Direct Invoice Workflow

The Direct Invoice Workflow is the simplest purchasing process, going straight from invoice receipt to payment. This workflow is designed for purchases that don’t involve physical goods receipt or where creating a PO and GRN would add no value.

When to Use Direct Invoice Workflow

This workflow is perfect for:

• Professional services (legal, accounting, consulting)
• Utilities (electricity, water, gas, internet)
• Subscriptions (software licenses, cloud services, memberships)
• Insurance premiums
• Rent and lease payments
• Marketing services (advertising, media buys)
• Bank charges and fees
• Professional development (training, conferences)
• Outsourced services (cleaning, security, maintenance contracts)

When NOT to Use This Workflow

Avoid Direct Invoice for:

• Physical goods requiring inventory tracking
• High-value purchases needing approval trail
• Capital equipment requiring asset tracking
• Inventory items for resale or production
• Items with serial numbers needing warranty tracking

For these, use:

• Standard Procurement Workflow - For goods with PO
• Direct GRN Workflow - For goods without PO

Process Flow

Step 1: Receive Invoice → Step 2: Verify Service/Expense → Step 3: Enter Invoice → Step 4: Get Approval → Step 5: Make Payment
    ↓                          ↓                             ↓                    ↓                     ↓
Supplier Sends         Staff Confirms               Create in System     Manager Approves      Pay Supplier
Invoice               Service Received             Record Expense       Based on Rules        Per Terms

Key Difference: No goods receipt process, invoice goes directly to approval and payment.

Step 1: Receive Invoice from Supplier

Responsible Role: Administrative Staff / Accounts Payable

Invoice Receipt Channels

Invoices arrive through various channels:

Email

• Most common for services and subscriptions
• PDF attachments
• Save to designated folder
• Forward to AP email address

Mail/Post

• Traditional invoices
• Original hard copy
• Scan immediately upon receipt
• Date stamp physical copy

Supplier Portal

• Download from supplier website
• Online billing systems
• Electronic invoicing platforms
• Save PDF copy

Hand Delivery

• Walk-in service providers
• On-site contractors
• Physical copy received
• Get acknowledgment receipt

Initial Invoice Screening

Before processing, verify invoice validity:

Valid Tax Invoice Requirements

• Supplier name and address
• Tax registration number (if applicable)
• Unique invoice number
• Invoice date
• Your company name
• Description of service/expense
• Amount before tax
• Tax amount (if applicable)
• Total amount due
• Payment terms
• Payment details (bank account)

Red Flags to Watch For

• Duplicate invoice numbers: Check if already processed
• Incorrect company name: Might be for wrong entity
• Missing tax details: Can’t claim input tax
• Unusual supplier: Verify legitimacy
• Amount seems high: Compare to previous invoices
• Different bank account: Fraud risk - verify with supplier

Step 2: Verify Service or Expense Received

Responsible Role: Service Recipient / Department Manager

Before processing invoice, confirm the underlying service or expense:

Service Verification

For professional services:

Consulting/Professional Services

• Service was actually provided
• Service meets agreed scope
• Hours/days match agreement
• Quality is acceptable
• Deliverables received (reports, documents)

Verification method:

• Contact service recipient (the person who engaged service)
• Review project completion status
• Check deliverables against contract
• Confirm satisfaction before approving payment

Recurring Services

• Service continues to be provided
• No quality issues
• Contract is still active
• Price matches agreement

Examples:

• Cleaning service: Site manager confirms service performed
• Security service: HR confirms guards present per schedule
• Maintenance contract: Facility manager confirms uptime

Expense Verification

For non-service expenses:

Utilities

• Meter readings reasonable
• Usage aligns with operations
• No unusual spikes (investigate if yes)
• Charges match rate card

Verification steps:

1. Compare to previous months
2. Check for seasonal variations
3. Verify meter readings if possible
4. Investigate anomalies before paying

Subscriptions and Licenses

• Service is still needed
• Users are actively using it
• No duplicate subscriptions
• Price matches agreement

Review questions:

• Are we still using this software/service?
• Can we consolidate with another subscription?
• Is renewal automatic or can we negotiate?
• Do we need this many licenses?

