only does it lighten your workload – it also reduces costs and helps you avoid late payments, late deliveries and much more.

Automated invoice processing is the use of technologies such as artificial intelligence (AI) and machine learning (ML) to automatically read, analyse and capture invoice data. This allows you to reduce the risk of errors associated with manual data entry, saving you time and resources throughout the process.

There are many automated invoice processing solutions on the market – but not all are the right fit for your business. Before choosing a system, it’s important to evaluate your options and to ensure you’ve found the right fit for your business needs.

Read more: Top 5 automated invoice processing software in 2024

13. Invoice reconciliation

Invoice reconciliation is the process of ensuring that invoices received from vendors match the corresponding purchase orders (POs) and goods or services received.

Invoice reconciliation can be broken down into 8 steps:

1. Receiving the invoice
2. Matching with purchase orders
3. Matching with goods received
4. Verifying pricing and terms
5. Identifying discrepancies
6. Resolving discrepancies
7. Approving for payment
8. Recording in accounting system

A reliable and smooth invoice reconciliation process reduces the risk of fraud and contributes to keeping your financial records organised and transparent. This allows you to maintain accurate financial records and prevents overpayments or fraud – all crucial elements for companies of all sizes.

Read more: What is invoice reconciliation?

14. Purchase order vs. invoice

As a new business owner, one of the things you need to know is the difference between a purchase order (PO) and an invoice. A purchase order is sent by the buyer to the vendor to track and manage the purchasing process. An invoice is sent by the vendor to the buyer to request payment for the goods or services provided by the vendor.

The reason many business owners find it difficult to distinguish between them is that they share quite a few similarities. For example, they both include basic order details, serve as legally binding documents between buyers and vendors and provide greater transparency in the purchasing process.

Below, we’ve highlighted some of the key differences between POs and invoices to make it easier for you to tell them apart:

Read more: Purchase order vs. invoice: What’s the difference?

15. Accounts payable workflow

The accounts payable (AP) workflow refers to the end-to-end process that a company follows to manage its obligations to pay for goods and services received from vendors.

An AP workflow typically includes the following steps:

1. Purchase requisition
2. Purchase order (PO) creation
3. Receipt of goods or services
4. Invoice receipt
5. Invoice processing
6. Payment processing
7. Recording and reconciliation
8. Reporting and analysis
9. Vendor communication
10. Record keeping and compliance

An efficient accounts payable workflow can help you ensure that the process isn’t bogged down by errors and delays. It ensures that all invoices are processed and paid in an accurate, timely and efficient manner while maintaining proper internal controls and compliance with policies and regulations.

Read more: Accounts payable workflow: A step-by-step guide

16. Invoice matching

Invoice matching is the process of comparing invoices with supporting documents to verify the accuracy of the information before the payment is processed.

There are four primary types of invoice matching:

1. Invoice totals matching
2. Two-way matching
3. Three-way matching
4. Four-way matching

The process of invoice matching is an important aspect of the accounts payable process. It ensures that payments to vendors are made accurately and recorded correctly. It also identifies discrepancies and enables them to be resolved quickly.

Read more: Invoice matching: What is it, and how does it work?

17. Vendor invoice management

A vendor invoice, also referred to as a supplier invoice, is a document issued by a vendor or supplier to a buyer requesting payment for goods or services provided.

Vendor invoice management, or supplier invoice management, involves receiving, approving and auditing vendor invoices. It isn’t always the easiest task, but it’s important that it runs smoothly.

Luckily, automation is here to optimise the process, saving time and resources and significantly improving operational efficiency for companies – regardless of size or industry.

Read more: Guide: Vendor invoice management