What Is a Vendor Invoice and How Does It Work?

A vendor invoice is a formal request for payment issued by a supplier (vendor) to a buyer for goods or services provided. This document initiates the buyer’s payment process and serves as a record of the transaction. It details what was purchased and how much is owed, facilitating financial settlement.

Key Information on a Vendor Invoice

A vendor invoice contains specific details for accurate record-keeping. It includes the vendor’s name, address, and contact information, along with the buyer’s details. Each invoice has a unique number for systematic tracking and referencing. The date of issue establishes the starting point for payment terms.

Payment terms, such as “Net 30” or “due upon receipt,” state the timeframe for expected payment. The invoice itemizes goods or services provided, specifying quantities and unit prices. This breakdown leads to a subtotal, with applicable taxes and additional costs, such as delivery fees, added to reach the total amount due. If a purchase order was used, its number is included to link the invoice to the initial procurement authorization.

The Purpose of a Vendor Invoice

Vendor invoices serve multiple functions beyond requesting payment. They act as a formal demand for payment, signaling that goods or services have been delivered. They are also important for maintaining accurate financial records, providing documentation for the vendor’s sales and the buyer’s expenses. This dual record-keeping supports financial reporting for both entities.

Businesses use vendor invoices for verification and reconciliation, cross-referencing details against purchase orders and receiving documents before payment. This process ensures that goods or services received match what was ordered and billed. Vendor invoices are necessary for tax compliance, providing an auditable trail for revenue and expense reporting. In cases of disagreement, invoices serve as legal documentation, helping resolve disputes.

Vendor Invoice Processing

Handling a vendor invoice within a business, often by the accounts payable (AP) department, involves several steps. The process begins with invoice receipt, which can occur through postal mail, email, or electronic data interchange (EDI). Once received, invoice information is captured into the accounting system, often via data entry or automated data extraction.

Processing includes the “3-way match,” which compares the vendor invoice against the purchase order and receiving report (proof of receipt) to confirm accuracy. If details align, the invoice proceeds to an internal approval workflow, where personnel authorize payment. After approval, payment is initiated and remitted to the vendor per agreed terms. Processed invoices and payment records are archived for future reference and auditing, ensuring a complete financial trail.