Invoice processing is the workflow a business uses to track, validate, record, and approve vendor invoices for payment—and it's a critical part of the accounts payable (AP) process.
But when done manually, processing invoices can take several weeks, leading to approval delays and higher costs. That’s why more businesses are turning to automation—to speed up processing and keep cash flow running smoothly.
Whether manual or automated, every invoice follows a series of steps. Understanding these steps, and where inefficiencies creep in, is key to building a workflow that actually works.
Let’s break it down.
DEFINITION
Invoice processing
Invoice processing is a core AP function that covers how your business handles invoices, from initial receipt through approval and payment.
The steps involved are fairly consistent from one business to the next, typically including receipt, validation, recording, approval, and payment.
Think of invoice processing as the behind-the-scenes workflow that keeps businesses and suppliers in sync. When done well, an efficient invoice processing system ensures you know the status of all your outstanding invoices, reduces payment errors, builds trust, and helps you maintain a healthy cash flow.
For simplicity, invoicing procedures have three main phases:
- Capture (receiving an invoice via email, paper, or software)
- Validation (confirming details like amounts, PO numbers, and delivery)
- Payment (approving and sending funds, then updating records)
Sounds simple right? But here’s where things get interesting.
Manual invoice processing: The human effort behind every invoice
On paper, invoice processing seems straightforward. In practice, it’s a different story.
For example, say you’re a small business owner. You receive an invoice from a web designer and forward it to your accountant. But then, the invoice is missing a project code. Now you need to follow up with the designer, your accountant, and your project manager. A quick five minute task just turned into a three-day email chain.
Even in larger teams, invoice processing isn’t always seamless. It often requires:
- Collaboration: AP clerks, team leads, and finance staff coordinating to keep things moving.
- Manual work: Entering data into spreadsheets, collecting approvals.
- Attention to detail: A single typo can slow down payments or create confusion with suppliers.
It’s not just about effort—it’s about complexity. Every business wants to process invoices accurately and on time, but as operations grow, traditional methods can start to feel stretched.
Why a good invoice workflow matters
Effective invoice processing plays a bigger role in business operations than it might seem. A well-structured approval workflow reduces delays, prevents duplicate payments and late fees, and helps maintain strong supplier relationships.
And here’s the good news: Modern tools like automated AP software turn this into a competitive advantage, streamlining everything from data capture to approvals and payments. AI extracts invoice details instantly, approvals move faster, and payments sync automatically—so your team spends less time chasing paperwork and more time keeping the business moving.
So what actually happens between receiving an invoice and making a payment? Let’s walk through the key steps.
6 key invoice processing steps in accounts payable
The invoice processing workflow begins when a vendor invoice lands in your inbox and doesn’t end until the payment goes through. Let’s break down each step—and show where automation steps in to make the process faster, smoother, and more reliable.
1. Invoice receipt
The process starts when your accounts payable department receives an incoming invoice from a vendor or supplier, whether it’s a paper invoice via post, an email attachment, or an electronic file. At this stage, every detail matters: invoice number, date, items or services provided, quantities, prices, payment terms, and relevant taxes all need to be recorded accurately.
For businesses handling invoices manually, this often means sorting through emails, opening envelopes, and entering data by hand.
But with automation, invoices are captured instantly. Key details are pulled into a central invoice management system, eliminating the need to sift through files and enter data manually.
2. Validation and matching
Once you receive the invoice, you need to verify that it’s accurate. That means performing an invoice matching exercise to cross-reference the invoice details against the initial purchase order (PO), delivery receipt, and any agreed-upon terms in the contract.
The goal is to confirm that what was ordered, delivered, and billed all align. If anything seems misaligned—wrong quantities, unexpected charges, or missing details—you’ll need to flag the invoice for further review.
Manually verifying invoices takes time, especially when details don’t line up. Automated invoice processing speeds this up by instantly matching invoices against POs and receipts, flagging discrepancies before they cause delays. Instead of checking everything by hand, teams can focus only on invoices that need attention.
3. Exception handling
Let’s say you find a discrepancy during the matching process and flag the invoice. At this point, it needs to be resolved—whether that means clarifying details with the vendor, updating records, or getting additional approvals.
In step 2, we covered how automation flags these discrepancies upfront. From there, automation software will automatically route it to the right team members with the context they need to resolve it.
Instead of email chains or searching for documents, AP teams get a clear next step, whether that’s requesting vendor clarification or approving an adjustment.
4. Data capture and coding
Once an invoice is validated, it needs to be entered into the accounting system with the right coding for financial tracking. Manually, this means entering standard invoice details along with more specific data, such as project codes, general ledger (GL) codes, or departmental allocations.