Insurance Premiums

• Policy is current and correct
• Coverage matches requirements
• Premium matches quotation
• Policy period is correct

Contract Reference

If invoice is for contracted services:

1. Locate contract/agreement
2. Verify invoice terms match:
   • Service description
   • Pricing/rates
   • Payment terms
   • Billing frequency
3. Check contract value:
   • Running total of invoices
   • Not exceeding contract value
   • Budget remaining

Step 3: Enter Invoice in System

Responsible Role: Accounts Payable Clerk

Navigation

[Accounts Payable > Purchase Invoices > New Direct Invoice]

or

[Purchasing > Purchase Invoices > New Invoice > Without PO/GRN]

Invoice Header

Document Information

• Invoice Number: Exactly as on supplier invoice
• Invoice Date: Date on invoice
• Received Date: When you received it
• Due Date: Invoice date + payment terms
• GL Date: Accounting period to record expense

Supplier Information

• Supplier: Select from supplier master
• Supplier Contact: If specific contact
• Currency: Base or foreign currency
• Exchange Rate: If foreign currency (auto-filled or manual)

Reference Information

• Your Reference: Internal reference (PO number if informal PO, project code, etc.)
• Their Reference: Supplier’s reference from invoice
• Contract Number: If under contract
• Description: Brief description of invoice

Invoice Line Items

For each line on the invoice:

Line Item Entry

• Description: Clear description of service/expense

  • Example: “Legal services - contract review”
  • Example: “Office cleaning services - March 2024”
  • Example: “AWS cloud hosting - March 2024”

• Quantity: Usually 1 for services, or actual quantity

  • 1 month of service
  • 40 hours of consulting
  • 5 user licenses

• Unit Price: Price per unit

  • Monthly fee
  • Hourly rate
  • Per-license cost

• Amount: Total line amount (Qty × Price)

• Tax Code: VAT/GST treatment

  • Standard rated (most services)
  • Zero-rated (exports, some services)
  • Exempt (financial services, education)

• Tax Amount: Calculated or manual entry

Account Coding

Critical for proper expense classification:

G/L Account: Select appropriate expense account

• Professional fees
• Utilities
• Software subscriptions
• Insurance
• Rent
• Marketing expenses
• Bank charges
• Training & development

Cost Center: Department or cost center

• Administration
• Sales & Marketing
• IT Department
• Human Resources
• Production
• Research & Development

Project Code: If applicable

• Specific client project
• Internal initiative
• Capital project

Additional Dimensions (if used):

• Business unit
• Location
• Fund/grant code

Common Invoice Types and Coding

Professional Services

Legal Fees:

Description: Legal services - contract drafting
G/L Account: Professional Fees - Legal
Cost Center: Administration
Amount: $2,500

Accounting Services:

Description: Monthly accounting services
G/L Account: Professional Fees - Accounting
Cost Center: Finance
Amount: $3,000

Consulting:

Description: IT consulting - 40 hours
G/L Account: Consulting Fees
Cost Center: IT Department
Project: ERP Implementation
Amount: $6,000

Utilities

Electricity:

Description: Electricity - March 2024
G/L Account: Utilities - Electricity
Cost Center: Facilities
Amount: $1,200

Internet/Telecom:

Description: Internet service - March 2024
G/L Account: Utilities - Telecommunications
Cost Center: IT
Amount: $500

Subscriptions

Software as a Service:

Description: Salesforce CRM - 10 users monthly
G/L Account: Software Subscriptions
Cost Center: Sales & Marketing
Amount: $150

Cloud Hosting:

Description: AWS cloud hosting - March
G/L Account: IT Infrastructure - Cloud
Cost Center: IT
Amount: $850

Rent and Leases

Office Rent:

Description: Office rent - April 2024
G/L Account: Rent Expense
Cost Center: Administration
Amount: $5,000

Equipment Lease:

Description: Forklift lease - monthly
G/L Account: Equipment Lease
Cost Center: Warehouse
Amount: $800

Split Invoices

If one invoice covers multiple departments/projects:

Example: Electricity bill split by department

Line 1:
Description: Electricity - Production area (60%)
G/L Account: Utilities - Electricity
Cost Center: Production
Amount: $720

Line 2:
Description: Electricity - Office area (30%)
G/L Account: Utilities - Electricity
Cost Center: Administration
Amount: $360

Line 3:
Description: Electricity - Warehouse (10%)
G/L Account: Utilities - Electricity
Cost Center: Warehouse
Amount: $120

Total: $1,200

Tax Handling

Standard Rated Services

Most services subject to VAT/GST:

• Professional services
• Most utilities
• Advertising
• Software subscriptions

Entry:

Net Amount: $1,000
Tax (18%): $180
Total: $1,180

Zero-Rated Services

Tax rate = 0%, but invoice must show this:

• Exported services
• International freight
• Some education services

Entry:

