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What is invoice validation – and how do you benefit?

Invoices are an essential part of running any business. It’s crucial to ensure that your invoices are accurate and free of errors and fraud – and this is what invoice validation is for.

The purpose of invoice validation is to ensure the accuracy and legitimacy of invoices before they’re processed for payment.

Invoice validation enhances operational efficiency and reduces financial risks, making it a vital aspect of financial management.

In this article, we’ll cover what invoice validation is, how it works and the benefits automated invoice validation brings to your business.

What is invoice validation?

Invoice validation is the step in the invoice management process wherein all vendor invoices are carefully reviewed for errors or discrepancies.

Key aspects of invoice validation include:

  • Accuracy check: During validation, invoice details are checked and matched with the original purchase order (PO) and delivery receipt to confirm that the billed amount is correct.
  • Fraud prevention: A crucial part of invoice validation is verifying the authenticity of the vendor and ensuring that the invoice has not been altered or duplicated. This is often done by cross-referencing vendor details and looking for red flags that might indicate fraud.
  • Compliance and authorisation: It’s important to ensure that the invoice complies with both internal and external policies and regulations. This typically includes checking that the invoice has been authorised by the right person, and that the right approvals have been obtained.
  • Data validation: For an invoice to be validated, all its necessary data fields need to be filled out. Data validation ensures that this is done and that the information is consistent with the organisation’s records.
  • Accounting and coding: To ensure that all expenses are allocated correctly, invoice validation involves checking that the invoice has been correctly coded for accounting purposes.

Once a manual task, invoice validation can now be automated with invoicing software, saving valuable time and resources for businesses of all sizes.

Invoice validation: How it works

The invoice validation process can be divided into three key components:

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

Let’s take a closer look at each component.

1. Data verification

To ensure accuracy, the invoice validation process involves cross-referencing invoice details with supporting documents and internal records.

This component of the process is known as data verification and includes verifying items, quantities, prices and calculations to identify errors or discrepancies.

2. Invoice matching

Another element of ensuring accuracy in the invoice validation process is to match the invoice with the original purchase order (PO) and delivery receipt.

Matching the invoice with the purchase order and delivery receipt verifies that the goods and/or services listed on the invoice were ordered and received as per the purchase order, and that there are no discrepancies between the order, the delivery and what was charged.

This way, invoice matching helps prevent unauthorised or incorrect charges. It also ensures that vendors are paid correctly for their goods and services – a vital aspect of building lasting vendor relationships.

3. Vendor validation

The third key component of invoice validation is to validate vendor information. This involves verifying the accuracy of vendor details, such as name, address and contact information, as well as confirming the vendor’s tax identification number and legal status.

Vendor validation ensures proper documentation and communication with vendors, as well as compliance with regulatory requirements. It also helps to ensure that the invoice is paid on time. This allows you to avoid late fees and other penalties and maintain good relationships with your vendors.

The benefits of automated invoice validation

Automated invoice validation offers a variety of benefits that can enhance the financial management and operational efficiency of any business.

Here are some key benefits of invoice validation:

  • Cost savings: By ensuring that invoices are accurate and legitimate, you can avoid overpayments, duplicate payments and fraudulent charges. This saves you from spending money and other resources on these unnecessary costs.
  • Fraud prevention: Cross-referencing details and verifying the authenticity of invoices lets you detect and prevent fraudulent activities. This enhances security and reduces your risk of financial losses related to fraud.
  • Enhanced accuracy and efficiency: Automating invoice validation reduces the risk of human errors and speeds up the accounts payable cycle. This helps focus staff resources on more strategic tasks and increases the overall efficiency of your business.
  • Discrepancy resolution: By identifying and addressing discrepancies early in the invoicing process, you can prevent issues from escalating and resolve disputes faster, ensuring smooth business operations.
  • Improved cash flow management: By ensuring payments are made correctly and on time, invoice validation helps you improve your forecasting and budgeting and manage your cash flow more effectively.
  • Stronger vendor relationships: Time and accurate payments help foster trust and reliability between you and your vendors. This can lead to a variety of benefits for your business, including better terms, discounts and a more collaborative partnership.

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