Invoice processing: the steps from inbox to payment, and where invoices get stuck

On the 12th of October, the AP team at a frozen food distributor in Sidoarjo gets a call from one of its transporters. The caller wants to know when an invoice for Rp 46,200,000 will be paid. It’s dated 1 September, for August’s refrigerated deliveries, on 30-day terms, so it was due on 1 October. AP has no record of it.

It turns up that afternoon in the inbox of the warehouse manager who books the trucks, where it has been since the day it was sent. From there it moves quickly, then slowly: AP types it in the next morning, waits two days for someone to confirm the cost centre, then six days for the operations director, who is travelling. It’s paid on the 22nd, three weeks late. Everyone who handled it spent perhaps twenty minutes on it in total. For the rest of those seven weeks, it was waiting.

Invoice processing is everything that happens to a supplier invoice between the vendor sending it and the payment being recorded. This guide covers each step, a worked example of where one month’s invoices spent their time, why the process gets stuck and how to fix it.

What is invoice processing?

Invoice processing is the part of accounts payable (AP) that turns a vendor’s bill into an approved, recorded liability and then into a payment. It’s the second half of procure-to-pay: the request, the approval and the purchase order come first, and invoice processing starts when the vendor asks to be paid.

Two measures tell you how well it works:

• Cycle time: the days from the invoice date to its approval for payment. Payment terms often run from the invoice date, so every day an invoice spends in the wrong inbox comes out of the time you have to process it.
• Touch time: the minutes people actually spend on it: typing, checking, asking and approving.

The gap between the two is time spent waiting, and it’s usually where the fix is.

The goal isn’t to pay every invoice as fast as possible. It’s to have every invoice checked and approved before its due date, so the payment run can pay it on the right day.

The steps of invoice processing

1. Receive. The invoice arrives by email, courier, WhatsApp or a vendor portal, and is registered with the date it reached you. Until then, finance doesn’t know the liability exists.
2. Capture. The vendor, invoice number, dates, lines, taxes, total and bank details go into the system, typed in or read from the document.
3. Validate. Is the vendor approved and the bank account the verified one? Is the invoice addressed to the right company, is it a duplicate and are the tax documents complete?
4. Code. The invoice gets its GL account, cost centre, project and tax treatment. For an invoice with a purchase order (PO), most of this comes from the PO.
5. Match. A PO invoice is compared with the purchase order and the goods receipt through 3-way matching. An invoice without a PO is checked against the approved request and the budget.
6. Approve. Exceptions and invoices without a PO go to the approvers in your approval matrix. A PO invoice that matches within tolerance was approved when the PO was raised, so many companies send it straight on to payment.
7. Schedule and pay. The approved invoice goes into the payment run that falls before its due date.
8. Post and file. The liability and the payment are recorded in the ledger, with the invoice, tax documents, PO, receipt and approvals kept together for the auditor.

A worked example: where one month’s invoices spent their time

The Sidoarjo distributor’s AP team of three then went through the 340 vendor invoices dated September, most of them on 30-day terms. For each one, they recorded when it moved from stage to stage and kept a rough log of the minutes spent on it. On average, per invoice:

Stage	Days waiting	Minutes of work
Before reaching AP	6.5	1
Waiting to be typed in	3.0	7
Coding and tax questions	2.5	5
Matching and exceptions	4.0	5
Approval	5.5	2
Total	21.5	20

Twenty minutes of work took 21.5 days, and the average hides the tail: 58 of the 340 invoices were approved after their due date. Three things stand out:

• The longest wait came before AP knew the invoice existed. Invoices spent 6.5 days on average in the inboxes of the people vendors had sent them to: warehouse managers, purchasing staff and a director’s assistant. While they were there, they weren’t in the AP ageing report, and the month-end close missed them unless someone remembered to accrue them.
• Typing was most of the work, but not most of the time. Data entry took 7 of the 20 minutes, about 40 hours of AP time across the month. Invoices still waited three days for it, because AP typed them in batches.
• Approval was slow for two minutes of work. Most of the 5.5 days were spent waiting for two directors, who approved in batches when they were in the office.

In total, the team spent about 113 hours on invoices that month, around 14 working days. Typing faster would have saved some of those hours. Only removing the waits would have got the 58 late invoices approved on time.

Why invoice processing gets stuck

• Invoices go to people, not to AP. Vendors send them to whoever placed the order, and that person has other work to do.
• Every channel is its own queue. Email, WhatsApp photos, courier envelopes and portals are each checked at a different pace. The same invoice sometimes arrives through two of them, which is how duplicates get entered.
• Nobody records the receipt date. Without it, nobody can tell whether an invoice was sent late or sat in the building, and the waits stay invisible.
• Data entry happens in batches. Invoices pile up until someone has a free afternoon, and the pile is biggest in the last week of the month.
• Questions are asked in chat. AP asks a requester for the cost centre or a missing faktur pajak on WhatsApp, and the answer comes when it comes.
• Exceptions have no owner. A price difference waits for procurement, a quantity difference waits for the warehouse and AP chases both.
• Approvals wait behind one person. An approver on leave or travelling holds every invoice routed to them, with no delegate and no deadline.
• Nobody can see the status. Vendors call AP, AP calls approvers, and the hours spent answering “where is my invoice?” don’t show up anywhere.

