Purpose

To establish a standardized procedure for processing supplier and contractor invoices, ensuring payments are accurate, timely, authorized, and compliant with internal controls and financial policies.

Scope

This SOP applies to all departments involved in the procurement and payment of goods or services, including the Finance/Accounts Payable team, Department Heads, and Purchase Order requesters.

Roles & Responsibilities

• Vendor / Supplier
• Issues invoice for goods/services rendered.
• Invoice Submitter (Internal Stakeholder)
• Forwards or uploads the invoice into the finance system.
• Finance / Accounts Payable (AP)
• Verifies, codes, and enters the invoice into the system; manages approvals and payment runs.
• Department Approver / Manager
• Reviews and approves invoices related to their cost center or project.
• Finance Lead / Controller
• Approves high-value payments and monitors compliance.

Process Steps

1. Invoice Submission & Intake

Invoices may arrive via email, vendor portal, or physical mail. The invoice submitter forwards it to the designated AP inbox or uploads it to the finance system.

To be processed, each invoice must include:

• Vendor name and contact
• Invoice number and date
• Itemized list of goods/services
• Purchase Order (if applicable)
• Total amount due and payment terms

Invoices without essential information are rejected and returned to the sender with a request for correction.

2. Invoice Logging & Initial Review

AP logs the invoice in the accounting or ERP system (e.g. Xero, NetSuite, QuickBooks) and assigns it a unique tracking number.

The AP team verifies:

• Invoice is not a duplicate
• Vendor is an approved supplier
• Currency, tax, and totals are correct
• Invoice date and due date are valid

If a Purchase Order (PO) is required, the invoice is matched to the PO and receiving report. Discrepancies are flagged and investigated before proceeding.

3. Coding & Classification

The AP team codes the invoice to the appropriate:

• Cost center or department
• Project or client code (if applicable)
• General ledger account (e.g. marketing, software, professional services)

All fields must follow the organization’s chart of accounts to ensure accurate reporting. If unclear, AP consults the department head for clarification.

4. Approval Workflow

Once validated, the invoice is routed through the approval chain:

• <$1,000 → auto-approved or approved by department head
• $1,000–$5,000 → department head + finance lead

$5,000 → department head + finance lead + executive/CFO

Approvers review:

• Accuracy of invoice details
• Alignment with budget
• Confirmation that goods/services were received

All approvals are time-stamped and logged for audit purposes. Delays in approval trigger automated reminders after 3 business days.

5. Payment Scheduling

Once approved, the invoice is queued for payment based on:

• Vendor terms (e.g. Net 15, Net 30)
• Payment run schedule (e.g. weekly, biweekly)
• Cash flow considerations

The payment method is selected (bank transfer, credit card, check), and vendor details are verified (e.g. bank account on file).

AP ensures that early payment discounts are applied where applicable.

6. Payment Execution & Confirmation

During the scheduled payment run:

• Payments are initiated via the finance system or bank portal
• A payment confirmation is generated and saved
• Vendors are notified of payment via automated or manual email

Paid invoices are marked as “Closed” in the system, and payment details (transaction ID, date, method) are attached to the record.

Any payment failures or bank rejections are flagged and reprocessed.

7. Recordkeeping & Reconciliation

At month-end, AP reconciles all paid invoices with bank statements and updates the accounts payable ledger.

Key activities include:

• Verifying cleared transactions
• Resolving outstanding or partial payments
• Flagging aging payables for follow-up

All records are retained digitally for a minimum of 7 years, per audit and regulatory requirements.

Documentation & Tools

• Invoice intake email/portal
• ERP or accounting system (Xero, QuickBooks, NetSuite, etc.)
• PO management system (if used)
• Approval matrix
• Chart of accounts reference
• Monthly reconciliation checklist

Compliance & Financial Controls

• Only authorized approvers may approve invoices
• No invoice is paid without validation and approval
• Payment terms must be honored to avoid penalties or strained vendor relations
• Duplicate invoice detection is mandatory
• Records must be audit-ready and stored securely