accounts-payable icon

Automated Invoice Processing: Workflow, Benefits, and Tips

Barbara Cook
By Barbara Cook
Barbara Cook

Barbara Cook

Barbara is a financial writer for Tipalti and other successful B2B businesses, including SaaS and financial companies. She is a former CFO for fast-growing tech companies with Deloitte audit experience. Barbara has an MBA from The University of Texas and an active CPA license. When she’s not writing, Barbara likes to research public companies and play Pickleball, Texas Hold ‘em poker, bridge, and Mah Jongg.

Follow

Updated August 29, 2025
Asset Image

See how forward-thinking finance teams are future-proofing their organizations through AP automation.

Your business should streamline and replace time-consuming, costly manual invoice processing with invoice processing automation software that utilizes artificial intelligence and machine learning.

The traditional method of invoice processing is a time-consuming system that involves the accounts payable department entering invoice data with paper invoices, matching purchase orders, and filing endlessly. Invoices are received via mail, fax, email, or other methods. This process is bloated, perpetuating an inefficient environment. 

What is Automated Invoice Processing?

Automated invoice processing utilizes software to efficiently replace manual processes, streamlining and digitizing the receipt, verification, and approval of supplier invoices for payment, leveraging AI and other advanced technologies. 

It seamlessly extracts and captures invoice data with your payables automation business system, saving time and money, paying suppliers faster, improving accuracy, and reducing the risk of fraud.

What is a Digital Invoice?

A digital invoice is a component of workflow automation. Technology is redefining business processes, including invoice management, from its receipt to posting. A company can accelerate the payable process by leveraging automation. 

Compared to a manual invoice, an automated invoice moves through the workflow faster. AP automation takes all of the menial tasks an accounting department must accomplish and uses a computer to complete them. Whether it is matching prices, purchase orders, or data entry, a smart automation solution can handle the easy, routine tasks. 

How Does Automated Invoicing Work?

The traditional method of invoice document management starts when the accounting department receives a supplier’s invoice. At this point in the invoice automation process, it is matched and approved. Typically, if the amount of the invoice is a large payout, further approval is needed to comply with company policy. 

From there, it must be entered into the system, where it is “posted” for payment. Then, payment is issued. Depending on the company, the manual invoicing process can sometimes involve up to 15 separate steps. This is a significant amount of time, especially when processing multiple invoices.

Invoice management automation cuts to the chase. When the invoice arrives, it is scanned using AI-assisted OCR and fed into the digital accounting system. This form of data capture (otherwise known as invoice capture) cuts out hours of manual data entry. The invoice processing software will then convert the data into a text-searchable document. The invoice data can be extracted and mapped in the automated management system, so it remembers which fields to capture and register into the ERP system. This includes data such as supplier name, the purchase amount, quantity, and so forth. Invoices are then automatically routed to the appropriate parties for review and approval.

Challenges/Exception Handling

Manual invoice processing presents these challenges:

  • Inefficiency: Manual systems require manual data entry, including invoice entry into the ERP or accounting system, staff general ledger coding, and paper-based processes. 
  • Invoice payment delays: When manual invoice processing takes too long, missing payment deadlines can result in the loss of early payment discounts, late fees, possible shipment cutoffs, and a lower credit score.
  • Human errors and increased fraud risk: Manual invoice entry and verification can lead to undetected errors and overpayments. Key steps like recalculation and supplier validation may be skipped, increasing fraud risk.
  • Inadequate global regulatory compliance: The AP and accounting staff may not be familiar with international and specific country payment regulations, resulting in missed compliance steps and potential penalties.
  • In-office requirements: Processing invoices may require being on-site for tasks like data entry, routing approvals, printing checks, obtaining signatures, and preparing documents for mailing.
  • Limited global payment capabilities: Manual invoice processing often restricts payment methods, currencies, and countries, leading to higher costs and lower satisfaction for international suppliers.
  • Delayed accounting close: When payment reconciliation with subledgers is manual, reconciliations may be skipped, meaning inadequate error resolution. With manual reconciliation, the accounting close takes much longer.
  • Tax compliance issues: Inefficient processes like chasing W-9/W-8 forms after payments, manually tracking vendor payments for 1099s, and calculating backup withholding or TIN matching waste time and risk IRS penalties.
  • Poor cash management and forecasting: Delayed invoice entry makes it hard to track payables or forecast cash needs, risking shortages when invoices come due.
  • Incomplete business intelligence and spend visibility: Manual processing limits real-time insight into payables and spend by entity or company-wide, reducing the analytics needed for informed decisions.

Managing Exceptions and Mismatches

When the automated invoice processing system detects and flags an exception above the allowed tolerance, the accounts payable department follows up to resolve the issue. The exceptions management step (that uses human assistance for resolution) may include contacting the supplier to request a corrected invoice. 

In automated matching within the invoice processing automation workflow, exceptions may include discrepancies between the quantity received and the quantity billed on the invoice, or unit pricing that differs from the pricing specified in the purchase order. 

Comparison of Manual vs. Automated Invoice Processing

This table compares manual and automated invoice processing. 

