What is invoice validation?

Invoice validation is a part of invoice management wherein all the vendor invoices are reviewed carefully for any errors or discrepancies. This validation can be done manually or automated through accounting software.

What is invoice validation?

Inaccurate billing may have a long-term impact on the company’s business as you may end up paying your vendors more than the contracted amount. Thus, a business needs to ensure that invoices received from your vendors are correct. Thus, invoice validation meaning can be understood as a process of reviewing invoices to identify discrepancies and get them rectified on time. The method of invoice validation involves checking of tax rates, the rate applied for sale of goods, GST registration details, taxable value, invoice reference number (IRN) in e-invoices, if e-invoicing is applicable etc.
 

This process takes a lot of time and effort if done manually. The manual process is prone to errors with an average 3-4% error rate. ClearCapture is an AI-based web/mobile application that helps detect non-compliant & fraudulent invoices coming from your suppliers. The tool helps to identify mismatches by comparing the invoice fields with the government/GST data. It will then provide a detailed report of all the invoices and highlight the information with discrepancies.
 

Benefits of invoice validation

Below are some of the benefits of performing the invoice validation process:

• Any errors are quickly identified. Thus, you can reach out to the vendor and correct the errors on time. It helps build better relations with vendors.
• It ensures that you pay only the agreed amount for the agreed quantity and quality standards.
• It helps avoid invoice-related frauds such as overcharged rates, duplicate billing, labour mischarging, etc.
• The validation path brings transparency in the process of invoicing and makes future forecasting easy.
• A growing company receives multiple invoices from multiple vendors. The company’s accounts payable department has to spend a lot of time tracking such invoices and checking their information before releasing payment. A proper invoice validation process helps save time and avoid delayed payments.
• Any invoice related non-compliance identified before booking in ERP helps save penalties & legal actions, which can be taken if ITC is claimed on all those wrong invoices.

Process of invoice validation 

The process of invoice validation involves the following steps:

1. Confirm delivery: The first step is to confirm the delivery of goods with the procurement manager. One should confirm the number of goods received with the invoice details.
2. Categorising the invoice: An invoice may be issued either in response to a Purchase Order or sometimes without. If an invoice is issued against a PO, then 2-way or 3-way matching may be performed to check the invoice details with the PO and Goods Receipt Note. 
3. Verify the name and GSTIN: The names and the GSTIN of the vendor and customer must be correctly mentioned for accounting and tax purposes.
4. Line item wise validation: This step involves checking all the details in the invoice line by line, such as invoice number, invoice date, PO reference number, quantity, rate, tax, the amount payable, etc. Any discrepancy is quickly identified in this step.
5. Price validation: In this step, all the rates for different goods are cross verified with the PO or as per the agreed contract. Further, the arithmetic accuracy of the entire invoice is also validated.

Problems of manual payables' invoice validation

Invoice validation is a critical process for the Accounts Payables (AP) team of any business. Hence, performing invoice validation manually or without the help or support of any automated systems can be detrimental for an enterprise, especially having huge invoice and vendor volume.

Some of the problems of undertaking invoice validation manually are-

• Business scale- The number of errors in invoice in any small organisation may be less impactful as these can still be easily spotted and corrected before processing the payment. But as the business grows, the faulty invoices lead to bigger accounting and payment release issues. Manual intervention in the process of invoicing in a scaling business could lead to more errors.
• Contract interpretation- The contracts and purchase orders are structured and worded most of times ambiguously. Any manual efforts to interpret without validations can mislead and involve misinterpretations, leading to incorrect data in invoices.
• Communication gaps between teams- If there is any lack of communication between the invoicing and accounts payable teams, especially where non-standard pricing is followed, leading to incorrect invoices. Most of the communication channels are manual ones posing a big challenge in this aspect. 
• Overriding SOPs- It gets difficult where one has to manually validate invoice leading to more time spent on reviews and authorisation. Manual process easily allows the in-charge to override SOPs and protocols to be followed for invoice validation, increasing chances of errors or omissions. 

Conclusion

Therefore, validation of invoices must be automated to reduce scope of human errors and keep the invoicing-to-pay process smoothly rolling in any organisation.