Section 1: Invoice Management

1.1 What is an Invoice?

An invoice is a bill that the seller of a product gives to the buyer.

Fig 1. A standard invoice

Source: A Standard Invoice

1.2 What does Invoice Management Entail?

Typical flow of manual invoice processing

Most companies make lots of purchases and end up with a large number of invoices that need to be processed. On a high level, invoice management involves verifying the legitimacy of each invoice, paying the third party, and recording the payment. Let’s take a look at the typical flow of invoice processing that is SOP in most companies.

Flowchart 1

As shown in Flowchart1, the point of contact at the company receives the invoice and forwards it to Accounts Payable. The Accounts Payable team normally makes an entry of the invoice in a spreadsheet and forwards the invoice to the Finance division for approval. After the invoice is paid, Finance sends the invoice back to Accounts Payable where a note is made in the company's ledger.

This is a long drawn process and wastes a lot of the company’s time, capital, and manpower. In the following section, we’ll cover some of the disadvantages of manual invoice processing.

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1.3 Disadvantages of manual invoice processing:


1.Cost: An automated invoice management system can reduce the cost of invoice processing by almost 20 times when compared to a manual invoice processing system.

2.Errors: Manual data entry can result in a large number of errors. Once errors creep in, finding these errors and correcting them is an almost impossible task in a large organization.

3.Duplicate payments: Errors can result in duplicate payments or overpayments. Correcting these can prove to be a cumbersome task.

4.Manpower: The Accounts Payable team should theoretically help you find the best suppliers and businesses to partner with. However, most of their time is spent on tasks related to invoice processing.

With these myriad of problems, it is clear that manual invoice processing is no good. So, what's the solution?

Disadvantages of Manual Invoice Management
Disadvantages of Manual Invoice Management

Section 2: An Automated Invoice Management System

Wouldn’t it be nice to have a completely automated invoice management system? The flowchart below illustrates the structure of such a system

Flowchart 2
Flowchart 2.

In an automated invoice management system, the point of contact at the company simply needs to feed the invoice into the system. Most of the heavy lifting is done by the invoice management system.

2.1) Components of an automated invoice management system

Fig 2. Components of an automated invoice processing system

Let’s take a look at each component in detail:

1.Data Extraction using OCR:

Ideally, the point of contact at the company should be able to feed a scanned copy of the invoice into the invoice management system and the relevant information should be extracted automatically from the invoice. Most tools use Optical Character recognition(OCR) to achieve this. OCR tools extract information from invoices and convert this information into a machine readable digital format which can be used by other components in the pipeline.

Most of the current OCR tools use artificial intelligence for accurate character recognition. A combination of rule based and machine learning based OCR are used by most invoice management systems and can be customized to each organization’s invoice templates. Once the data has been extracted, it is stored in a database for processing.

Nanonets has an entire blogpost dedicated to this specific topic ( ) which contains all the nitty-gritty details about using OCR for invoice processing.

2. Error Checks:

This stage of the pipeline involves several checks in order to ensure that each invoice is processed accurately.

(i) Vendor Matching Process:

Vendor Matching Process
Vendor Matching Process

In this stage, invoices are compared against the corresponding purchase orders and receiving reports. For example, you place an order for twenty new computers for your tech team, each costing USD 600 . Your purchase order is approved and an entry is made in the system.

However, the invoice from the seller, bills each computer to USD 620. Comparing the invoice against the purchase order will show this discrepancy. Such mechanisms to check errors can easily be implemented using an invoice management system.

(ii) Duplicate Invoice Checks:

Duplicate invoice postings occur when the same invoice is entered into the system multiple times, resulting in multiple payments for the same order/invoice.With an automated invoice management system, duplicate invoices can easily be detected by simple database searches.

3. Notifying Accounts Payable and Finance:

In a manual invoice management system, the point of contact sends the invoice to Accounts Payable for approval which is forwarded to Finance once approved. A common problem is that emails often tend to get ignored and it is usually the responsibility of the sender to follow up in case of delays. This in turn results in large cycle times which is undesirable.