CapablityManual Invoice ProcessingAutomated Invoice Processing 
Paper invoices and supporting documentsYesNo – digital invoice capture with OCR/AI
Invoice verificationManual recalculation and checking for duplicate invoicesAutomatic, with thousands of algorithmic payment rules to flag exceptions
Matching invoices with purchase ordersManual 3-way or 2-way paper matching Automates 3-way or 2-way  digital matching
Approval routings and communicationsManual paper set routing to approvers/return Automatic, digital, rules-based routing and communication
Collecting W-9 and W-8 tax formsAP staff follow-up to collect missing formsDuring supplier onboarding before 1st  payment
Payment methodsChecks, ACH, wire transfers, and credit cardsCost-effective global EFTs in local currencies
Global regulatory complianceApplied with limited knowledgeAutomated screening sanctions lists, AML/KYC 
ReconciliationManual and time-consuming Automatic and instant with ERP syncing
Early payment discounts and late feesMissed payment deadlinesTimely automated invoice processing for EPDs
Spend visibilityRecording payables may lagNear real-time visibility 
AnalyticsSpreadsheetsAI-driven queries for spend analysis
1099 tax complianceManual supplier payment tracking with spreadsheetsAutomated 1099 tax preparation reports

Benefits of Automated Invoice Processing

When you automate invoice processing, you’ll find a multitude of advantages. This includes a significant reduction in time to complete a company’s procure-to-pay cycle. Additional benefits include:

  1. Cuts down on error rates. Less manual entry means less room for mistakes. 
  2. Speeds up the approval process and reduces processing times.
  3. Saves on labor costs from additional hiring. Staff can work on more business-critical tasks.
  4. Reduces duplicate invoices and payments.
  5. Improves relationships. Employees are liberated from tedious tasks, and vendors have a more transparent process.
  6. Slashes the costs of manually processing invoices (postage, paper, etc).
  7. Better to secure early-payment discounts and avoid making late payments. 

The ability to assign a GL code without direct access to a company’s accounting platform and chart of accounts is another benefit named by reviewers online.

Turn AP into a strategic advantage with invoice automation

Integrate your ERP with AP automation to gain efficiency, take timely early payment discounts, and reduce fraud and errors before overpaying invoices.

Tools to Automate Invoice Processing

Automated invoice processing software has emerged as a disruptive innovation. The technology has produced such tremendous savings in labor and cost, it has restructured the way accounting does business. Much like word processing, many organizations consider automated invoice processing software an absolute essential. 

When looking for an automated invoice processing tool your finance teams can work with, consider some of these factors:

Unified Console

Accounts payable automation puts everything at your fingertips. Platforms are typically run from a single dashboard that provides the power to manage buyers, vendors, invoicing, payments, invoice payment status, financial data, and more. 

The invoice processing workflow should handle:

  • Recurring billing
  • One-time invoicing
  • Metered, volume, and tiered charging models in bills
  • Subscription management
  • Self-service

Customization

A superior automation platform should enable the customer to create custom workflows with tailored invoice solutions. A smooth process reduces exceptions and disputes. A business should establish automated exception handling with acceptable tolerances to minimize leakage from the system. 

An automated invoice processing software platform will also allow a company to incorporate branding. Custom logos, text, and optional extras can be used in conjunction with invoices received to maintain brand continuity. 

Relationship Management

Automation has been a gift for relationship management in every industry and every job role. It keeps people from dropping the ball. Finance is no different. Invoice processing software provides suppliers with clear visibility into their relationship with your business and invoice payment status. Payments, orders, and invoices can be viewed by all parties involved. Automated invoice processing systems enable a company to accept electronic invoicing (e-invoicing) from suppliers in addition to receiving invoices in various accepted file formats, such as PDF. 

Monitoring and Reporting

Due to invoice automation’s transparency, a business can easily monitor expenses and know what is being spent, when, and where. It can also run insightful, AI-driven reports in real time, enabling quick and informed business decisions. 

The more invoice data scanned into the system, the easier it is to identify patterns and trends using artificial intelligence, including fraud detection and monitoring suppliers’ behavioral patterns. 

International

A tool that automates invoice processing in the AP process enables a business to stay connected internationally, eliminating the hassle of paperwork. Look for a program that is multilingual, accounts for country-specific VAT regulations, collects W-8 forms in addition to W-9s, calculates backup withholding, and performs automated global regulatory compliance. 

The ability to sell products and process them globally does wonders for expanding operations. An integrated solution allows you to onboard new international suppliers quickly and control the complexity of business on a global scale.

Operations

Invoice processing software is an optimal tool for operations. Anyone who is sick of pushing paper should appreciate this type of software. The system should also provide easy management of transactions through credit cards, ACH/EFT, global ACH, wire transfers, and PayPal. 

Accounts payable can utilize automated billing to ensure that services are aligned with purchase orders and receipts. The platform should enable accounting to monitor an invoice’s status continuously, with indicators such as “in process,” “approved,” or “not paid.”

