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Invoice Management is the process of creating, tracking, paying, and recording suppliers’ invoices.
Automating invoice management brings multiple advantages such as faster processing time, reduced errors, and better visibility into accounts payable data.
Invoices – they can be a headache.
Especially when you don't have a system in place, they can pile up and lead to mistakes and delays.
In fact, 82% of finance departments struggle with invoice volume. That's why invoice management is a crucial internal function that affects the efficiency and relationships between you and your business partners.
This guide covers what invoice management is, why it matters, and how to do it right with the best solutions.
Invoice management is the process used to track and pay invoices, from receiving the invoice, recording it, validating its accuracy, paying the invoice, and updating a record of the payment.
This management is handled by the account payable team. In case of any disparities or issues, the invoice is sent back to the contact person and subsequently to the suppliers for revision.
Invoice management can be done manually or with the help of invoice management software that automates some or all of the steps.
In this section, we will describe the main process of invoice management.
The process kickstarts when a point of contract or an accounts payable team (AP team) receives supplier invoices, either by email, paper document, faxed document, or electronic invoice through their AP software.
After the reception, the AP team will examine the fundamentals of each invoice, including the invoice number, date, amount, description of goods or services, payment terms, and taxes applicable.
The next step is to do a three-way validation, which is the matching of invoices with the goods received and the purchase orders. In some cases, invoices may also need to match with other related documents, such as an inspection report (which makes it a four-way validation and so on).
The validation process can be done manually by an account payable team or it can be done automatically using accounting software that can match data between multiple documents.
The record-keeping process can be done by manually filing or scanning the invoices, labelling (based on a suitable logical system, such as by supplier name, date, category, etc.), and storing them securely offline or online.
Alternatively, the record-keeping process can be done using invoice OCR and accounting software that can read and extract the data and export it to the company's system, such as a spreadsheet, an ERP, or accounting software.
Keeping a record of invoices helps with auditing, reporting, tax filing, and business financial analysis.
Once an invoice is validated, it needs to be approved for payment. This approval process varies by business. Some invoices can be approved automatically, while others need final executive approval.
In addition to verifying its legitimacy, factors considered during the invoice approval process include budget availability and compliance with internal policies.
There are two methods for notifying approvers: human communication or electronic notifications through a workflow system. Likewise, the final step of approval can be done either by signing off with a pen or by using an electronic signature.
After the authorized personnel have approved the invoice, payment can be made using various methods, including bank transfer, credit card, check, wire transfer, or online payment platforms
Again, this can be done manually or automated. The perk of automation, however, is that the invoice payment can be scheduled and paid in multiple.
Either way, the payment should be made within the agreed terms to avoid late fees, penalties, or strained relationships with suppliers.
Once the payment has been processed, invoice status will be recorded as paid.
If this process is carried out manually, the paper invoices are kept offline or scanned manually and stored online. However, with automation, the archived invoices are securely stored in a searchable repository. This provides convenient access during audits.
Managing invoices manually can be a tedious, time-consuming, and error-prone task. With a heavy workload, you may end up missing payments, which can lead to accumulating debt and credit damage that ultimately affects your cash flow.
Fortunately, invoice management automation can streamline the entire process, from extracting information, matching invoices with purchase orders, automatically routing invoices to the appropriate approver if it matches or routing them back to the point of contact if it doesn’t, and so on.
Here are the steps that businesses can take to better automate their invoice management process in 2025.
The first step is to choose the service that fits your industry and business needs, and then consider the following:
The second step is to consider the ability of the invoicing software to integrate with your business operation’s existing systems. This can help streamline the process and avoid data duplication and inconsistency.
Your invoice management tool should be compatible with:
You should be able to pay supplier invoices within the invoice management tool portal. This can reduce errors, duplicate payments and delay. Plus, you can track and keep records of transactions electronically.
There are different digital payment solutions available such as:
Things to consider when choosing your best payment solution include
Automated invoice management operates like a step-by-step decision-making system, moving forward based on outcomes at each stage.
Plus, with a wide range of automation options for different aspects of invoice management, such as payment reminders, and analytics capabilities, it offers several key advantages.
Let's take a closer look at them.
As the automated invoice management process is faster compared to the manual process, it allows for quicker verification, approval and payment.
In this way, you can avoid late fees and keep good relationships with suppliers.
Plus, If the supplier offers an early payment discount policy, you can take advantage of it. A survey points out that 73% of AP teams say they obtain more early-pay discounts after implementing automation.
Moreover, timely payment naturally safeguards your credit scores, which is crucial for long-term business success.
With automation, you can eliminate manual tasks such as data entry, printing, and mailing. This can save you time, money, and resources that you can use for other core aspects of your business. 76% of employees in the AP department report increased productivity thanks to automation.
Human errors such as typos, miscalculations, misclassifications, duplications, omissions, etc., can occur at any stage of the manual invoice management process. These errors may result from workload fatigue or miscommunication and they can affect timely payment, compliance, and reporting.
However, automating invoice management can reduce those mistakes. A survey reveals that 71% of AP teams report fewer errors after using automation.
Invoice automation software stores invoices in a secure cloud-based platform that protects your data from unauthorized access, loss, or damage. You can also encrypt your invoices and use digital signatures to verify authenticity.
