Last editedSep 20222 min read
What happens when a supplier requests payment? They first send an invoice, kickstarting the full invoice-to-payment cycle. Also known as the invoice-to-pay process, it’s important for any accounts payable department to gain mastery over this cycle. Learn how to process and pay every invoice on time in this guide.
What does invoice-to-payment mean?
If you handle invoice payments for your business, you’ll likely come across the term at some point – but what does invoice-to-payment mean? This refers to requests made for payment on any goods or services rendered. Imagine that your business makes a purchase from a supplier. The supplier in turn issues an invoice listing all goods delivered or services rendered. The invoice also shows the total amount due, as well as a request for payment. Invoice-to-pay describes the process between invoicing and payment.
What is the invoice-to-pay process?
Also known as procure-to-pay or purchase-to-pay, the invoice-to-pay process is an everyday operation for accounts payable. Here’s a step-by-step account of what happens during a typical cycle:
Step 1: A supplier sends an invoice to the accounts payable department.
Step 2: The invoice is then read, scanned or manually entered into the accounting system, and assigned a unique billing code.
Step 3: The invoice is sent for buyer approval or matched with the corresponding purchase order for approval.
Step 4: The invoice is approved. Payment is scheduled to be sent to the supplier, usually on the requested due date.
This process covers invoice receipt, approval, documentation, and eventual payment. It also requires that the transaction is recorded in a company’s general ledger. Accounting software streamlines and automates this full process.
Understanding the invoice approval process
The specific approval process for invoices might vary between businesses. Smaller businesses often rely on a single staff member to read invoices and manually enter them into the accounting system with data entry. Larger organizations receiving high volumes of invoices each day might use technology like optical character recognition (OCR) services to digitally scan the invoices instead.
Invoices can be manually or automatically approved, also depending on your business’s size and scope. For those who complete the process manually, accounts payable notifies buyers by email, phone, or in person to ask for approval. Automated systems generate requests using approved templates, or automatically use two or three-way matching to verify invoices with the corresponding purchase order and/or shipping receipts.
Understanding the payment approval process
After invoices are approved, the next step of the invoice-to-pay process is payment approval. Larger purchases might require additional approval from the head of a department or executive. Some systems accept a box checked through an online portal, while others will need an email for verification.
This is usually where the invoice-to-pay cycle ends, but some systems will push it through to payment processing as well. Accounts payable uses the supplier’s preferred remittance method, which should be shown on the invoice. If not, AP will need to contact the supplier for bank details or other payment information.
How to process and pay every invoice on time with automation
Using AP automation can significantly speed up and streamline the full invoice-to-payment process. With a combination of OCR technology, machine learning, and online portals, it’s possible for businesses to complete the cycle in very little time. Automation also cuts down on the potential for human error. Manual data entry leaves the door open to payment delays due to small mistakes that nonetheless need to be corrected.
GoCardless integrates with major accounting and invoicing software like Xero,Chargebee, and Salesforce, completing the invoice-to-pay process with faster, easier payments. With GoCardless, businesses can collect invoice payments directly from customer bank accounts and get paid twice as fast. This is also beneficial to accounts payable administrators processing recurring invoices, who only need to approve payment the first time. The result: on-time payments, and faster processing.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.