Invoice-to-Pay: The Ultimate Guide for US Businesses in 2024

While managing accounts payable processes, optimizing your invoice-to-pay cycle is a must. With the world getting taken by technological advancements, automating procure-to-pay or invoice-to-pay cycles has become a norm. Automating manual processes allows users to process vendor payments more efficiently and accurately without the hassle of constant follow-ups or storing paper invoices. 

In this blog, we’ll discuss the steps involved in the invoice-to-pay process and the benefits of automating it. 

What is invoice-to-pay?

Invoice-to-pay is a vendor payment request for goods or services purchased or delivered. The customer’s accounts payable or accounting teams process, obtain validation and approvals and pay the invoice based on the payment terms stated. 

The invoice-to-pay cycle is the entire process an invoice goes through, from when the company receives it to when it is paid. 

Steps involved in invoice-to-pay cycle

Receiving invoices

The first step in the invoice-to-pay process starts when a vendor sends an invoice for payment. An invoice can be sent in multiple methods requiring different processing methods. 

• Mail: Vendors might send paper invoices via delivery or mail directly to the company’s address. These invoices need to be accounted for and stored correctly. Invoices sent by mail risk getting lost in transit and are less preferred. 
• Fax: Many invoices are sent by fax, even today. It transmits invoices as a scanned image to an output device. This gets the invoices in a physical document and can be hard to manage and store. 
• Email: Sending invoices via email is a standard method, too. Vendors might share invoices on purchase discussion threads with the relevant business head or to a company's centralized AP inbox. The AP department needs to process and keep track of all invoices. 
• Supplier portal: Many accounts payable automation tools also have a supplier or vendor portal that allows vendors to upload invoices for the company directly. 

Vendors might share invoices in multiple formats such as pdf, docx, png, jpeg or xlsx.

Data entry

After receiving the invoice, the AP team enters essential invoice data into their accounting system, including invoice number, payable amount, due date, line items and quantities, etc. They then assign the correct cost centers and general ledger codes to the invoice for accurate processing. 

Invoice validation

The next step in the invoice-to-pay cycle is invoice validation. Invoice validation involves checking the invoice's validity by matching it with supporting documentation. Invoice matching can be done in multiple ways: 

• Two-way matching involves comparing details in the invoice to those in the purchase order generated by the company when making the purchase. 
• Three-way matching involves matching invoices to their corresponding purchase orders and receiving reports from the vendor at the time of goods delivery. This is valid for purchases related to goods. 
• Four-way matching consists of matching invoices with purchase orders and receiving reports and inspection slips created by the company when inspecting the delivered goods.

Approval routing

Non-PO and some PO invoices need approvals from relevant business heads before processing. Approval routing involves identifying the correct business approver according to company workflows and getting their sign-off. However, manually tracking and getting approvals is a straightforward process that is time-consuming and challenging for accountants. 

Dispute resolution

In case any discrepancies outside the threshold are identified in the validation or approval process, the accounts payable team promptly raises it to the vendor for correction. It is again processed after the vendor sends the corrected invoice with updated payment terms. 

Payment processing

After the invoice has been validated and approved, the accounts payable team processes it for payment. It is crucial to ensure that correct vendor details are available and that the payment is in the vendor’s preferred payment mode. 

Challenges in the invoice-to-pay process

Accounts payable management is one of the most important tasks of a company. However, it is not easy. Invoice and payment processing can be riddled with many challenges: 

• High error rate: Manually processing invoices can lead to many errors creeping in. These errors can become costly and time-consuming, creating a challenge for accountants. 
• Late payments: Delayed payments due to invoices getting stuck in approvals cause multiple issues. They affect vendor relationships and reduce negotiating power. Late payments are often also subject to a late fee. 
• Missed invoices: Invoices getting forgotten or lost can also lead to legal issues and harm vendor relationships. 
• Bottlenecks in invoice processing: Bottlenecked procedures due to the unavailability of staff can also cause significant delays in invoice processing. Siloed processes can slow the invoice journey, leading to late payments or missed discounts.
• Security issues: Fraudsters nowadays easily intercept and change payment details in invoices, leading to invoice fraud. Not having gated access to information can also lead to a rise in internal fraud, which can be hard to detect when processing manually payable accounts. 
• Managing paper invoices: Paper invoices also contain significant inventory costs and are susceptible to damage or loss. This can pose an issue when conducting accounts payable audits. 

How AP automation can help streamline invoice-to-pay processes

Adopting an end-to-end accounts payable automation solution can help you easily mitigate the risks associated with manual invoice-to-pay processes and switch to a fully automated, straight-through invoice processing experience. 

AP solutions like ClearTech give you 100% accurate data extraction via a combination of OCR and managed services. It also smartly assigns GL codes and cost centers based on history while performing invoice matching and approver allocation. 

ClearTech also allows users to pay vendors via their preferred payment mode and automatically creates payment runs based on due dates and payment mode, facilitating timely payments. Its AP, spend, and savings dashboard also lets users track every penny the company spends and monitor meaningful approved TATs, making invoice-to-pay processes more efficient. 

Conclusion

• Invoice-to-pay is when a vendor requests payment for goods or services purchased by the vendor. 
• The invoice-to-pay process involves receiving invoices, entering invoice data, assigning GL codes and cost centers, performing invoice matching, routing invoices for approval, handling disputed invoices and processing payments. 
• Manual invoice processing can lead to several challenges, such as high error rates, late payments, missed invoices, managing paper invoices, and the risk of fraud. 
• Automating end-to-end accounts payable processes can help remove these challenges and help foster better vendor relationships.