Purchase Invoice Processing

Master the critical process of matching supplier invoices to purchase orders and goods receipts, ensuring accurate payments and financial records.

What is Invoice Processing?

Purchase invoice processing involves:

• Receiving supplier invoices
• Matching invoices to POs and GRNs (three-way matching)
• Verifying quantities, prices, and calculations
• Resolving discrepancies
• Obtaining approvals
• Posting to accounts payable
• Scheduling payment

Before You Start

Prerequisites

• Supplier invoice received
• PO exists (for standard purchases)
• GRN completed (for goods purchases)
• Supporting documents available
• Your user account has invoice processing permission

What You Need

• Supplier’s invoice (original)
• PO number (usually on invoice)
• GRN number (if goods receipt)
• Calculator for verification
• Access to previous invoices for comparison

Estimated Time

• Clean match (invoice matches PO/GRN exactly): 5-10 minutes
• With variances (discrepancies to resolve): 20-60 minutes
• Service invoice (no PO/GRN): 10-15 minutes

Invoice Receipt

Step 1: Receive and Log Invoice

Invoice arrival channels:

Email (most common):

• Save PDF to designated folder
• Forward to AP inbox
• Note receipt date

Mail/Post:

• Open mail
• Date stamp invoice
• Scan immediately
• Forward physical copy to filing

Supplier Portal:

• Download PDF from portal
• Save to invoice folder
• Mark as downloaded

Hand Delivery:

• Get acknowledgment from deliverer
• Scan or process immediately

Initial Log: When invoice arrives:

1. Log in receiving register or system
2. Note: Date received, supplier, invoice number, amount
3. Assign to processor
4. Set due date reminder

Step 2: Initial Invoice Validation

Quick checks before processing:

Valid Tax Invoice Requirements:

• Supplier name and address
• Tax registration number (if VAT/GST invoice)
• Unique invoice number
• Invoice date
• Your company name (not another customer!)
• Description of goods/services
• Quantity and price
• Tax calculation shown separately
• Total amount
• Payment terms
• Supplier bank details (for payment)

Red Flags:

• ❌ Duplicate invoice number (check previous invoices)
• ❌ Wrong company name (might be for different entity)
• ❌ Suspiciously low/high amount
• ❌ Bank account different from usual (fraud risk)
• ❌ Invoice date in future
• ❌ Poor quality/unprofessional format
• ❌ Tax calculations incorrect

If Invoice Fails Validation:

1. Hold invoice, don’t process
2. Contact supplier for clarification/correction
3. Document issue in system
4. Wait for corrected invoice

Processing Standard Invoice (With PO and GRN)

Step 3: Navigate and Start Invoice Entry

Navigation: [Purchasing > Purchase Invoices > New Invoice]

Or: [Accounts Payable > Supplier Invoices > New]

Select Invoice Type:

• Against PO: Standard invoice (most common)
• Against GRN: Direct match to goods receipt
• Without PO/GRN: Service invoice (direct entry)

For Standard Invoice:

1. Click New Invoice or New Purchase Invoice
2. Select Against Purchase Order or Against GRN
3. Continue to next step

Step 4: Enter Invoice Header

Document Information:

• Invoice Number: Enter exactly as on supplier invoice
  • System checks for duplicates
  • If duplicate warning: Verify not already processed
• Invoice Date: Date on invoice (not received date)
• Received Date: When you received it (auto-fills to today)
• Due Date: Calculated from invoice date + payment terms
  • Or manual entry if due date stated on invoice
• GL Date: Accounting period to record expense
  • Usually same as invoice date
  • Change for period-end adjustments

Supplier Information:

• Supplier: Start typing name, select from dropdown
  • System auto-fills supplier details
• Currency: Auto-filled from supplier/invoice
  • Change if invoice in different currency
• Exchange Rate: If foreign currency
  • System uses current rate
  • Override if invoice shows specific rate

Reference Information:

• PO Number: Select PO this invoice is for
  • Search by PO number
  • Or search by supplier and date range
• GRN Number: Select GRN if matching to GRN
  • May auto-populate from PO
  • Or select manually
• Supplier Reference: Their reference from invoice
• Your Reference: Internal reference if needed

Step 5: Match Invoice to PO/GRN (Three-Way Matching)

System displays:

• PO lines (what you ordered)
• GRN lines (what you received)
• Invoice entry fields (what you’re being charged)

For each line item:

Review PO and GRN Information

Purchase Order:
Item A: 100 units @ $10.00 = $1,000

Goods Receipt:
Item A: 95 units received (5 short)

Expected Invoice:
Item A: 95 units @ $10.00 = $950

Enter Actual Invoice Information

Invoice Line Fields:

