What is invoice validation?

Updated on :  

08 min read.

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.

Meaning of 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. Invoice validation is 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.
Hide →