An automated invoice management system notifies each section(accounts payable and finance sections) regarding approvals or any other action that needs to be taken.

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Section 3: Invoice Processing Tools

If your company is small or medium sized and if you would prefer sticking to free online tools instead of going for a customized all in one management stack, here are a few tools that you might want to take a look at:

1.Invoice Management Using Google Sheets:

Simple invoice management could be done using google sheets. Although you could write all the formulae and functions from scratch, the following template makes life much easier. (

Simply enter your invoice details into the Google Sheet and the total outstanding amount, the number of invoices overdue and the number of current invoices are calculated automatically and displayed on a dashboard. The template also features some basic error checks. For example, row number 2 is indicated as erroneous because the entered due date is before the invoice date.

Fig 5. Invoice Management using google sheets

2. Invoice Management Using Excel:

There are a number of templates available online for performing basic invoice management in Microsoft Excel. However, most of the templates that provide complex functionality are paid. You could use the free template ( that performs invoice management. It provides all of the functionality that we obtain by using the Google Sheets template along with a few additional filters. Figures 6,7 and 8 illustrate the various options that the template provides.

Fig 6. Options provided by the excel invoice management template 

The template displays information such as the number of current invoices, the number of invoices past due date etc. It also shows invoices that have been overpaid(row 4 of the sheet)

We can also use filters to view specific information from the entire sheet. This is illustrated in Fig 7 and 8.

Fig 7. Information regarding current invoices
Fig 8. Information of customer John

3. Invoice Management Using SAP and OpenText:

OpenText Vendor Invoice Management for SAP is a leading invoice management and processing solution that is tightly coupled with SAP. So, if your organization already uses SAP for handling its day-to-day operations, OpenText might be the way to go!

Apart from performing the standard functions of invoice digitization, tracking etc, one of its standout features is its use of Machine Learning to learn from every document that it processes.

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Section 4: Software for Invoice Management

A company or organization doesn’t need to develop the entire invoice management stack from scratch. This tends to take up a lot of time and money. There are several commercial invoice management software and some of them are listed below:

1.SmartSoft ( : Their invoice management software which has the following features:

(i) Data Extraction: It provides an option to directly scan invoices using their Graphical User Interface. They use proprietary OCR technology to extract data from the scanned invoices.

(ii) Data Validation: The software has in built data validation checks. For example, if the Subtotal, Tax and the Amount Due fields don’t tally, an error message is given to the user.

(iii) Integration: It integrates easily with accounting software such as QuickBooks.

2.Spendesk ( : They provide an all in one management solution. Invoice management is a component of their management stack. They provide the following features:

(i) OCR based extraction: Submitted invoices are read using the company’s OCR technology.

(ii) Tracking: Invoices can be tracked easily and managers receive regular reminders on pending transactions that have to be approved.

(iii) Stand alone solution: Spendesk provides an all in one management stack that takes care of everything from Invoice management, virtual cards and automated accounting.

3.Tipalti( provides a complete workflow that eases the Accounts Payable process. The following are its main features:

(i) The vendor can directly upload their invoice from the suppliers hub. Once uploaded, the invoice is processed using OCR and the relevant information is extracted.

(ii) Performs 2-way or 3-way matching.

(iii) Approvers get an instant notification for approval.

(iv) Once approved, payments can be scheduled by the finance section.

(v) The company's records/ledger is automatically updated once the payment is complete.

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Section 5:  Interesting Invoice Management Scenarios

1.Handling Different Invoice Types:

Every client is bound to use a different invoice layout. The OCR technology used in the invoice management system should be capable of extracting the relevant details from all these invoice layouts. Most OCR tools use sophisticated Machine Learning algorithms that can reliably extract most of the information from invoices. In cases where the algorithm is unable to reliably extract some information from the document, a common fallback is to ask the user to select/click the unrecognized fields on the document. The invoice management system learns to detect this information the next time it comes across a similar document.