The best automated invoice processing software will utilize all these features in one form or another. The quicker an accounting department adopts this digital process, the easier it will be to focus on growth. More time will be available for value-added projects beyond day-to-day accounting, enhancing business profitability and motivating the accounting and finance staff. 

Next, companies will be looking to manage large financial processes from mobile devices. A business that is stuck in traditional ways won’t be around in five years to worry about it.

Selection Criteria Guidance

When evaluating software to select the best automated invoice processing solution for your business needs, consider the following selection criteria. 

AP automation, for automated invoice processing and analysis, should include these features:

  • Self-service supplier portal: The Supplier Hub boosts data accuracy by collecting W-9/W-8 forms before first payment, securely storing payment details, and letting suppliers choose payment method and currency, plus view payment status and invoice history.
  • Automated invoice capture: Uses AI-powered OCR to quickly and accurately capture invoice data by headings and line items, and accepts electronic invoices from e-invoicing systems.
  • Automated invoice processing workflows: Automates supplier validation, AI-driven coding, rules-based verification, exceptions flagging, 2- or 3-way matching with tolerances, approval routing, payments, and instant reconciliation.
  • Fraud and error reduction tools: Automated invoice processing needs to offer tools to reduce fraud and errors through supplier validation, exception triggering, and monitoring supplier behavior for potential fraud detection. 
  • Robust and secure global payments: The AP automation system should enable secure, cost-effective domestic and cross-border payments with currency exchange, plus near-real-time visibility into cash requirements for upcoming invoices.
  • ERP integration: Seamlessly integrates with ERP or accounting software via API or flat file, with pre-built connectors and consulting services to speed implementation.
  • Scalability and multi-entity capabilities: The AP automation system must provide scalability that handles increased invoice volumes and the complexity of multiple entities in your multinational company as it grows. 
  • Excellent customer support: Choose a software vendor that offers exceptional customer support across multiple channels. 
  • Simple tax compliance: The AP automation system should enable your company to collect supplier tax forms upfront, validate TIN numbers, automatically track calendar-year supplier payments, and provide a simple tax compliance preparation report.

Why Choose Tipalti for Automated Invoice Processing?

Tipalti’s AP automation software is fully functional, end-to-end automated invoice processing software. Mid-market companies (100- 1,000+ employees) with a multi-entity and multinational business structure can utilize Tipalti’s secure, advanced FX and automation features to:

  • Efficiently onboard suppliers through a white-branded self-service portal in 27 languages, collect W-8 or W-9 tax forms, validate suppliers with TIN matching
  • Process global invoices with:
    • AI Smart Scan invoice data capture with headings and line items (using OCR and AI)
    • Automatic application of 26,000+ business rules to detect duplicate invoices and errors
    • Automatic 3-way or 2-way matching with an exception tolerance
    • Automated AI-generated general ledger account coding
    • Exceptions handling workflow
    • Optional Tipalti Detect® for monitoring supplier patterns to detect fraud  
    • Automated approval workflow routings and communications
    • Automated global regulatory compliance
    • Make cost-effective global and cross-border batch payments with currency conversion
    • Sync data with integrated ERP and prepare instant payment reconciliation
    • Provide suppliers with automated invoice payment status
  • Advanced tax compliance, including backup withholding calculations
  • Prepare simple tax preparation reports for 1099 and 1042-S filings
  • Custom reports with AI Report Builder
  • Real-time spend visibility by entity and combined company

Tipalti’s Supplier Hub Onboards and Provides Invoice Payment Status

If intelligent, fully automated invoice processing is a business goal for your company, learn more about Tipalti’s invoice management solution

Leverage Tipalti’s scalability to handle increased invoice volumes, more entities, and greater business complexity. 


Tipalti offers all the functionality (with a custom pricing quote) described in the preceding “Selection Criteria Guidance” section of this guide. With Tipalti AP automation, your business can make global payments to 200+ countries and territories in 120 local currencies, using the supplier’s choice of 50+ payment methods.

Explore our customer success stories

FAQs

Is automated invoice processing secure?

Yes. Automated invoice processing is secure when using the best AP automation software, such as Tipalti. Security features include enterprise-grade security using best-in-class cloud standards compliance, data encryption, multi-factor authentication, and IP restrictions.

Can invoice automation handle global suppliers?

The most robust invoice automation solutions handle and pay global suppliers. Invoice automation software should:

• Collect W-8 series forms in addition to W-9s

• Calculate any required backup withholding of income taxes

• Verify invoices with country-specific taxation

• Validate supplier TINs

• Detect fraud and errors

• Convert funds to local currencies

• Offer advanced FX and payables hedging software

• Automate global regulatory compliance

• Provide multilingual supplier onboarding

• Utilize various payment methods accepted in international countries

• Instantly reconcile payment batches using multiple currencies and payment methods

• Provide 1099 and 1042-S tax preparation reports

What happens when an invoice doesn’t match the PO?

When an invoice doesn’t match the PO due to pricing or other differences, invoice automation software may utilize company-acceptable built-in tolerances. When the differences exceed that tolerance level, the software flags exceptions. The accounts payable staff should contact the supplier to receive a corrected invoice before paying an incorrect invoice.