Vendor invoice: What it is, key details, and how to manage

Published Friday 2 January 2026

Table of contents

• Vendor invoice vs customer invoice
• What information you should see on a vendor invoice
• How to process vendor invoices
• Benefits of automating vendor invoice management
• Streamline your vendor invoice process with Xero
• FAQs on vendor invoices

Key takeaways

• Verify vendor invoice accuracy by checking that line items match your actual orders, confirming quantities and unit prices are correct, and double-checking all mathematical calculations before processing payment.
• Implement a structured approval workflow where designated personnel review invoices before payment, using accounting software to maintain audit trails and ensure proper financial controls.
• Utilize payment terms strategically by understanding common timeframes like Net 30/60/90 and taking advantage of early payment discounts of 1-3% when vendors offer them for payments within 10-15 days.
• Automate invoice management with accounting software to reduce manual data entry errors, speed up processing times, and maintain organized digital records for tax preparation and audits.

Vendor invoice vs customer invoice

It's easy to mix up vendor invoices and customer invoices, but they represent two different sides of a transaction. A vendor invoice is a bill you receive, while a customer invoice is a bill you send.

A vendor invoice comes from a supplier for goods or services your business has bought. It sits in your accounts payable, or money you owe.

A customer invoice is the bill you send to your customers for your products or services. It sits in your accounts receivable, or money your customers owe you.

What information you should see on a vendor invoice

Vendor invoices contain essential payment and order details that help you verify charges and process payments accurately.

Every vendor invoice should include the total amount owed plus additional costs like taxes, shipping, and delivery fees. Invoices can cover one-time purchases or ongoing services.

Key components of vendor invoices

Every vendor invoice contains specific information you need to verify before payment:

Invoice header details:

• Invoice number: Unique identifier for tracking and record-keeping
• Invoice date: Determines payment due dates and terms
• Vendor contact information: Business name, address, phone, and email
• Your business information: Verify accuracy for proper billing

Order and payment details:

• Item descriptions: Line-by-line breakdown of goods or services
• Quantities and unit prices: Verify amounts match your order
• Subtotal: Cost before taxes and additional fees
• Taxes and fees: Sales tax, shipping, and delivery charges
• Total amount due: Final payment amount including all costs

Always double-check the math and verify that line items match what you actually ordered.

Payment terms

Payment terms specify when and how you must pay vendor invoices. Understanding these terms helps you pay on time and make the most of any early payment discounts.

Common payment timeframes:

• Net 30/60/90: Payment due within 30, 60, or 90 days from invoice date
• Upon receipt: Payment due immediately when you receive the invoice
• End of month (EOM): Payment due by the last day of the invoice month
• Payment in advance (PIA): Full payment required before receiving goods or services

Special payment arrangements:

• Early payment discounts: Vendors may offer 1-3% discounts for payment within 10-15 days
• Partial upfront payment: Some vendors require 25-50% payment before starting work
• Cash in advance (CIA): Full cash payment required before delivery

Most vendors specify which payment types they accept, such as cash, credit cards, bank transfers, or checks.

Purchase order numbers

Purchase order numbers help track orders between your business and vendors. Your business creates this unique number when placing an order, and vendors include it on their invoices for easy matching.

This number helps you verify that invoices match approved purchases and simplifies record-keeping for both you and your vendor.

How to process vendor invoices

Invoice processing involves reviewing, approving, and paying vendor bills systematically. When you process invoices properly, you pay vendors on time and keep accurate financial records.

A structured approach improves accuracy and efficiency while helping you meet financial obligations. Accounting software like Xero automates many review and approval steps for consistent invoice management.

Steps for reviewing vendor invoices

Follow these steps to verify invoice accuracy before payment:

1. Verify order details: Confirm line items match what you actually ordered
2. Check amounts: Ensure quantities, unit prices, and totals are correct
3. Review payment terms: Note due dates, early payment discounts, and accepted payment methods
4. Confirm contact information: Verify your business details are accurate
5. Calculate totals: Double-check math for subtotals, taxes, and final amounts

Setting up an approval process

Approval workflows make sure the right people sign off on vendor invoices before you pay them. This helps you stay in control of your spending and keep your finances on track.

For businesses with accounts payable departments:

• Route invoices through designated approvers before payment
• Enter approved invoice data into your accounting system
• Store organized invoice records for audits and dispute resolution

For smaller businesses:

• Implement a two-person review so you can spot issues early and keep your payments secure
• Use accounting software to track approvals and maintain audit trails
• Keep digital copies of all invoices for easy access and backup

Benefits of automating vendor invoice management

Invoice automation reduces manual work, prevents errors, and speeds up payment processing. Accounting software handles routine tasks while providing better financial visibility.

Key automation benefits:

• Faster processing: automated data entry and approval workflows
• Error reduction: eliminate manual data entry mistakes and duplicate payments
• Cash flow visibility: real-time tracking of outstanding invoices and payment schedules
• Automatic filing: digital storage and organization for tax preparation and audits
• Payment planning: cash flow projections help you schedule payments strategically

Automation frees your team to focus on strategic tasks while ensuring consistent, accurate invoice management.

Learn how to create an invoice.

Streamline your vendor invoice process with Xero

Managing vendor invoices efficiently is key to maintaining healthy cash flow and strong supplier relationships. Xero simplifies the entire process, from capturing bill details automatically to scheduling payments, giving you a clear view of your finances. Take control of your accounts payable and get one month free.

FAQs on vendor invoices

Here are answers to some common questions about vendor invoices.

What is the difference between a purchase order and a vendor invoice?

A purchase order (PO) is a document you send to a vendor to authorize a purchase. It outlines what you want to buy, the quantity, and the agreed-upon price. A vendor invoice is the bill you receive from the vendor after they have delivered the goods or services, requesting payment based on the terms of the PO.

What is the best way to store vendor invoices?

The best way to store vendor invoices is digitally using cloud accounting software. This keeps your records organized, secure, and easily searchable for tax time or audits. It also reduces physical clutter and helps you keep important documents safe and easy to find.

How long should you keep vendor invoices?

The Internal Revenue Service (IRS) generally recommends that taxpayers keep records for three years from the date they filed a tax return. However, some records must be kept longer; for instance, the IRS states that business owners should keep all records of employment taxes for at least four years.

Storing them digitally in a system like Xero ensures you can access them whenever you need to, especially for records that must be kept for extended periods, such as the seven years required for claims related to a loss from worthless securities.