These extra layers of detail help ensure accurate reporting but add another level of complexity to the process. But AP automation simplifies this.
Instead of manually entering every field, invoicing software can extract invoice details, apply the correct codes, and sync everything automatically. With solutions like Ramp, AP teams can process 10x the invoices without adding headcount, freeing them up to focus on higher-value work instead of data entry.
5. Invoice approval
After capturing and coding all the invoice details, the invoice moves through the accounts payable approval process. Depending on the size and complexity of your company, this step could involve multiple stakeholders confirming accuracy, budget availability, and policy compliance.
With automation, smart routing ensures invoices reach the right people instantly, speeding up decision-making and reducing bottlenecks.
6. Payment processing
Finally, after completing all validations and approvals of the invoice-to-pay process, you can schedule the invoice for payment according to the vendor’s payment terms and preferred payment method.
These days, ACH transfers and other electronic payment methods tend to be among the most popular. Automation helps streamline this final step by scheduling invoice payments, ensuring compliance with payment terms.
Also, some vendors that work on net 30 or net 60 payment terms might offer an early payment discount. Depending on your cash flow management strategy, you might choose to take advantage and schedule the invoice early.
How to make a journal entry for invoice processing
With the invoice fully processed and scheduled for payment, the final step is recording it properly in your general ledger. Every invoice needs a corresponding journal entry that captures key details like the date, description, invoice number, and invoice amount.
Let’s cover a quick example of how to make an AP journal entry as part of your invoice processing cycle.
Let’s say you’re a manufacturer. On October 1, you purchased $5,000 worth of screws to produce widgets. When you receive the supplier invoice, here’s how you’d record the entry:
| Date |
Description |
Account |
Debit |
Credit |
| 10/01/2024 |
Materials purchase – Invoice #15 |
COGS |
$5,000 |
|
| Accounts Payable |
|
$5,000 |
Your supplier works on net 60 payment terms, so you process the invoice, approve it, and schedule it for payment on November 29. Here’s how you’d complete the entry for the invoice:
| Date |
Description |
Account |
Debit |
Credit |
| 11/29/2024 |
Payment – Invoice #15 |
Accounts Payable |
$5,000 |
|
| Cash |
|
$5,000 |
Keeping clean, accurate journal entries ensures every invoice is accounted for—but a smooth invoice process goes beyond record-keeping. A well-structured workflow keeps the entire process running smoothly, from invoice receipt to payment.
Here’s how to refine your approach and make invoice processing more efficient.
Best practices to improve your invoice processing workflow
No matter the size of your business, there are always ways to make invoice processing smoother and more efficient. Here are some key steps to help you refine your workflow and reduce friction along the way:
For small businesses:
- Use simple accounting tools: Start with user-friendly, cloud-based accounting and invoice processing software that requires minimal setup and training
- Standardize your process: Create clear guidelines for recording invoice data, approvals, and GL coding so you can scale payment volume quickly and reliably
- Establish vendor guidelines: Give vendors clear instructions on where and how to send invoices, as well as any format or data requirements, to reduce rework or human error
For mid-sized companies:
- Consider automation: Basic automation systems or OCR (Optical Character Recognition) tools can reduce manual data entry and speed up approvals
- Implement clear approval chains: Define structured approval levels and workflows so everyone knows their role, improving efficiency as you scale
- Integrate your systems: Link your invoice processing workflow directly to your accounting or ERP system to improve visibility, reporting, and control over your financial data
For large enterprises:
- Invest in advanced AP automation: A comprehensive AP automation solution can streamline invoice processing at scale with machine learning features and custom workflows
- Optimize vendor management: Set up supplier portals where vendors can submit invoices directly, track payment status, and quickly resolve disputes
- Continuous improvement and analytics: Regularly analyze accounts payable metrics like AP aging and reconciliation reports to refine your workflows and maintain efficiency at scale
Improve your invoicing process with Ramp Bill Pay
If your business handles a high volume of transactions, automated invoice processing can drastically reduce the time you spend on invoice matching, data capture, and routing bills for approval. With Ramp’s modern finance platform, automating invoice processing is simple.
Ramp automates routine tasks like invoice coding, verification, and approval, freeing up your AP department’s time to focus on more strategic work. After implementing Ramp, the social Q&A site Quora reduced their time spent on invoice processing from 5–8 minutes per bill to just 1–2 minutes.
“With Ramp's automation, I actually have the time to think about how to improve things, how to make things more efficient, how to make things better for employees,” said Richard Gobea, Quora’s finance manager.
What could you do with that kind of time savings? Try Ramp AP automation software and find out.
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