2.Invoice Fraud

Invoice Fraud
Fig 9. Invoice Fraud

Source: Invoice Fraud

Invoice fraud occurs when a third party submits fake invoices to a company under the guise of a supplier. Invoice frauds usually succeed because most companies rely on manual invoice processing systems. This involves a lot of back and forth between various departments in the company and small mistakes tend to go unnoticed.

Automated invoice processing tools make it much easier to spot instances of fraud. Each bill follows a standard pipeline from the moment it enters the system until it is paid. This limits double handling thereby increasing the chances of detecting a fake invoice. Most of the modern invoice processing tools also include machine learning algorithms that can spot discrepancies in invoices.

3. Invoice Disputes:

Invoice Disputes
Fig 10. Invoice Disputes

Source: Invoice Disputes

They usually occur when an invoice fails to match its corresponding purchase order. The Accounts Payable department normally makes a note of the discrepancy in price, failure to meet required terms and conditions etc. The key factor in resolving an invoice dispute is making certain that your invoice management process is transparent and all your documentation is up to date. A completely automated invoice management system can ensure that this is the case.

Once an invoice dispute is found, the accounts receivable department at the supplier end works with the accounts payable department at the receiver end to resolve the dispute.

Looking to automate the mundane & mechanical Invoice Management process? Try NanonetsAI-based OCR solution to automate Invoice Management in your organization!

Section 6: Role of Artificial Intelligence in Invoice Management

1.Cognitive Data Capture: Let us consider the very first step of an automatic invoice management system.

This step involves converting the text into a machine readable format followed by recognizing and extracting data from the document. A large organization can receive a number of invoices from different suppliers, each having a different format.

If a rule based system is employed, we would have to manually specify all of these different formats. An alternative solution is to build an AI system that can learn to extract data automatically from any given template. This process is termed as cognitive data capture.

2. Invoice Fraud Detection:

In large organizations, an invoice fraud can occur when suppliers charge for services that were never performed, overcharge for certain services or supply duplicate invoices. Although these amounts may seem insignificant, they will eventually add up and cause huge losses in the long run.

An AI based fraud detection system can help your organization by accurately extracting the data from within the invoice and matching it against the corresponding contract. Although some variation is expected, if an invoice is 30 percent over the purchase order, then a red flag is raised.

Let’s consider a practical use case. An analytics firm, Vocalink Analytics partnered with Natwest (National Westminster Bank) to develop a fraud detection system - ‘Corporate Fraud Insights’. The system aims to prevent invoice redirection fraud. Invoice redirection frauds try to get businesses to pay funds into a fraudsters account instead of the suppliers bank account.

Vast amounts of data are leveraged to build models for fraud detection. According to Gary Kearns, Executive Vice President of Vocalink, the model analyzes behavioural signatures that are left behind each time an invoice is processed. By analyzing these signatures and the signatures of historical frauds, a red flag is raised whenever the model identifies suspected incidents of fraud. (Source: )

Looking to automate the mundane & mechanical Invoice Management process? Try NanonetsAI-based OCR solution to automate Invoice Management in your organization!

Section 7: Why Nanonets?

The Nanonets API enables complete automation of the invoice management process. It has reduced the invoice processing time of several large companies by almost 90% when compared to manual invoice processing methods. It provides the following key features:

  1. It automatically identifies the structure of an invoice and accurately extracts the information that it contains.
  2. The fields can be extracted in the form of a json document, so that a company can use this information to build their own custom apps or software.
    You can head over to their site ( , upload your invoices and view results of the API in real time.

Section 8: Conclusion

Most modern offices are synonymous with automation. When automatic lighting and coffee machines have become a part of our daily lives, going through each invoice and entering data into a spreadsheet manually seems silly. Switching to an automated invoice management system can save time and resources for your company.

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