The ultimate guide to invoice processing for 2025

Every business runs on cashflow, making it essential to keep a close eye on their payouts. A big part of managing these expenses is actually handling the invoices.

But why is it important?

Let's say you purchase something; the seller sends you an invoice for payment and the accountant then logs it in accounts payable (AP).

Once it’s paid, it gets shifted to the expense category and deducted from your bank balance. 

This process, known as invoice processing, is a key component of the accounts payable workflow, and essentially helps a company pay its bills. 

But how exactly does invoice processing benefit the cashflow of an organization?

Let’s find out!

What is an invoice?

An invoice is a document that a seller sends to a buyer, detailing the specifics of a sale or transaction.

It serves as a request for payment for the goods or services provided, essentially acting as a bill for what was sold.

What is invoice processing?

Invoice processing is the process a company follows from the moment it receives an invoice until it’s paid. It’s a key function of the business and is handled by the accounts payable team.

It's the final step in the purchase-to-pay (P2P) activity, ending when payment is recorded in the ledger.

The main steps in invoice processing include:

1. Receiving and validating the invoice
2. Recording and processing the invoice
3. Approving the invoice
4. Processing the payment
5. Keeping documentation for audits

Different methods can be used to process various types of invoices, like purchase invoices, sales invoices, and expense invoices. 

Why is this important?

Accurate financials are vital for a company. They help maintain good relationships with vendors, avoid late fees, and ensure compliance with financial regulations.

Therefore, companies need to have a solid invoice processing procedure in place. 

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To dive deeper into how financial accuracy impacts your overall business health, explore how your profit and loss statement serves as your financial report card.

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What are the main steps involved in invoice processing?

The way invoices are processed can differ from one company to another.

But even if you're handling invoices manually or using software to automate the process, the core invoicing steps remain the same. 

1. Receiving the invoice

Invoices come in various forms—paper documents by mail, email attachments, electronic files sent directly to financial software, or even faxes.

At this stage, it's crucial to quickly and accurately capture the invoice and enter it into your system for processing. 

Trying to manage invoices from different sources using separate processes (like one method for paper invoices and another for digital ones) can lead to errors and inefficiencies.

The solution here: Centralize your invoice system. We’ll talk more about it; stay tuned!

2. Recording and processing 

While recording an invoice in your system, at the very least, you should note:

• The amount owed
• The vendor or entity owed
• Payment terms
• Payment details like cost, shipping, taxes, and fees
• The purpose of the invoice
• Any category codes needed for your records

You can streamline this step using document management tools or cloud drives, allowing your accounts payable team to quickly access invoices without recording every tiny detail. 

The primary goal is to verify the invoice’s accuracy to avoid duplicate payments and fraud.

This involves checking amounts, taxes, fees, and totals, and verifying that the products or services were actually ordered and received.

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Did you know? Invoices can help secure funding for your small business. Discover 6 capital-raising options.

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3. Approving the invoice

Some invoices can be automatically approved, while others might need a department head or executive’s signature.

Traditional methods like sending paper invoices through interoffice mail or emails aren’t very efficient and can lead to delays or misplaced documents. 

Automating your approval process helps you keep track of where an invoice is in the process, how long it’s been pending, and if any stakeholder is overwhelmed with too many invoices.

4. Processing payment

Once an invoice is approved, it’s ready for payment. This typically involves routing it to accounts payable or another authorized employee who processes the payment.

To do this, you’ll need to know:

• The total amount owed
• The vendor’s name and address
• Payment identifiers like account or invoice numbers
• Accepted payment methods

These days, accounts payable staff may need to process payments via checks, electronic payments, credit cards, or online platforms like PayPal or Ontop.

5. Recording and archiving data

After payment, the final data needs to be captured and archived. This includes making general ledger entries for the payments and any other relevant accounting details.

If you’re using the right software, these entries can be made quickly and with fewer chances for error. 

Lastly, invoice images and related documents, like purchase orders or shipping manifests, should be saved in a secure, searchable system.

This ensures they’re easy to retrieve when needed, such as during audits.

Why is invoice processing important in accounts payable?

Invoice processing is the most significant task for AP teams, accounting for 77% of their responsibilities.

It offers key insights into broader business functions and overall financial health. Let’s see how it works:

1. Smart Decision-making

An invoice management system gives you real-time financial insights, helping businesses make decisions based on their current financial standing.

It reveals vital financial trends for strategic planning, uncovers opportunities to save costs, and provides a full financial picture for better budget management. 

2. Managing cashflow

Invoice processing helps increase cash availability.

This system also helps manage payment schedules efficiently and aligns expenses with incoming funds, ensuring a steady cashflow—essential for keeping operations running smoothly and supporting business growth.

3. Ensuring financial stability

It is crucial for a business's growth and stability, offering more than just a streamlined process. It reflects a company's commitment to sound financial management, which boosts its reputation and builds trust with potential partners and clients—laying the foundation for valuable collaborations and new opportunities.

Best practices for efficient invoice management

Regardless of your industry, developing a streamlined processing system can help you make the most of your company’s balance sheet.

Here are some best practices to consider: 

1. Automate your invoice management

Manual invoicing is time-consuming, often leading to employee burnout. According to the IOFM Quarterly Benchmarking Survey, around 50% of AP staff were overworked in 2022 due to paperwork.

