Accounts Payable Invoice Processing (Comprehensive Guide For SME’s)
Updated: Jul 25
As a business owner, finding the time to keep proper financial records can be a tricky task. We get it, running a business involves an endless to-do list, and accounts payable (AP) invoice processing might be lower on the list of priorities.
The good news is that it doesn’t have to be a difficult process. With the right tools and strategies, AP invoicing processing can be a total breeze.
Invoice processing in AP is all about managing invoices properly, keeping your cash flow on track, and minimising accounting risk. Here’s everything you need to know about AP invoice processing for SMEs.
What is Accounts Payable Invoice Processing?
Invoice processing is the biggest task that any accounts payable department will face.
Simply put, AP refers to all the money your business owes to its creditors. Generally speaking, these are short-term debts.
All vendors that a company deals with sends their invoices directly to the AP department/person. Receiving an invoice is the first step in the AP system. From here, the correct invoice processing actions need to be taken.
This involves verifying the invoice, recording the invoice in the AP system, approving the invoice, and paying the invoice. Basically, invoice processing covers the entire journey of an invoice, from receiving it to paying it. This is the foundation of what an AP team does.
If your business has various creditors to pay, you need to make sure that you manage the process accordingly. Effective AP invoice processing will help you stay on good terms with vendors while avoiding late payments and penalties. Keeping this system well managed will make it a lot easier to run your business in the long term.
Accounts Payable Invoice Processing Steps
Here’s a breakdown of the steps involved in AP invoice processing.
Step 1: Verifying Information
The first step is to make sure that your invoice accurately reflects what you purchased.
So, when your company receives an invoice, first verify that the goods or services included in the invoice are correct.
Then make sure that the right information is included in the invoice for tracking purposes. Here are a few of vital things you need to look out for:
The date that the invoice was created and sent
The details of the purchase and related pricing details
Contact information for both parties - the billing information and point of contact is especially important
When you receive an invoice, there are three steps. These are:
Verify the purchase
Make the payment within the terms you agreed upon
Make sure the the payment is correct
Step 2: Data Entry
Now that the invoice has been verified, the next step in the AP invoice process is to enter the data and code in for accounting purposes. Your business will need to ensure that it is in line with the general ledger coding system.
When it comes to data entry, you’ve got two options. You can either do it manually or automatically.
Needless to say, manual data entry can be a bit of a hassle. It’s time-consuming, tedious, and carries the risk of human error.
On the flipside, you can venture into the automation option. Using a digital tool for data entry will save you time and effort. You’ll also be able to reduce your processing costs while eliminating the risk of human error.
For a SME without a huge financial team, automating AP is definitely the smartest way to go.
Step 3: Approval
The invoice has been verified and captured into your accounting system, but there’s still one more AP invoice processing step to make before this invoice can be paid - the invoice needs to be approved.
The approval process is a security measure to ensure that you haven't made any invoicing errors such as paying the same invoice twice, paying the incorrect invoice or paying the incorrect amount. It’s important for a smooth AP process.
Again, we’re faced with the same two options - manual entry or automation. Manually waiting for approval on a paper invoice is an outdated practice. It takes time to wait for the invoice to be received and reviewed. And there’s always the risk of paper invoices getting lost.
Using automation is the smart choice. You can use a digital platform to capture the invoice information and run this through an approval workflow.
This speeds up the process, improves accuracy, and helps reduce invoice processing costs.
Centralising Invoice Payments
Another important step for invoice processing in AP is to centralise your payments. Creating the function where all your payments come from one account is a no-brainer. It makes things simpler and easier to manage.
The last thing you want to do is pay invoices on an ad hoc basis, using various accounts or credit cards. This will completely disrupt your accounting records and make it difficult for your finance team to stay on top of all the expenses.
The best solution for SMEs is to use an expense tracking app. With an app like Sweep, all of your invoice payments will be automatically recorded. This is the easiest way to create and maintain accurate expense reports.
Accurate AP invoice processing is essential for a healthy business, and it shouldn’t take up a lot of your time.
The whole process is broken down into three steps, and the best part is that you can automate it with the right digital tool.
SMEs that don’t have big financial teams will gain huge benefits from AP automation. You’ll save time, save money, and maintain accurate records even if you’re not an experienced accountant.
Quite simply, AP is one of the most important tasks for any business, so getting it right is imperative.
Understanding invoice processing from the start, and using the right tools to assist you, will take all the effort out of your AP responsibilities.