How to process an invoice from receipt to payment

Invoice processing at a glance

What to set up before the first invoice arrives

Invoice processing begins before the invoice. A small amount of preparation removes repeated questions later and helps the business pay suppliers on time.

• ✓A controlled supplier list. Record the supplier’s legal name, tax details, normal contact and independently verified bank details. Limit who can create or change these records.
• ✓One approved intake route. Give suppliers a dedicated invoice email address or portal. Ask colleagues to forward invoices there instead of keeping separate copies in personal inboxes.
• ✓Clear purchase evidence. Use purchase orders where they are practical. For other purchases, keep the approved request, contract or other record that explains what was agreed.
• ✓A coding guide. Decide which nominal account, department, project, tax code and other reporting fields apply to common purchases.
• ✓An approval matrix. State who can approve each type and value of purchase, who covers an absence and when a second approval is required.
• ✓A payment calendar. Work backwards from supplier due dates so approvers know when an invoice must be ready for each payment run.

The eight-step invoice process

Each step should leave a record. That record may be an original document, a system check, a comment, an approval or a bank confirmation. Together, they form the audit trail from purchase to payment.

Steps 1 to 3

Receive, validate and check for duplicates

1. Capture the original invoice

Save the original file or electronic record and record its arrival date. Do not process a screenshot, edited spreadsheet or pasted set of bank details when the original invoice is available. If a colleague forwards a copy, check whether the same invoice has already arrived through the normal route.

Give the invoice a clear status such as received, checking, awaiting information, awaiting approval, approved, scheduled, paid or cancelled. A status should describe what still needs to happen, not merely which folder contains the document.

2. Validate the supplier and invoice

Confirm that the supplier exists in your approved records and that the invoice is addressed to the right business. Check that the document describes something the business actually bought. In the UK, a normal commercial invoice should include a unique number, supplier and customer details, a clear description, supply and invoice dates, the amounts charged, VAT where applicable and the total owed. GOV.UK lists the invoice details businesses should include.

If you expect to recover UK VAT, check that the supplier is entitled to charge it and that the document contains the details required for the type of VAT invoice. The VAT invoice is normally the primary evidence for recovering input tax. HMRC’s VAT record-keeping notice explains the detailed requirements and exceptions.

3. Search for possible duplicates

Check more than the invoice number. Suppliers may add spaces, dashes or prefixes, resend the document as a copy, or issue the same number in a new year. Compare the supplier, normalised invoice number, invoice and supply dates, net and gross amounts, currency, purchase order and file history.

Do not delete a possible duplicate as soon as you find it. Block it, link it to the earlier invoice and record the decision. One document may be a valid instalment, credit note, corrected invoice or charge for a different legal entity. The evidence should explain why it was rejected or released.

Steps 4 to 6

Match, code, approve and record the invoice

4. Match the invoice to what was ordered and received

A two-way match compares the invoice with the purchase order. A three-way match also checks the goods receipt or other evidence that the supply arrived. For services, use a signed timesheet, milestone acceptance, contract owner confirmation or another reliable record of what was delivered.

Compare supplier, item or service, quantity, price, tax, currency and terms. Set written tolerances for small differences such as rounding, freight or price changes. A tolerance may allow a small difference to move forward, but it should never turn missing evidence into an approved purchase.

If there is no purchase order, use the approved request, contract and proof of delivery or service. HMRC’s procure-to-pay guidance describes the connection between the purchase order, receipt, tax invoice, credit notes, supplier payment and accounting records.

Apply the accounting codes

Code the invoice to the correct legal entity, supplier, nominal account, department, project, location and tax treatment. If the cost covers more than one period, consider whether it should be prepaid. If it creates an asset, check the business’s capitalisation policy. If the invoice arrives after month end for goods or services already received, check whether an accrual has already been recorded so the cost is not counted twice.

5. Get approval from the right person

The approver should confirm that the purchase was needed, received, priced as agreed, coded reasonably and charged to a budget they control. Approval is not a request to repeat every AP check, but it should be informed: show the invoice, purchase evidence, coding and any difference or override.

Route by value, department, type of spend, project and risk. An invoice should not be sent back to the person who submitted it merely because the real approver is unavailable. Use a recorded delegate with the right authority.

6. Record the liability

Post the approved invoice to accounts payable using the invoice date, supply date and accounting period required by your policy. Record the due date from the agreed terms, not from when someone happens to enter the document. Keep the original invoice and link the order, receipt, approval and exception notes.

Steps 7 and 8

Prepare the payment, release it and reconcile the records

7. Build and authorise the payment run

Select approved, unblocked invoices that are due. Check credit notes, disputed amounts, duplicate warnings and payments already in progress before calculating the supplier’s net payment. Review unusual values, first payments, manual additions and changes made since approval.

Use bank details from the controlled supplier record. If a supplier asks to change them, verify the request independently using a phone number or contact route you already trust. Do not use the contact information contained only in the change request. The UK National Crime Agency’s invoice fraud guidance recommends checking requests to change invoice or bank details directly with the supplier.

Separate preparation from release where practical. The person who added the supplier or changed its bank details should not be able to create, approve and release that supplier’s payment alone. Use a second bank approver for material or higher-risk payments.

Release the payment on the agreed date and send remittance advice showing which invoices and credits were settled. In the UK, an agreed date normally governs. If no payment date was agreed, statutory late-payment rules generally treat a business payment as late 30 days after the later of receiving the invoice or receiving the goods or service.

8. Match the payment and reconcile

Mark an invoice paid only when the bank instruction has been released and the outcome is known. A prepared payment file is not proof that money left the bank. Match the bank transaction to the payment batch and invoices, then investigate rejected, returned or altered payments.

Regularly compare four records: the supplier statement, the supplier account in AP, the accounts payable control account in the general ledger and the bank. Differences may reveal missing invoices, unallocated payments, unused credit notes, exchange differences, duplicates or entries posted to the wrong supplier.

A worked example from receipt to payment

The process did not pay the invoice immediately, but it did make the missing receipt visible early enough to resolve it before the due date.

Figures worth tracking

Measure whether invoices are accurate, controlled and ready in time. A single average can hide a small number of old, high-value or disputed invoices, so look at both percentages and the underlying queue.

• ✓First-time match rate: the percentage that match without manual correction or missing evidence.
• ✓Approval time: time from a complete invoice being ready for approval to the final decision.
• ✓Exception age: the number and value of blocked invoices by reason and days outstanding.
• ✓On-time payment: the percentage of valid, undisputed invoices paid on or before the agreed due date.
• ✓Duplicate prevention: confirmed duplicates found before payment, plus false warnings that created unnecessary work.
• ✓Unmatched payments: released or bank-cleared payments that are not fully allocated to supplier documents.

The UK Fair Payment Code uses clear payment-time standards: its Gold award requires at least 95% of invoices to be paid within 30 days, while Silver and Bronze apply different 30- and 60-day thresholds. You do not need to join the Code to measure payment performance, but its criteria are a useful reminder that processing should support fair supplier outcomes.

When invoice processing software can help

Email, folders and spreadsheets may be enough for a small number of simple invoices. They become harder to control when invoices arrive through several channels, approvals cross departments, coding changes by project or one invoice needs several people to resolve it.

Invoice processing software can capture the original document, extract key fields, search for duplicates, connect the invoice with orders and receipts, suggest coding and route approval. It can also keep payment blocks, record every decision and send approved bills to accounting software. The workflow should make exceptions more visible, not automatically wave them through.

The invoice processing checklist

Before an invoice is paid, the record should answer each of these questions without relying on someone’s memory.

Frequently asked questions