What is an Invoice to Pay?
Invoice to payment (AR & AP) is a request for payment for goods or services. Suppliers will issue an invoice containing a list of services rendered and a statement of the money owed to request payment. The buyer then receives the invoice.
What is the invoice-to-pay processing cycle?
Invoice-to–pay processing (also known as purchase-to-pay or procure-to-pay cycles) is the first step in supplier payments operations. After the supplier has completed invoicing, the accounts payable department will receive the invoice. The supplier’s invoice must be reviewed, entered into an accounting system (or ERP), and assigned a billing code. Once approved, the invoice will be sent to internal buyers for approval or through a matching process. Once the invoice has been approved, payment is made to the supplier. This is often done based on the due date.
Invoice processing refers to the way accounts payables teams process and pay supplier invoices. Invoice processing covers the entire process, from the moment a company receives an invoice, approves it, pays it, and then records it in their general ledger. You can track the invoice processing of your company using either paper or digital documents.
How invoices are read and recorded?
There are many ways invoices can be inbound to an organization:
- Postal mail
- Fax (Fax)
- Supplier portal
Many small businesses and organizations rely on staff members (such as accounts payable clerks) to read invoices and input them into an ERP or through manual data entering. OCR (Optical Character Recognition) is increasingly being used by organizations that receive a lot of supplier invoices. This allows them to digitally execute the invoice to pay cycle.
Invoice Approval Process
After the invoice has been recorded, there are several ways to approve it, including automated or manual approval processes. The manual approval process is time-consuming and requires extensive follow-up from approvers.
The manual invoice approval process includes:
- Accounts payable notifies internal buyer via email
- Accounts payable notifies internal buyer by phone
- Accounts payable notifies internal buyer by physical contact
The following are automated invoice approval processes:
- An automatically generated request for approval is routed by the invoice automation system to an email approval template. This allows notification and document viewing.
- Supplier portal for invoice approval and document viewing
- Matching an existing purchase order (two-way match)
- Match attempt using a previously generated purchase or shipping receipt (three-way match).
After approval of one of these payment methods, accounts payable determines when and how much to pay (i.e. if it is a partial or full payment). After approval, the payment instruction is sent. AP automation systems allow you to choose from a variety of global payment methods.
Procedure for Payment Approval
Each organization’s payment approval process is different depending on the policies in place. There may be thresholds that need additional approvals, such as by department heads or executive managers. Sometimes, approvals can be walked (physical signature), electronically emailed, or verbally but proof of approval must be provided. Due to the speed and traceability of approval actions, electronic approval is highly recommended. While some systems require approval via portals, others allow approvals to be made by email.
Supplier Payment Execution
The invoice-to-pay cycle is typically closed at payment approval. However, it is possible to extend the process to include payment execution if your accounting system is responsible for tracking the invoice. The payment method used to remit funds will determine the execution of payments. Take, for example:
- Paper checks
- ACH Transfers
- Wire transfers
- Global ACH transfers (local bank transfer)
- Transfers of debit cards and e-wallets
Accounts payable must know the payment method of the supplier in order to remit funds in a specific way. Are they payable? You may need to contact the supplier to obtain bank account information and tax identification information. Secure access to the bank portal may be required. Other factors could be involved in paying a supplier from another country. These may limit certain payment methods or foreign currency exchange.
Automated Invoice-to-Pay Cycles
AP automation systems are expanding and integrating the invoice-to-pay process. The invoices can be accepted by email or via a branded supplier portal. All data is entered directly into the system without any interaction from accounts payable. Invoice-to-pay is a simple process that can be completed in just a few clicks.