• Item: Auto-filled from PO/GRN
• Description: Auto-filled, verify matches invoice
• Quantity: Enter quantity on invoice
• Unit Price: Enter price on invoice
• Amount: Auto-calculated (Qty × Price)
• Tax Code: Auto-filled, verify correct
• Tax Amount: Enter tax amount from invoice

System Performs Matching:

Compares:

1. PO vs Invoice: Ordered price vs invoiced price
2. GRN vs Invoice: Received quantity vs invoiced quantity
3. PO vs GRN: Ordered vs received (already known)

Matching Scenarios:

Clean Match ✓:

PO: 100 @ $10 = $1,000
GRN: 100 received
Invoice: 100 @ $10 = $1,000
Status: Clean match, no variance

Quantity Variance ⚠:

PO: 100 @ $10 = $1,000
GRN: 95 received (5 short)
Invoice: 100 @ $10 = $1,000
Issue: Invoice for 100 but only received 95

Price Variance ⚠:

PO: 100 @ $10.00 = $1,000
GRN: 100 received
Invoice: 100 @ $11.50 = $1,150
Issue: Price increased $1.50/unit = $150 total

Amount Variance ⚠:

PO: 100 @ $10 = $1,000
GRN: 100 received
Invoice: 95 @ $10 = $950 (correct)
         + Freight $200 (not on PO)
         Total: $1,150
Issue: Additional freight charge

Step 6: Handle Variances

System flags variances:

• Red/yellow highlights
• Variance report
• Tolerance check (within acceptable range?)

Quantity Variance Resolution

Scenario: Invoice 100 units, GRN shows 95 received

Actions:

1. Verify GRN is correct: Check physical receipt records
2. Check if partial delivery: Is balance still coming?
3. Contact supplier:
   • “We received 95, your invoice shows 100”
   • Request revised invoice for 95, OR
   • Confirm balance is coming (wait for second GRN)
4. Resolution options:
   • Wait: For revised invoice
   • Adjust: Enter 95 on invoice (with approval)
   • Hold: Until balance delivered and second GRN created
5. Document: Note in invoice remarks why adjusted

Price Variance Resolution

Scenario: PO price $10, invoice price $11.50

Actions:

1. Check PO: Verify PO price is correct
2. Check quotation: What was quoted price?
3. Contact purchasing:
   • Was price increase authorized?
   • Did supplier notify of increase?
   • Is there a contract locking price?
4. Contact supplier if unauthorized increase
5. Resolution options:
   • Reject invoice: Request invoice at PO price
   • Accept with approval: Get manager approval for increase
   • Negotiate: Split the difference
   • Return goods: If significant increase and unacceptable
6. Document: Approval for price variance

Additional Charges (Freight, Handling, etc.)

Scenario: Invoice includes $200 freight not on PO

Actions:

1. Check delivery terms:
   • FOB: Freight should be on invoice
   • Delivered: Freight should be included in unit price
2. Verify charge is legitimate:
   • Check delivery documents
   • Typical for this supplier/route?
   • Amount reasonable?
3. Options:
   • Accept: If legitimate and reasonable (get approval if needed)
   • Query: If unclear or seems high
   • Reject: If not per agreement
4. How to enter:
   • Add separate line item for freight
   • G/L Account: Freight-In or add to purchase cost
   • Get approval if required

Step 7: Verify Tax Calculation

Tax Verification Steps:

1. Check Tax Rate:

Item Category: Standard rated goods
Expected Tax Rate: 18% (example)
Invoice Tax Rate: Should be 18%

2. Verify Tax Calculation:

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

Manual check: $1,000 × 0.18 = $180 ✓

3. Check Tax Treatment:

• Standard rated: Normal VAT/GST rate
• Zero-rated: 0% rate (should show on invoice)
• Exempt: No tax (invoice shouldn’t show tax)

Common Tax Issues:

Issue: Tax amount doesn’t match calculation Fix: Check if rounding, or contact supplier

Issue: Wrong tax rate applied Fix: Contact supplier for corrected invoice

Issue: Tax on exempt items Fix: Query with supplier, should not be taxed

Issue: Mixed tax rates on invoice Fix: Verify each item’s tax treatment separately

Step 8: Attach Supporting Documents

Navigation: Click Attachments tab

Required Documents:

1. Supplier Invoice (PDF or scan):

• Original tax invoice
• All pages
• Clear and legible

2. Purchase Order:

• Usually already attached to PO in system
• If not, attach copy

3. Goods Received Note:

• Usually linked in system
• If physical process, attach copy

4. Correspondence (if applicable):

• Email approvals for variances
• Supplier responses to queries
• Manager approvals for exceptions

Upload Process:

1. Click Add Document
2. Select file (PDF, image, email)
3. Choose document type: “Supplier Invoice”
4. Add description: “Tax invoice INV-12345”
5. Upload
6. Repeat for additional documents