Net Amount: $1,000
Tax (0%): $0
Total: $1,000

Exempt Services

No tax charged, invoice may not mention tax:

• Financial services (some jurisdictions)
• Insurance (some jurisdictions)
• Medical services

Entry:

Amount: $1,000
(No tax line)

Withholding Tax

For some professional services, you may need to withhold tax:

Example (10% withholding):

Invoice Amount: $1,000
Withholding Tax: -$100
Net Payment: $900

System entries:

• Debit: Professional Fees $1,000
• Credit: Withholding Tax Payable $100
• Credit: Accounts Payable $900

Document Attachment

Attach supporting documentation:

Required Documents

1. Supplier Invoice (PDF or scan)

   • Must be clear and legible
   • All pages included
   • Tax invoice requirements met

2. Service Confirmation (if applicable)

   • Service completion certificate
   • Deliverables received acknowledgment
   • Timesheet (for hourly services)
   • Usage reports (for utilities)

3. Contract/Agreement (for first invoice)

   • Master service agreement
   • Statement of work
   • Quotation or proposal
   • Rate card

4. Approval Documentation

   • Email approval
   • Approval form
   • Board resolution (for major expenses)

Upload Process

1. Click Attachments tab
2. For each document:
   • Add document
   • Select type
   • Choose file
   • Add description
   • Upload
3. Verify all critical docs attached

Step 4: Invoice Approval Workflow

Responsible Role: Approving Managers (per approval matrix)

Approval Routing Rules

System routes based on:

Invoice Value

Expense Type

Some expenses require specific approvers:

• Legal fees: Legal counsel + CFO
• IT subscriptions: IT Manager + CFO
• Insurance: Risk Manager + CFO
• Marketing: Marketing Director + CFO

Budget Control

• Within budget: Normal routing
• Over budget: Additional approval from budget holder
• No budget: CFO or CEO approval required

Approval Process

For Approvers

When notification received:

1. Review invoice details:

   • Supplier is legitimate
   • Service/expense is business-related
   • Amount is reasonable
   • Coding is correct

2. Verify business need:

   • Service was authorized
   • Expense is necessary
   • Budget is available
   • Contract terms met (if applicable)

3. Check supporting documents:

   • Invoice is attached
   • Service confirmation provided
   • Contract is referenced
   • All requirements met

4. Take action:

   • Approve: If all is correct
   • Reject: If issues found
   • Query: If more information needed

5. Add approval notes:

   • Confirm service received
   • Note any concerns
   • Reference authorization source

Handling Approval Issues

Issue: Approver Not Available

Solutions:

• Use delegation feature (pre-setup)
• Route to backup approver
• Escalate to higher authority
• Request temporary delegation

Issue: Invoice Lacks Information

Action:

1. Reject with clear comments
2. Request missing information
3. AP follows up with supplier
4. Resubmit when complete

Issue: Service Not Verified

Action:

1. Query to service recipient
2. Wait for confirmation
3. Keep invoice on hold
4. Follow up if no response

Issue: Budget Exceeded

Action:

1. Check YTD spend vs. budget
2. If truly over budget:
   • Seek budget virement (transfer)
   • Get CFO approval
   • Document justification
3. If within budget: Approve normally

Step 5: Post Invoice and Schedule Payment

Responsible Role: Accounts Payable

Invoice Posting

Once fully approved:

1. Final review:

   • All approvals received
   • Documents attached
   • Coding verified
   • No outstanding queries

2. Post invoice:

   • Click Post Invoice
   • System creates accounting entries
   • Invoice becomes payable
   • Payment scheduled

3. Accounting entries:

Debit: Expense Account (per coding)   $1,000
Debit: Input Tax (if applicable)         $180
Credit: Accounts Payable                        $1,180

4. Invoice status:
   • Posted
   • Awaiting payment
   • Due date set

Payment Processing

Navigation: [Accounts Payable > Payment Processing]

Payment Scheduling

Immediate payment (urgent):

• Same-day payment required
• Special approval obtained
• Process individually

Normal payment cycle:

• Weekly payment runs
• Twice-monthly runs
• Monthly payment (for monthly invoices)

Scheduled for due date:

• System flags on due date
• Included in payment run
• Avoids late payment

Payment Methods

Bank Transfer (most common):

1. Create payment batch
2. Generate bank file
3. Upload to online banking
4. Authorize payment
5. Record in system

Check Payment:

1. Generate check
2. Get signatures
3. Mail to supplier
4. Record check number

Credit Card:

