Invoice Processing SOP

# Invoice Processing SOP

## Purpose
Implement to prevent duplicate payments, ensure correct GL coding, and maintain financial controls in your accounts payable process.

## When to Use
A step-by-step procedure for receiving, verifying, coding, approving, and paying supplier invoices with segregation of duties and audit trail requirements.

## Instructions
1. Review the template below and familiarise yourself with the structure
2. Replace all [bracketed placeholders] with your business details
3. Customise the tone and formatting to match your brand
4. Save in your preferred tool (Xero or QuickBooks)

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## Invoice Processing Standard Operating Procedure

### 1. Purpose and Scope
This SOP establishes the standard process for receiving, verifying, coding, approving, and paying supplier invoices. It ensures accurate financial records, prevents duplicate payments, maintains appropriate segregation of duties, and provides a clear audit trail. This procedure applies to all supplier invoices, regardless of amount or department.

### 2. Roles and Responsibilities
- **Accounts Payable (AP) Officer:** Receives, verifies, and codes invoices. Processes approved payments.
- **Department Manager:** Confirms goods/services received and approves invoices for their department.
- **Finance Manager:** Reviews coding accuracy, approves invoices over $2,000, and authorises payment runs.
- **Bookkeeper/Accountant:** Performs monthly reconciliation and resolves discrepancies.

### 3. Prerequisites
- Xero or QuickBooks account with appropriate user permissions
- Chart of accounts and tracking categories configured
- Approved supplier list maintained
- Segregation of duties enforced (the person who approves an invoice must not be the same person who processes payment)

### 4. Procedure

**Step 1: Receive the Invoice**
All supplier invoices must be directed to a central email address (e.g., accounts@yourcompany.com.au) or uploaded directly to the accounting system. Invoices received by individual team members must be forwarded to the central address immediately. Never process an invoice received only verbally.

**Step 2: Verify Invoice Validity**
Check each invoice for the following mandatory elements:
- Supplier's ABN (required for invoices over $82.50 including GST)
- Correct entity name and address
- Invoice number (unique, not previously processed)
- Date of issue
- Description of goods or services provided
- Itemised amounts with GST shown separately
- Payment terms
If any element is missing or incorrect, return the invoice to the supplier requesting a corrected version.

**Step 3: Check for Duplicates**
Search the accounting system for the invoice number and supplier name to ensure this invoice has not already been entered. Check for similar amounts from the same supplier in the current month. Flag any potential duplicates for review.

**Step 4: Match to Purchase Order (if applicable)**
For invoices related to a purchase order, perform a three-way match: compare the PO, the delivery/receiving record, and the invoice. Verify that quantities, unit prices, and totals align. Investigate and resolve any discrepancies before proceeding.

**Step 5: Code the Invoice**
Assign the correct general ledger (GL) account code, tracking category (department, project, or cost centre), and tax rate to each line item. Follow the coding guide for common expense types. If unsure of the correct code, consult the Finance Manager before entering.

**Step 6: Enter as Draft Bill**
Create a draft bill in the accounting system with all line items, correct coding, and the supplier's payment terms. Attach the original invoice document (PDF scan). Add a note if there are any special conditions or related approvals.

**Step 7: Route for Approval**
Send the coded invoice for approval based on the amount threshold:
- Under $500: Department Manager approval only
- $500 to $2,000: Department Manager approval
- Over $2,000: Department Manager + Finance Manager approval
Use the accounting system's built-in approval workflow or notify approvers via Slack.

**Step 8: Approve or Reject**
Approvers must verify: the goods or services were received, the amount is correct, and the expense is a legitimate business cost. Approve within the system or reject with a clear reason. Rejected invoices return to the AP Officer for resolution.

**Step 9: Schedule Payment**
Once approved, schedule the invoice for payment according to the supplier's terms. Batch payments into a weekly payment run (typically Thursday) to minimise transaction costs. Prioritise early payment discounts where available.

**Step 10: Process Payment and Reconcile**
The Finance Manager reviews and authorises the payment batch. The AP Officer processes payments via the banking platform. Once payments clear, reconcile the bank transactions against the bills in the accounting system. Mark bills as paid.

### 5. Controls and Segregation of Duties
- The person who enters the invoice must not be the person who authorises payment
- All invoices over $2,000 require two levels of approval
- Payment details (bank account changes) must be verified directly with the supplier via a known phone number before updating

### 6. Revision History
| Version | Date | Author | Changes |
|---------|------|--------|---------|
| 1.0 | [Date] | [Author] | Initial release |

### 7. Related Documents
- Chart of Accounts and Coding Guide
- Approved Supplier Register
- Purchase Order Policy
- Payment Authorisation Matrix

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**Complexity:** intermediate | **Setup time:** 20 minutes | **Tools:** Xero, QuickBooks, Zapier