While invoice management can be done both manually and automatically, there are different scenarios when choosing to use one over the other. This section provides a quick overview of the two.
| Scenario | Manual Invoice Management | Automated Invoice Management |
| Approval rate | Longer approval times | Efficient and robust approval process |
| Payment processing | Team members will need to manually make payments | Streamlined payment processes with digital payment systems |
| Analysis | Data may spread out across different channels and individuals | Improved visibility and comprehension of accounts payable data |
| Scalability | Increased manual work when business and volume grows | Scalable operations when volume increases with automated invoices |
The manual approval process takes many steps from sending invoices to an authorized person, waiting for their response, and manual follow-ups. This can be slow especially if there are multiple approvers. And that’s why 37% of companies cite manual invoice routing as their pain point. A report also points out that a single invoice can take up to 8.6 days when processed manually.
Conversely, automated invoice software uses predefined rules to route the invoice to the right approver based on the criteria such as amount, vendor, department, etc. It can also track and automatically send reminders at set intervals. Reportedly, an invoice can be processed in 3 - 5 days using automation.
Manual payment processing requires team members to manually enter the payment details into the system, print checks or initiate bank transfers, record the payment transactions, and reconcile the accounts. This means it involves a lot of paperwork, data entry, and manual verification.
Automated payment processing, on the other hand, uses a digital payment system integrated with various payment gateway such as credit cards, debit cards, wire transfers, ACH transfers, PayPal, etc. It automatically generates and sends payment confirmations, and receipts and updates the payment status and balance in the system with minimal human intervention.
When managing invoices manually, high chances are that the data is scattered across multiple channels and people. This can result in communication gaps and a time-consuming process of consolidating everything.
Automated invoice processing gives you better visibility and understanding of your accounts payable data. You can analyze spending patterns, assess vendor performance, track discounts, monitor key metrics, generate reports, etc.
If you rely on manual labour to handle your invoice, you’ll need more people as invoices increase.
With employees, you don’t only need to hire them but also retain them, which adds to your operational costs and complexity.
But with automation, at worst, high chunks of invoices mean an upgraded plan and time allocation. All of which require a significantly lower budget compared to the costs associated with hiring and retaining additional employees.
When it comes to invoices, it's important to acknowledge that they can vary depending on the industry, business nature, and prearranged terms. Different types of invoices are tailored to specific situations and may require adjustments in invoice management.
Let’s see some of the most common types
A commercial invoice is used for international transactions and to adhere to international trade regulations.
A pro forma invoice is an invoice sent before the goods are delivered to ensure mutual agreement, estimate costs, or declare the value of exported goods to customs. It is commonly used in export sales.
An interim invoice is an invoice that breaks down payment into smaller portions and is sent at predetermined stages throughout the project's development to request payment for that portion.
A recurring invoice is a type of invoice that is regularly issued to a customer for the same service at consistent intervals. This is often used for subscription models or instalment payments.
Now that we understand the basics of invoice management, let's take a look at the top invoicing software that can help streamline your invoice management in 2025.
Xero is an online invoicing software that simplifies the account receivable and accounts payable process. With Xero, you can download payment files and import them directly into your online banking system, pay or schedule payments for multiple bills at once using batch payment features, keep track of unpaid bills, and get a clear overview of bills, ultimately helping to predict cash flow.
Xero offers a clean user interface and security compliance with the premier global information security management system (ISMS) standard. It also provides encryption and multi-factor authentication.
It comes with a 30-day free trial and three plans starting from just 13 USD per month.
Zoho Invoice is a free online software for small businesses, offering both account payable and account receivable options. It offers vendor portals where vendors can directly upload invoices and a feature where you can make payments for multiple invoices. The software also includes a notification system to keep you and your vendors updated.
It prioritizes security with its framework based on OWASP standards and Information Security Management System (ISMS) standards. It also ensures that data is encrypted, retained, and backed up for added protection.
Zoho Invoice offers a free option for users, and it also provides five upgraded plans with pricing starting at 10 USD per month.
Zipbook is an accounting software tailored for small businesses. While focusing on accounts receivable, it also includes an expense organization feature that allows you to organize a list of vendors and categorize types of expenses.
Your data is secure with Zipbook with the use of 256-bit TLS encryption, along with multiple encryptions, optional two-factor authentication, and regular security testing.
The basic features of Zipbook are free, and you can upgrade to a paid subscription starting at 15 USD per month for additional services.
Invoice management is the process businesses use to pay and handle their invoices efficiently. Today, switching from manual to automated invoice management can be one of the most beneficial choices you can make for your business.
And the best part about invoice management automation is: it isn't just for big companies. Small businesses can also save time and money by using dedicated invoice management tools designed for them.
Even the most diligent accountants make mistakes sometimes, but with automation, you never accidentally miss a payment due date. And when you’re dealing with several invoices, you can prioritize which to pay first so that you don’t run into cash flow issues or pay one invoice early at the expense of struggling to find cash for another that’s due earlier. In a nutshell, automation makes your entire payment system failsafe!
One of the biggest issues with invoice management is disjointed or siloed departments that don’t have full freedom to share invoicing data with each other. With invoice management automation tools, you’re putting all of that financial and invoice data into one place for a full-picture view of how, where, and when money is spent. Every stakeholder can access the system to see it all rather than move through inefficient red tape.
