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Invoice of for Accounting

think invoices are just mundane pieces of paper or electronic documents ever wonder what happens when that invoice hits the accounts payable department probably not but we're here to share that it's a lot more complicated than you might imagine and get it wrong or try and Skip One of these steps and you could end up with non-payment you could end up being put on credit hold you could end up making a duplicate payment or even worse fraud that's right fraud stick around for The Secret Life of an invoice your company can't afford for you to get it wrong because what could happen is absolutely horrifying hey guys I'm Mary Schaefer founder of apnow the place where we curate the latest business intelligence about accounts payable and payments for those who work in manager have responsibility for the accounts payable and or payment function now before we get started with the 17 stages in the life of an invoice that's right 17 stages the lines share by the way of which are spent in the customers accounts payable shop I want to make sure that we're on the same page and we're all talking about the same state same thing so let's start with a very brief definition an invoice is simply a bill okay a com a bill for the company except in the corporate world we call them an invoice and of course the invoice contains all pertinent details related to the general action so let's Dive Right In you know the birth if you will of the beginning point or what I call phase one in the life of an invoice is when the invoice is created now hopefully it is created with some care so that the details are on it are correct and there will be no further problems when the customer receives it but as we know care is not always taken when care is taken there is a phase two um where the invoices actually reviewed before it is sent many organizations will go out of their way to review uh larger invoices but this is a step sometimes it happens sometimes it doesn't phase three is kind of the delivery or the sale ascending of the invoice we used to say it was mailed but today it can be emailed or mailed and in fact more invoices are emailed than are mailed and unfortunately some folks are doing both with the same invoice which creates a lot of problems at the at the customer's location if they receive both a paper invoice and one that comes through electronically via emails whatever the email is mailed and then it is delivered it is received that's phase four when the invoice is received now sometimes the data on the invoice at that point is entered sometimes it's entered afterwards after it's approved but it is received and phase five not not doesn't happen always but happens most of the time in today's environment it is scanned and or converted to an electronic document by some other method you may have sent it through a portal in which case it came through as an electronic document but but one way or the other in most invoices do get converted into some sort of an electronic document at that point typically in the accounts payable department it is then sent for approval so accounts payable sends it to the uh purchasing department or the marketing one whoever ordered the goods for them to approve for payment then the uh uh item is returned in Phase seven it is returned with the approval now a lot of times you would think well then you just go ahead and pay it but the reality is many many times when that invoice is approved it has not been reviewed so the person who got it said oh yeah ABC company yeah we did business with a b c company and uh yeah we ordered widgets from them and they just approve it but nobody actually they don't actually take the time to look at the data and say oh no that's the wrong price or no we ordered 45 which it's not you know 48 Widgets or whatever so anyway there's an approval on it which is a step in the right direction and then with that that approval it is sent back to accounts payable phase eight if the data wasn't entered when the invoice was first received when it comes back with that approval it is entered now and here comes phase nine the fun step the funds the step where a lot of the problems first start to show their ugly head at this point the invoice is matched against the purchase order that the company sent out and the receiving document so these three documents are matched um did the does the invoice show the amount that we ordered for the price that we agreed on and was it actually received and if all three documents are in agreement um then it is scheduled for payment if everything agrees if we go into phase 10 the item is scheduled for payment but what if it doesn't and I have to say estimates vary but somewhere between 25 and 35 percent of all invoices will not match again it depends upon your industry and a whole bunch of other things but there will be a a group of invoices that don't match I call these discrepit matches and then the discrepancy has to be resolved now who's responsible for is helping that discrepancy that will vary from company to company but in most cases I like to say we give it to the person with the least amount of information uh who's to do this and that is the person in the accounts payable you know they didn't order it they didn't fulfill the order but yeah their their tasked with resolving that discrepancy um we hope that the discrepancy is resolved before the uh payment due date because if it's not then you may get a second invoice but anyway if there's a discrepancy it's put on the pile so to speak which may be an electronic pile of invoices to be reconciled and how fast that happens will vary from company to company some places will make it a high priority very few by the way um in most cases folks don't really like trying to resolve these discrepancies and but they do get to eventually and then the person has to either call or email the supplier and or purchasing to try and figure out what is correct and what amount should be um paid like I said hopefully we resolve the discrepancy before the due date but often this doesn't happen so phase 12 is the point where the discrepancy is resolved and the item can join those others who pass the three-way match and in phase and and scheduled for payment that scheduling for payment will depend upon what payment terms were agreed upon and may or may not be shown on the invoice they should be on the invoice but they're not often not out next comes phase 13 with which many of you are going to think should be the last step but I'm it's not okay 13 we make the payment if it's an electronic payment it's it's you know sent over to the bank typically uh there'll be a second uh set of eyes that looks on it and the payment will be made if the payment is being made by a man by a paper check check may be put on electronically but we have phase 14 uh where somebody actually puts a manual signature on which happens to typically only with larger checks and what's large will vary from company to company but anyway a manual uh signature will be put on the um on the check the check probably will have to be put in an envelope sometimes there's an automated process for this uh many sometimes there's not okay sometimes there's backup attacks sometimes there's not but uh signature is put on and then the check is mailed and the backup is pulled and then somebody has to uh file it in Phase 15 if we're in a paper environment we are less and less somebody actually has to take that paper check and uh put it in in file it away in case anybody needs to reference it which will happen um from time to time on certain invoices and you know hopefully they file it and that's the list we have a c or here of that item but you know oftentimes not because if there's a discrepancy or if a vendor comes back and says you didn't pay me Etc you may have to go back and refer to it also you may have to pull it during audit if the your Auditors want to see that particular invoice now after being in storage if it's a paper item for a few years it will be transferred to what we call Cold Storage um although in today's environment even if it was a paper item right up through the payment process it may have been scanned afterwards we called scanning after the fact and converted into an electronic item so we have less and less of this paper storage and then consequently because we have less and less of it less and less of what we call Cold Storage which then we used to ship the documents off-site usually after a few years every company had a different process for the difference time frame depending upon um you know how much space they had and this was you know many of you know Iron Mountain from those days but again most most likely it is converted to an electronic document and if it is scanned um the life of the paper invoice will be relatively short because the paper will be destroyed but that electronic file could live on indefinitely and when once it's converted to an electronic document there is not the same need if you will to hold on to the information it doesn't take as much space so we don't have to worry about you know cleaning out our file cabinets and moving it to Cold Storage So in theory it can live on indefinitely now as you might suspect from this discussion there are many things that can throw a monkey wrench into the smooth flow of an invoice from one phase to the next so that's why we did a recently did a short video on invoice processing tips to help our viewers ensure as many of their invoices as possible will make a swift trip from receipt of invoice to payment without any hiccups along the way you can watch it right now using the link that will appear momentarily on your use YouTube screen and is also in the description below as always I appreciate your likes your subscribes and so a big thank you to everyone who has hit that thumbs up button