Step 9: Review Invoice Totals

Before submitting, verify:

Calculations Check:

Line items subtotal: $2,000
Freight/charges: $200
Subtotal: $2,200
Tax (18%): $396
Invoice Total: $2,596

Compare to Physical Invoice:

• Subtotal matches
• Tax amount matches
• Total amount matches exactly
• Currency is correct
• All line items entered

If Totals Don’t Match:

1. Recheck each line item
2. Verify tax calculation
3. Check for missing lines
4. Check for additional charges
5. Compare to invoice line-by-line

Approval Workflow

Step 10: Submit for Approval

When ready:

1. Click Submit for Approval
2. System validates:
   • All required fields complete
   • Invoice total entered
   • Tax calculations reasonable
   • Matching status (within tolerance or approved)
   • Documents attached
3. Fix any validation errors
4. Confirm submission

System Routes Invoice:

Based on:

• Invoice amount
• Variance percentage
• Matching status
• Expense type
• Your approval limits

Approval Hierarchy Example:

Notification:

• Approver receives email/system notification
• You receive confirmation of submission
• Status changes to: Pending Approval

Step 11: Track Approval Status

Navigation: [Purchasing > Purchase Invoices > My Invoices]

or [Accounts Payable > Invoice Status]

Status Meanings:

• Pending Approval: With approver, awaiting decision
• Approved: Approved, ready to post
• Rejected: Rejected, see comments
• Query: Approver has questions
• On Hold: Temporarily held

If Invoice is Queried or Rejected:

Actions:

1. Read approver’s comments
2. Understand the issue
3. Take corrective action:
   • Get more information
   • Contact supplier
   • Correct data entry error
   • Get additional approvals
4. Respond to approver or resubmit

Common Rejection Reasons:

• Price variance not explained
• Missing supporting documents
• Duplicate invoice
• Invoice for wrong company
• Service not confirmed received
• Budget not available

Posting Invoice

Step 12: Post Approved Invoice

Once approved:

Navigation: Open approved invoice

Final Review:

• All approvals received
• Documents attached
• Amounts correct
• GL date correct for period
• Tax treatment correct

Post Invoice:

1. Click Post Invoice or Confirm Invoice
2. System processes
3. Accounting entries created
4. Payable recorded
5. Payment scheduled

Accounting Entries Created:

For Inventory Purchase:

Debit: Inventory                      $1,000
Debit: Freight-In                        $200
Debit: Input Tax                         $216
Credit: Accounts Payable - Supplier            $1,416

For Expense Purchase:

Debit: Office Supplies Expense        $500
Debit: Input Tax                        $90
Credit: Accounts Payable - Supplier            $590

Invoice Status Updates:

• Status: Posted/Confirmed
• Payable amount: Recorded
• Due date: Active for payment
• Supplier account: Balance increased

Step 13: Schedule Payment

System automatically:

• Adds to payment due list
• Calculates due date
• Flags for payment run

Payment will be processed:

• On or before due date
• As part of payment batch
• Per payment terms

Early Payment Discount: If invoice has discount terms (e.g., 2/10 Net 30):

• System flags for early payment
• Calculates discount amount
• Schedules for discount date if possible

Processing Service Invoices (No PO/GRN)

For Services, Utilities, Subscriptions

Navigation: [Accounts Payable > Purchase Invoices > New Direct Invoice]

Process:

1. Enter Invoice Header:

• Invoice number, date, due date
• Supplier
• Currency
• Reference

2. Enter Line Items:

• Description: Clear service description
• Quantity: Usually 1, or hours/days
• Unit price
• Tax code
• G/L Account: Expense account (Critical!)
• Cost Center: Department
• Project: If applicable

3. Service Verification: Before processing:

• Service was actually received
• Service recipient confirms satisfactory
• Amount matches agreement/quotation
• No duplicate invoice

4. Attach Documents:

• Supplier invoice
• Service agreement/contract
• Service completion certificate (if applicable)
• Approval email

5. Submit for Approval:

• Routes to service recipient and manager
• Approvers verify service received
• Standard approval workflow

6. Post When Approved:

• Creates expense and payable
• Schedules payment

Special Scenarios

Credit Notes (Returns/Adjustments)

When supplier issues credit note:

Scenario: Returned damaged goods, supplier credits you

Process:

1. Receive credit note from supplier
2. Create credit note in system:
   • Navigation: [Purchasing > Credit Notes > New]
   • Type: Purchase credit note
3. Link to original invoice (if crediting specific invoice)
4. Enter credit details:
   • Items being credited
   • Quantities
   • Amounts
   • Reason
5. Attach documents:
   • Supplier’s credit note
   • Return authorization
   • Correspondence
6. Submit for approval
7. Post credit note:
   • Reduces payable
   • Can offset against future invoices
   • Or request refund