These invoices are prone to human error, like duplicate payments if the invoice number isn't checked. 

Automated systems can help reduce such mistakes, improve accuracy, and decrease paper clutter, cutting down on storage costs.

Automation also allows digital approval of invoices, and integrates seamlessly with accounting systems.

Even SMBs can benefit from using automated invoice management software. These tools come with advanced features like OCR, which automatically extracts data from invoices and matches it with purchase orders to ensure accuracy.

2. Standardize your invoicing process

Standardizing your invoice management process makes it easier to delegate tasks.

Essential data—like customer names, invoice numbers, payment terms, and product details—should be readily available in your system. This standardization ensures consistency and helps establish internal controls over your payment process.

Traditional methods often lack integration with broader accounting systems, leaving you in the dark about invoice efficiency.

Opt for a solution that integrates with major payments and ERP solutions, giving you a clear view of your financial operations.

3. Leverage invoice financing for better cashflow

Invoice financing is a valuable tool that allows businesses to unlock cash tied up in unpaid invoices.

Using them as collateral allows you to access funds more quickly, helping maintain a steady cashflow even when payments are delayed. 

This can be particularly useful for covering operational expenses or taking advantage of new business opportunities without waiting for clients to pay their invoices.

Integrating invoice financing with your invoice management strategy allows you to manage cashflow more effectively.

4. Optimize cashflow with your software

Rather than scheduling all bill payments at the end of the month, which can disrupt cashflow, use your invoice management software to stagger payments.

This strategy helps maintain a steady cashflow and ensures that you have the funds to cover unexpected costs.

Your billing software can also offer insights into sales cycles and spending patterns, helping you schedule payments at optimal times, adjust for seasonal demands, and prevent resource exhaustion.

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Discover 4 ways to prevent cashflow problems in your business.

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5. Stick to payment terms

Maintaining strong vendor relationships starts with adhering to agreed payment terms.

Invoice processing software ensures payments are made on time, avoiding penalties and fostering better relationships with banks and vendors. 

Ultimately, this can even help you negotiate better contracts and deals as you align your purchasing process with vendor expectations. Manual processes often lack mechanisms to detect fraud.

Automated software, however, uses tools to spot suspicious patterns and alert you to potential risks.

Benefits of streamlined invoice management process 

Invoice processing can be a tedious and time-consuming task, leading to various challenges for your organization.

However, streamlining this process offers several benefits:

1. Boosted efficiency: Streamlining invoice processing lets you handle large volumes of invoices quickly and accurately, reducing labor costs and enhancing overall efficiency.

2. Fewer errors: Manual data entry errors can be significantly reduced using technologies like OCR, which automatically extracts data from invoices. 

3. Faster approvals and payments: Automated routing speeds up the approval and payment process, minimizing delays and improving relationships with vendors.

4. Better visibility: It gives you real-time insights into invoice statuses, making tracking who needs to approve them easier.

5. Enhanced compliance: With systems in place, invoices, signatures and related documents are stored digitally, making it easier to retrieve them for compliance and reporting needs.

Tips for efficient invoice processing 

Managing invoices effectively is key to optimizing your financial operations.

Here’s how you streamline the process and keep everything running smoothly:

1. Implement a centralized system 

Start by storing all invoices in a centralized database that everyone can access.

This ensures that all relevant departments have real-time access to the same information, reducing delays and miscommunication. 

Plus, with a centralized system, you can easily track the status of each invoice—from submission to payment—so nothing slips through the cracks.

2. Streamline approval workflows 

Set up automated approval workflows based on invoice amounts or department needs. This way, invoices get routed to the right people quickly and efficiently.

Also, establish clear approval levels for different invoice amounts to prevent any bottlenecks in the process, ensuring that everything moves smoothly.

3. Regularly review and reconcile invoices 

Make it a habit to regularly reconcile invoices with purchase orders and delivery receipts. This helps you catch any discrepancies early on before they become bigger problems.

Keeping detailed audit trails is also crucial, as they allow you to track invoice histories, approvals, and payments, making it easier to spot and correct any issues.

4. Set up alerts and reminders 

Use your invoicing software to set up alerts for upcoming payment due dates, which helps you avoid deferred payments and keeps your cashflow in check.

Additionally, automatic reminders can be sent to approvers if an invoice has been pending for too long, ensuring that nothing gets delayed unnecessarily.

5. Monitor and analyze performance 

Track key metrics like the average time it takes to process an invoice, the number of errors, and any payment delays.

Analyzing this data helps you identify bottlenecks and areas for improvement.

Regularly review your invoicing process and make adjustments as needed to keep operations running smoothly and efficiently.

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Read more: Financial metrics and KPIs to analyze.

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Want to boost your cashflow? Invoice financing is the key!

Keeping your invoice process smooth and error-free is crucial for any business.

By simplifying and automating your invoice management, you avoid mistakes, prevent fraud, and make timely payments. 

But what if your process is smooth and efficient, and you’re still stuck with cashflow?

Well, the answer is still the same—invoices, the receivables. 

Invoice financing lets you tap into the cash stuck as unpaid invoices. It gives liquidity to your business without waiting for your customers to pay early.

This helps you keep the wheels turning and even fuel new growth opportunities.

Curious about how invoice financing boosts your business? Contact us at Stenn today and take control of your cashflow in just 24 hours!