What is a vendor invoice?

What is a vendor invoice?

A vendor invoice (also known as an “invoice from a vendor” or a “bill”) is a document issued by a supplier (the vendor) to a business that has purchased their goods or services. It indicates the goods or services provided and how much money the purchaser owes the vendor.

Here’s what they are and how vendors use them, what you should expect to see on one, and how you can manage the invoice review and approval process.

A vendor invoice details your order and what you owe

An invoice documents the goods or services provided to a customer, the total cost, and how the invoice should be paid. The invoice should include the total amount of money owed, and possibly other details such as freight charges, sales taxes, delivery dates and payment methods. An invoice from a vendor can be for a one-time purchase or ongoing services.

Information you should see on a vendor invoice

There is important information that should be included on the vendor’s invoice. This invoice will generally have an invoice header at the top of the page. This often includes the word "invoice," the invoice number, the date, and vendor information (name and contact information).

Invoice date: This is the date the invoice was created. This date is important in establishing payment terms and payment due dates. Some payment terms may depend on the date the invoice was created, such as having to pay within 30 days of the invoice date.

Invoice number: Invoices may have a unique number. This makes it clear to the vendor who the invoice was issued to. It also enables your record-keeping because you track what payments were linked to which invoice.

Contact information: An invoice should include contact information for both the vendor and the customer. This usually means, for both parties:

• business or company name
• address
• phone number
• email

Check the invoice to make sure your information is correct.

Description of goods or services: There may be a line item for each good or service the vendor sent you. With each line you can see exactly what you are being billed for and check it’s correct.

Order lines may include a price per unit and the number of units ordered.

At the bottom will be a subtotal for the order, followed by any extra costs, such as sales tax, and freight and delivery charges. You should double-check the math on the invoice, too.

Payment terms

Understand and follow the vendor's invoice terms. Some commonly used payment terms are:

• 1 week, 2 weeks, 15 days, 30 days, 60 days or 90 days: This is the number of weeks or days the customer has to pay. The date on the invoice is considered the start date. Shorter timelines are better for the seller’s cash flow, while longer timelines are better for the buyer’s.

Some small businesses offer a discount to encourage early payment. For example, your vendor might offer a 2% discount if you pay within 10 days rather than 30.

• Payment in advance (PIA): The vendor asks for payment before providing any goods or services.
• Cash in advance (CIA): The vendor wants full payment in cash before providing any goods or services.
• Upon receipt: The vendor wants full payment as soon as you receive the invoice. This might be immediately upon delivery of the goods or services, or the vendor may send the invoice later.
• End of the month (EOM): The vendor asks to be paid by the end of the month of the invoice date. For example, if the work is completed on June 5, payment must be made by June 30.
• 50% upfront: The vendor asks for 50% payment before they begin work, with the remainder due according to their payment terms. For example, they may request 50% upfront and the rest Net 30.
• Total amount due: The invoice must include the net payment – the cost of the goods or services plus any taxes and charges, and with any deductions or discounts factored in.

Many vendors also include the types of payment they accept. For example, they may accept cash, credit cards and bank transfers.

Vendors may include your purchase order number

If your business has an internal purchasing system or an accounts payable department, your business might create a purchase order number when the order is placed and before an invoice is received. This number distinguishes your various purchases for your records. The vendor might include this on their bill so you and they can track the order more easily.

Learn more about purchase orders and purchase order numbers.

Managing the invoices you receive

Invoice processing is critical to your small business’s accounts payable process. Having a system for invoice management improves the accuracy and efficiency of your workflows and helps compliance with financial obligations.

Accounting software like Xero automates many of your invoice review and approval processes, and helps you manage vendor invoices consistently.

What to do when you receive an invoice

Review the invoice to make sure you’re being charged correctly for the goods or services you ordered:

• Check the invoice date, the payment terms, the amount owed and the line items are accurate and consistent with your agreement with the vendor.
• Note the due date, total cost, and the payment terms to make sure you know when to make payment.
• Make sure the invoice includes any agreed-upon discounts or special terms.
• Check your contact information.

The review and approval process

If your business has an invoice approval process, such as an accounts payable department, make sure each invoice from a vendor is properly approved. Then enter the relevant data into your accounting system or software. Keep all invoices together so they’re ready for audits and financial reports, or to resolve any disputes.

If you manage your vendor invoices manually, try to have more than one person involved in the process to prevent errors, protecting you and your business.

Benefits of automating accounts payable

By automating your invoice processing with accounting software like Xero, you can process and approve invoices quickly and efficiently. The software can even project your cash balances between now and when the bill is due, to help you plan when to pay.

Once the workflow is complete, the amounts are automatically entered into your accounts and the invoice is filed for tax time.

Learn more about Xero’s accounts payable features.

Learn how to create an invoice.