1. Pay via company card
2. Record payment
3. Reconcile with card statement

Direct Debit:

1. Supplier auto-debits account
2. Receive notification
3. Record in system
4. Reconcile with bank

Payment Posting

After payment executed:

1. Record payment:

   • Payment date
   • Payment reference (bank confirmation)
   • Payment amount
   • Payment method

2. System creates entry:

Debit: Accounts Payable   $1,180
Credit: Bank Account              $1,180

3. Invoice status: Paid

4. Supplier account: Updated

Remittance Advice

Send payment confirmation to supplier:

Auto-generation:

• System generates remittance
• Shows: Payment date, amount, invoices paid, reference
• Email to supplier automatically

Manual process:

• Print remittance advice
• Mail with check or separately
• Email PDF to supplier

Special Scenarios

Scenario 1: Monthly Software Subscription

Supplier: SaaS Provider Service: Project management software Billing: Monthly auto-invoice

Process:

1. Auto-invoice received via email on 1st of month
2. AP enters invoice:
   • Description: “PM Software - March 2024 - 10 users”
   • Amount: $100/month
   • G/L: Software Subscriptions
   • Cost Center: IT
3. Auto-routed to IT Manager
4. IT Manager approves (confirms still using)
5. Posted to payables
6. Paid via company credit card (auto-payment setup)
7. Payment recorded from card statement

Timeline: Received to paid = 2 days

Scenario 2: Legal Services Invoice

Supplier: Law Firm ABC Service: Contract review and negotiation Billing: Upon completion

Process:

1. Invoice received via email: $5,500 for 22 hours work
2. AP enters invoice with timesheet attachment
3. Routed to Legal Counsel
4. Legal reviews:
   • Verifies work was done
   • Checks hours reasonable
   • Confirms rate matches agreement
   • Approves
5. Routed to CFO (amount > $5,000)
6. CFO approves (budget available)
7. Posted to payables
8. Withholding tax calculated: 10% = $550
9. Payment scheduled: $4,950 net of withholding
10. Paid via bank transfer on due date
11. Withholding remitted to tax authority

Timeline: Received to paid = 30 days (Net 30 terms)

Scenario 3: Electricity Bill

Supplier: Power Company Service: Electricity consumption Billing: Monthly based on meter reading

Process:

1. Invoice received via email: $3,600
2. AP enters invoice
3. Routed to Facility Manager
4. Facility Manager:
   • Checks meter reading (actual vs. invoice)
   • Compares to last month (within expected range)
   • Verifies rate (no unusual charges)
   • Sees spike: 50% higher than usual
5. Investigates spike:
   • Checks production schedule (was there overtime?)
   • Reviews HVAC logs (cooling season started?)
   • Identifies: New equipment installed (legitimate increase)
   • Documents reason
6. Approves with notation
7. Posted with split coding:
   • 70% Production ($2,520)
   • 30% Administration ($1,080)
8. Paid via bank transfer

Timeline: Received to paid = 15 days

Scenario 4: Annual Insurance Premium

Supplier: Insurance Company XYZ Service: Commercial general liability insurance Billing: Annual premium

Process:

1. Renewal invoice received: $24,000
2. AP checks:
   • Compares to prior year ($22,000 - increased 9%)
   • Verifies policy number
   • Checks coverage period (correct dates)
3. Enters invoice with policy schedule attached
4. Routed to Risk Manager
5. Risk Manager verifies:
   • Coverage amounts correct
   • Premium matches quotation
   • Policy terms acceptable
   • Approves
6. Routed to CFO (high value)
7. CFO approves
8. Posted but…
9. Accounting treatment: Prepaid expense

Debit: Prepaid Insurance        $24,000
Credit: Accounts Payable                 $24,000

(Then monthly amortization:)
Debit: Insurance Expense         $2,000
Credit: Prepaid Insurance                 $2,000

10. Paid before policy inception date

Special note: Insurance must be paid to keep coverage active, so ensure payment before current policy expires.