Invoice processing in Indonesia

• Tukar faktur. Many companies receive vendor invoices on set days through tukar faktur, giving the vendor a receipt (tanda terima), often with the date payment can be expected. That is the receive step: register each invoice and its receipt date that day, so the date you give the vendor is one you can keep.
• Faktur pajak. You can only credit the input VAT (PPN masukan) if the faktur pajak is complete and correct. Check at capture that the vendor’s name and NPWP, your company’s details and the amounts agree with the invoice, rather than finding a problem at month-end.
• PPh 23 on services. PPh 23 is withheld on many services, so the coding step should identify the invoices it applies to. Then the vendor is paid the right net amount and the withholding is recorded. Confirm the treatment for each category with your tax adviser.
• The right PT. In a group with several PTs, an invoice addressed to the wrong company or NPWP has to be reissued by the vendor. Check it when the invoice arrives, not when it’s due.
• Paper still arrives. Many vendors still send invoices by courier. Scan them on the day they arrive, so the paper goes to the file and the invoice goes into the process, and keep the originals for as long as your tax and audit obligations require.

Signs your invoice processing needs work

You probably need to look at your invoice process if any of these sound familiar:

• Vendors call to ask whether you received their invoice.
• You can’t say how many invoices have arrived but aren’t in the system yet.
• Only the invoice date is recorded, not the date the invoice reached you.
• AP spends the last week of the month typing.
• Cost centres and missing documents are chased on WhatsApp.
• Invoices are approved after their due date, then paid in a rush.
• Month-end accruals are guesses, because some invoices are still in inboxes.
• The same invoice is sometimes entered twice, once from email and once from paper.

An invoice is worked on for minutes and waits for weeks, so fix the waiting first.

How to fix invoice processing

1. Measure one month. For each invoice, note the invoice date, the date it reached AP and the dates it was entered, approved and paid. The biggest gap is where to start.
2. Give invoices one front door. Set up one AP email address per entity, print it on every PO and send it to every vendor in writing. Ask staff to forward any invoice that reaches them on the same day.
3. Register every invoice on arrival. Record the receipt date before anything is checked, so the clock is visible from the first day.
4. Stop typing what’s already printed. Capture the fields from the document and have AP check them instead of typing them.
5. Code from the PO, and set defaults for the rest. A PO invoice takes its coding from the PO. For regular vendors without one, such as utilities and rent, set a default GL account and cost centre.
6. Give approvals a deadline. Set one in your approval matrix, two working days for example, with reminders, escalation and a delegate for every approver who is away. Let PO invoices that match within tolerance skip a second approval.
7. Make the status visible. Let requesters and vendors see where an invoice is, from received to paid, so they stop asking AP.
8. Report the waits every month. Show the average days at each stage, the invoices approved after their due date and the approvers with the longest queues. Go through the worst few with the people involved.

---

How Procapy helps

In Proca to Pay, invoices are forwarded, uploaded or submitted by vendors, and ProcAI reads them in any format, from PDF and photo to e-invoice and scanned paper, in Indonesian and English, with no templates to set up. It extracts the vendor, amount, invoice date, due date, payment terms, lines, taxes and totals, and links the invoice to its purchase order. The clock starts on the day of receipt, visibly, so an invoice can’t sit unnoticed in an inbox. When your team corrects a field, ProcAI learns from it for the next invoice from that vendor.

Procapy then compares the invoice, PO and receipt line by line within the tolerances you set, and flags duplicate invoices, changed bank accounts and unknown vendors before approval. Invoices without a PO are matched against the approved request and budget instead. The GL account and cost centre are suggested from the vendor, category and history, and the suggestions learn from your team’s corrections. Only the exceptions reach a person. ProcApprove routes what needs approval through your delegation-of-authority matrix, approvers act from their phone, and reminders, escalation and out-of-office delegation run themselves. Vendors can see the status of their invoices from received to paid, and cleared invoices land in payment runs by due date and are posted to Dynamics, SAP, Xero, QuickBooks or ABSS with every document and approval linked.

For the review and chasing that’s left, Proca Agents can take on first-pass invoice review and follow up outstanding approvals, within the limits you set. Most teams are live in under two weeks. The finance team resources page covers how Procapy takes capture, coding and chasing off your team. Book a 30-minute walkthrough, bring your approval matrix and a month of vendor invoices, and we’ll map the manual steps in your invoice process to Procapy live.