Accounting Entry:

Debit: Accounts Payable              $200
Credit: Inventory (or Expense)              $180
Credit: Input Tax                             $20

Duplicate Invoice

Scenario: Supplier sends same invoice twice

Prevention:

• System checks invoice number for duplicate
• Warning message if duplicate found

If Detected:

1. Verify: Is it truly duplicate?
   • Same invoice number
   • Same date
   • Same amount
2. Check: Was original already paid?
3. Action:
   • If duplicate: Reject, don’t process
   • If revised: Process as revision, note reference to original
4. Inform supplier: “Invoice already processed, payment scheduled for [date]”

Consolidated Invoice (Multiple Deliveries)

Scenario: One invoice covering multiple GRNs

Process:

1. Enter invoice as usual
2. Link to multiple GRNs:
   • System may allow multiple GRN selection
   • Or enter lines manually matching each GRN
3. Verify totals match all GRNs combined
4. Process normally

Partial Invoice Payment

Scenario: Dispute on part of invoice, want to pay undisputed portion

Process:

1. Create partial payment:
   • Note disputed amount
   • Calculate payable portion
2. Hold disputed portion:
   • Create debit note or adjustment
3. Communicate with supplier:
   • Explain partial payment
   • Provide remittance showing breakdown
4. Resolve dispute:
   • Process balance when resolved
   • Or issue debit note if not owed

Best Practices

Do’s

• ✅ Process invoices within 1-2 days of receipt
• ✅ Always verify three-way match
• ✅ Investigate all variances before approving
• ✅ Attach all supporting documents
• ✅ Verify tax calculations
• ✅ Communicate with suppliers about issues
• ✅ Document resolutions clearly
• ✅ File physical invoices systematically

Don’ts

• ❌ Process invoices without checking for duplicates
• ❌ Ignore price variances
• ❌ Pay before goods/services received
• ❌ Assume bank account details are correct (verify changes)
• ❌ Rush through invoice entry
• ❌ Skip service confirmations
• ❌ Process invoices with errors
• ❌ Create invoices for unconfirmed goods

Tips for Efficiency

Batch Processing

• Process all invoices from one supplier together
• Group similar invoices (all clean matches first)
• Set aside complex invoices for dedicated time
• Don’t mix invoice processing with other tasks

Use Technology

• Scan invoices immediately upon receipt
• Use OCR for data extraction
• Mobile apps for approvals
• Automated matching where available
• Email-to-system integration

Maintain Files

• Organize by supplier or invoice date
• Separate: Pending, Processing, Approved, Paid
• Digital folder structure mirrors physical
• Regular cleanup of old files

Communication

• Establish supplier contacts for invoice queries
• Template emails for common queries
• Regular reconciliation meetings with key suppliers
• Proactive communication on payment status

Monthly Tasks

Month-End Procedures

Before closing month:

• All invoices received processed
• All GRNs have been invoiced or accrued
• Reconcile supplier statements
• Review aged payables
• Process credit notes
• Accrue for goods received but not invoiced
• Review open POs for commitments

Accruals for GRBNI (Goods Received But Not Invoiced):

For GRNs without invoices at month-end:

Debit: Inventory/Expense         $5,000
Credit: GRN Accrual                      $5,000

(Reverses next month when invoice received)

Troubleshooting

Error: “Duplicate Invoice Number”

Cause: Invoice number already in system Fix:

1. Search for existing invoice
2. Verify if truly duplicate
3. If duplicate: Reject new invoice
4. If different: Check if supplier reused number (contact them)

Error: “Cannot Match to GRN”

Cause: GRN not completed or not found Fix:

1. Verify GRN exists in system
2. Check if goods actually received
3. Contact warehouse to complete GRN
4. Wait for GRN before processing invoice

Error: “Tax Calculation Error”

Cause: Tax amount doesn’t match system calculation Fix:

1. Check tax rate is correct
2. Verify tax treatment (standard, zero, exempt)
3. Check for rounding differences
4. Manually override if necessary (with approval)

Error: “Budget Exceeded”

Cause: Invoice exceeds available budget Fix:

1. Verify correct budget code
2. Check budget availability
3. Request budget increase if legitimate
4. Get approval to proceed over budget

Related Documentation

Workflows

• Standard Procurement Workflow - Complete purchasing process
• Direct Invoice Workflow - Service invoices
• Purchasing Overview - Daily tasks guide

Related Tasks

• Creating Purchase Orders - PO creation
• Goods Received Note Processing - GRN procedures

Module Documentation

• Purchasing Module - All purchasing features
• Financial Accounting Module - AP and payments
• Supplier Maintenance - Supplier management