Controls and Compliance

Segregation of Duties

Even without PO/GRN, maintain control:

Different people for:

1. Service recipient: Confirms service received
2. Invoice entry: AP staff enters invoice
3. Approval: Manager approves expense
4. Payment: Treasury processes payment
5. Reconciliation: Different person reconciles

Key Controls

1. Supplier Master Verification

• Only pay to verified suppliers in master file
• Require new supplier setup process
• Verify bank account changes before payment

2. Duplicate Check

• System checks for duplicate invoice numbers
• Manual review of similar amounts/dates
• Query if invoice seems duplicate

3. Service Confirmation

• Require confirmation from service recipient
• Don’t pay for undelivered services
• Verify quality before payment

4. Budget Control

• Check budget availability before approval
• Flag over-budget expenses
• Require additional approval for overruns

5. Contract Compliance

• Match invoice to contract terms
• Verify rates and amounts
• Track contract cumulative value

6. Tax Compliance

• Verify valid tax invoice
• Check tax calculation
• Apply withholding tax where required
• Maintain tax documentation

Monthly Compliance Checklist

• All invoices have approvals
• All invoices have supplier documents attached
• Service confirmations documented
• Tax invoices valid for input tax claims
• Withholding taxes calculated and withheld
• No duplicate invoices paid
• All expenses properly coded
• Accruals made for services received but not invoiced

Accruals and Deferrals

Period-End Accruals

For services received but not yet invoiced:

Example: Legal services provided in March, invoice in April

March accrual entry:

Debit: Professional Fees - Legal   $3,000
Credit: Accrued Expenses                     $3,000

April (when invoice received):

Debit: Accrued Expenses           $3,000
Credit: Accounts Payable                    $3,000

Prepayments

For services paid in advance:

Example: Annual insurance paid in January

January (payment):

Debit: Prepaid Insurance         $12,000
Credit: Bank                                $12,000

Each month (amortization):

Debit: Insurance Expense          $1,000
Credit: Prepaid Insurance                  $1,000

Tracking Required

Maintain schedule of:

• Recurring monthly invoices expected
• Services received but not invoiced
• Prepayments requiring amortization
• Accruals to reverse next period

Best Practices

For Service Recipients

1. Engage vendors properly: Get proper quotes, written agreements
2. Confirm service completion: Before invoice arrives, confirm satisfactory delivery
3. Report promptly: Alert AP when service is complete so invoice is expected
4. Review invoices: When routed for approval, actually review
5. Track budgets: Know your budget status before approving expenses

For Accounts Payable Staff

1. Process promptly: Don’t let invoices accumulate
2. Verify documents: Check every invoice meets requirements
3. Code carefully: Accurate coding is critical for reporting
4. Follow up: Chase missing confirmations or approvals
5. Communicate: Keep suppliers informed of payment status

For Approvers

1. Actually approve: Don’t auto-approve; review each invoice
2. Verify receipt: Confirm service was actually received
3. Check reasonableness: Is amount reasonable for service?
4. Watch for patterns: Recurring overruns or unusual expenses
5. Respond promptly: Don’t delay approvals; suppliers depend on payment

For Management

1. Set clear policies: When to use direct invoice, approval limits, documentation requirements
2. Monitor compliance: Review that policies are followed
3. Analyze spend: Regular review of service spend by category
4. Optimize contracts: Negotiate better terms for recurring services
5. Prevent fraud: Strong controls and regular audits

Reporting and Analysis

Key Reports

AP Aging Report

Shows outstanding invoices by age:

• Current (not yet due)
• 1-30 days overdue
• 31-60 days overdue

• 60 days overdue

Use: Ensure timely payment, maintain supplier relations

Expense Analysis Report

Shows expenses by:

• G/L account
• Cost center
• Supplier
• Time period

Use: Budget variance analysis, cost control

Vendor Spend Report

Total spend by supplier:

• Year-to-date
• Comparison to prior year
• Trend analysis

Use: Supplier relationship management, negotiation leverage

Invoice Approval Status

Shows invoices in workflow:

• Pending approval
• Approver name
• Days pending
• Value

Use: Chase delayed approvals, identify bottlenecks

Key Metrics

Advantages and Limitations

Advantages of Direct Invoice

Speed: Fastest processing, no PO or GRN steps Simplicity: Least administrative burden Appropriateness: Matches nature of service purchases Efficiency: Reduced paperwork and data entry

Limitations

Less Control: No upfront approval of expense Budget Risk: Expense incurred before approval Fraud Risk: Easier to submit fake invoices Tracking: Harder to track commitments

Mitigation: Strong approval process, segregation of duties, regular review

Related Documentation

Similar Workflows

• Standard Procurement Workflow - Full PO and GRN process
• Direct GRN Workflow - Skip PO but record goods receipt

Daily Operations

• Purchase Invoice Processing - Detailed invoice procedures

Module Documentation

• Purchasing Module - Complete purchasing capabilities
• Financial Accounting Module - AP and expense management
• Supplier Maintenance - Supplier setup