What Is Invoice Verification And How Does It Work?

Last Updated December 5, 2023

In the complex web of business transactions, invoice verification is an essential process, often underemphasized yet hugely consequential. Incorrect invoices contribute to 61% of late payments—a compelling testament to the significance of efficient invoice verification.

The dangers of invoice fraud loom large, as even savvy business moguls are not immune, including ‘Shark Tank’ investor Barbara Corcoran, who fell prey to a sophisticated invoice scam where she lost nearly $400,000.

This article aims to shed light on the critical role of invoice verification, not only as a tool to facilitate on-time payments but also as a vital safeguard against potential fraud. Read on to learn more about how to check invoices and the steps to ensure accuracy in accounting and operations.

What Is Invoice Verification?

Invoice verification is a process businesses use to confirm that the products or services they receive match the details listed on the supplier’s invoice. This process ensures that invoices are accurate, and the business is not overcharged. Plus, it aids in detecting discrepancies or fraudulent activity.

Once the invoice is verified and approved, the payment process can proceed. Invoice verification is key to managing a company’s accounts payable and maintaining good financial controls.

Types of Invoice Verification

There are three common methods for invoice verification. Which method you should use will depend on the type of invoice being verified:

Checking Purchase Orders. This is the most typical type of invoice verification, where the details on the invoice are compared to the original purchase order.

Checking the purchase order against the invoice helps suppliers adhere to what was initially agreed upon. If there are any discrepancies in the price, quantity, or type of goods or services, they can be identified and the invoice can be reconciled, which is the next step following invoice verification.

Checking Goods Receipts. Goods receipts are an acknowledgment of the goods received from a supplier. These are generally documented with a goods received note (GRN), delivery note, or sometimes electronically in a supply chain management system.

During invoice verification, the details on the invoice are checked against the goods receipt document, which verifies that the delivery matches what is being billed. It includes checking the quantity and quality of the goods received against the details in the invoice. If a discrepancy is found, such as an invoice that charges more units than delivered, it needs to be investigated and resolved before payment is made.

Special Cases. Although most businesses rely on purchase orders and goods receipts to verify invoices, there are exceptional cases in invoice verification that cover a range of scenarios.

For example, some businesses have contracts with suppliers that include complex pricing structures, such as volume discounts, early payment discounts, or periodical price changes. In these cases, the goal is to ensure the accuracy and legitimacy of the invoices before they are paid. Teams must engage relevant stakeholders to verify the authenticity of the invoice to manage expenditures accurately and prevent potential fraud.

Invoice Verification Process: How Does It Work?

The exact process for invoice verification can vary based on the size and nature of the business, transaction complexity, type of invoice, and the specifics surrounding the financial controls and accounting systems. However, here are the general steps for how to verify an invoice:

1. Confirm Invoice Details

The initial step in the verification process involves thoroughly checking all the details on an invoice. This includes the:

• Price
• Quantity
• Description of goods or services
• Applied taxes or charges
• Total amount due

Any additional expenses or discounts should also be scrutinized. Compare the information written on the invoice against the purchase order or contract to ensure that the vendor is charging as per the agreement.

2. Check the Invoice Date

The invoice date is not just a simple date stamp—it’s an essential piece of information that has implications for payment schedules, financial reporting, and business accounting practices. It’s vital to check that the date is correct and falls within the expected timeline for the transaction. Inaccuracies cause confusion, misrepresentation of financial data, and cash flow problems from late payments if errors are not immediately identified and corrected.

3. Confirm Accuracy with Project Manager

The project manager, or employee in a similar role, typically has firsthand knowledge of the operational aspects of the procurement. They can confirm whether the goods or services were delivered as described on the invoice. This step is important because it integrates the operational and financial aspects of the transaction, ensuring the company pays what it actually receives and meets the required quality standards.

4. Verify Vendor Information

This step requires checking vendor details like name, address, and tax identification number to ensure they match company records. Confirming vendor information prevents payment errors and helps detect fraud attempts. Sometimes, it might also be necessary to verify bank details to ensure the payment is routed correctly for international transactions.

5. Note the Invoice Due Date

Avoid late payment penalties and ensure you’re taking advantage of any possible early payment discounts by noting the invoice due date. Plus, understanding the due date on the invoice is crucial for maintaining positive vendor relationships. Documenting this date allows you to better understand your working capital needs and ensure the payment can be scheduled well in advance.

6. Schedule Payment

Once the invoice is thoroughly verified and all the details are confirmed, it’s time to schedule the payment. The aim is to schedule the amount due within the due date parameters, while also balancing the need to maintain good relationships with vendors (and avoiding late fees) with the benefits of holding onto cash as long as possible. This step may be manual or automated if utilizing an invoice automation software.

Invoice Verification Checklist

An invoice review checklist is a great tool to ensure thorough and consistent verification of invoices. While the specifics might vary depending on the type of invoice you’re verifying (we mention this a lot, but it’s true), here’s a general checklist that could be used:

• Invoice receipt. Confirm that the invoice is received from a known supplier or vendor.
• Vendor information verification. Check that the records match the vendor’s name, address, and contact information.
• Invoice details. Ensure the invoice contains a unique invoice number and the correct date.
• Purchase order reference. Check if the invoice references a specific purchase order (PO). If it does, match the PO number and other details.
• Goods or services verification. Cross-verify the goods or services listed on the invoice against the purchase order and the GRN or service delivery note.
• Price verification. Confirm the price per unit, any discounts, taxes, and total amount align with the PO or agreed terms.
• Mathematical accuracy. Check the calculations on the invoice to ensure they are correct.
• Approvals. Ensure necessary internal approvals are obtained from the project manager or department head, depending on the company’s policy.
• Discrepancy resolution. If any discrepancies are found, they need to be resolved with the vendor before payment processing.
• Payment scheduling. Once verified and approved, schedule the payment based on the invoice’s due date.
• Recording and filing. Record the invoice in the accounts payable system and securely file all relevant documents (such as the invoice, PO, and GRN) for future reference and audits.

Required Documentation for Invoice Verification

The exact documentation can vary based on the nature of the transaction, the specific company practices, or industry regulations. However, some of the most common documents used in the invoice checking process include the following:

• A valid business license number
• Contract or agreement in cases of detailed services
• Purchase order to verify the same product or service
• Signed delivery order form with details
• Payment records for all declared expenses

Invoice Verification FAQs

How do I verify an invoice?

Verifying an invoice involves checking that the invoice’s details align with the actual goods or services you’ve received and the original purchase agreement or contract. The steps in the process include:

• Confirming vendor details
• Checking invoice details
• Cross-verifying with PO
• Confirming receipt of goods or services
• Verifying calculations
• Resolving any discrepancies
• Obtaining necessary approvals
• Scheduling payment
• Recording and archiving

What information do I need to verify an invoice?

To verify an invoice, you’ll need vendor information, invoice details (include a description of goods or services, cost, payment terms, due date, and PO reference) along with banking details and delivery details.

What does invoice verification mean?

Invoice verification refers to the process of ensuring that a bill received from a supplier accurately reflects the goods or services that were provided and aligns with the agreed-upon terms. This process involves cross-checking the invoice details against other documents like the purchase order and delivery note, confirming vendor information, verifying calculations, and ensuring the payment terms are as agreed. It helps companies maintain financial accuracy, prevent overpayments, and detect potential fraud.