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The Most Important Requirements for Verifying Invoices Correctly – Including a Checklist 

Paying invoices is one of the routine tasks of every accounts payable department. It’s essential that every incoming invoice is verified for accuracy before the payment order is sent. The optimization potential for your company is correspondingly great in this area! If you approach the incoming invoice workflow in a systematic or perhaps even automated manner, you’ll save both time and money while also increasing transparency.

After reading this short blog post, you’ll no longer think that checking incoming invoices is a closed book. A short checklist will highlight the most important points you need to consider. And finally, we’ll give you a practical tip on how to make invoice verification in your company faster, easier, and more secure. 

Why Incoming Invoices Must Always Be Verified 

From a formal perspective, an incoming invoice is a document received by a company whereby a business partner requests payment of an outstanding receivable. The actual subject of the invoice, e.g., a service or physical product, was agreed in a previously concluded contract and performed with the provision of a service or delivery of goods. 

An incoming invoice has two important functions in a company: it serves as a tax document for the tax office and as a factual document for a company’s accounting team. This means that invoices must be subjected to three checks:

  • A formal check
  • A factual check 
  • A substantive check 

Formal Check

The formal check ensures that every invoice received meets the precisely defined requirements for the deduction of input tax pursuant of the German Value Added Tax Act (UStG). This tax law specifies a number of formal details that an invoice must meet in order to be claimed as deductible for VAT purposes. 

The mandatory details of an incoming invoice include the correct names with the official address of the invoicing party and the invoice recipient, a unique invoice number, as well as the correct disclosure of the net invoice amount, the VAT rate charged, and the final gross amount. Among other things, this step checks:

  • Whether the product consisting of quantity and unit price is equal to the total price per item 
  • Whether the sum of the individual items corresponds to the total
  • Whether the correct tax rate has been applied 

Important: According to the German VAT Implementation Order (UStDV), less information is required for small-value invoices of less than 250 euros. If invoice issuers are exempt from VAT as small entrepreneurs, this must be noted on the invoice with a corresponding statement. 

For the complete list of mandatory information for the different types of invoices as well as other helpful explanations, see our article entitled Incoming Invoices: incoming invoices Incoming invoice processing: Everything you need to know. 

A formal invoice check should always be the first step in the incoming invoice process once the invoice has been received. You check each invoice to ensure that it contains all the information required for the invoice type in question. The reason for this order is that if there is a formal error in an incoming invoice, it should not be moved on the factual check, but rather returned to the invoice issuer for amendment. 

How to digitally verify and process invoices automatically

Learn in our whitepaper how your company can benefit from electronic accounts payable processing – through higher efficiency, fewer sources of error and maximum compliance.

learn more

Factual Check 

The factual invoice check takes place in the incoming invoice process after the formal check of an invoice has been completed. In this second step, the focus is on whether the service or goods invoiced were actually provided or delivered as stated in the invoice. 

In day-to-day operational practice, performing a substantive check is usually a much more complex process than a formal check. The formal check verifies: 

  • Whether the delivery or service matches the original order. Various things can be relevant here, such as the quantity, size, shape, color, or weight of the ordered goods. 
  • Whether, generally speaking, the prices and quantities correspond to what was listed in the contract or order. 

Once the invoice is approved, it is assigned to a cost center, general ledger account invoice area, or accounting area. This way, the person responsible for the material costs is directly involved in the approval process.

Substantive Invoice Check and Approval

In this third step of the incoming invoice process, invoices must be checked for content and approved by one or more authorized persons after the formal and factual check so that the final payment approval can be issued. Among other things, the substantive check verifies: 

  • Whether the service provided or the goods delivered corresponded to what was ordered from a quality perspective. 

The exact procedure for invoice approval can be linked to certain additional rules in the invoicing process, which relate, for example, to the respective department, cost center, or invoice amount. 

Checklist for managing incoming invoices 

1. Are the formal mandatory details on the invoice correct? 

  • Name and address of invoicing party and invoice recipient  
  • Date of invoice 
  • Invoice number 
  • Service or delivery period 
  • Description and quantity of goods or scope of services provided 
  • Net and gross amount 
  • VAT rate 
  • Tax number or VAT ID 
  • Bank details of the invoice issuer 
  • Invoice issuer is the same as the payment recipient  

2. Is the invoice factually correct

  • All calculation steps are correct 
  • Prices and quantities correspond to the order

3. Is the content of the invoice correct

  • Invoice matches delivery/service provision  
  • Service was provided in accordance with the contract 
  • Special cases are considered, such as partial deliveries/invoices 

4. Has the approval process been followed?  

  • All persons to be informed are specified 
  • All persons are informed 
  • Invoice is available to all relevant persons 
  • All relevant persons have approved it 

The Potential Pitfalls in the Event of Errors 

The purpose of checking is to ensure that a company only pays for services that were provided or are actually being provided, and that this payment process meets all legal and compliance regulations. Typical sources of error include: 

  • Formal errors on the invoice 
  • General calculation errors 
  • Incorrect VAT rate 
  • Discrepancies between invoice and delivery due to picking errors 
  • Unclear internal communication 
  • Unclear communication with the supplier 

A deficient invoice check may not only result in a company paying for a service that was not provided; it is also often associated with further disadvantages and risks: 

  • Increased administrative costs arising from subsequent checks or possible chargebacks 
  • Fiscal problems with the tax office 
  • Intra-company tensions and recriminations 
  • Invoice processing that takes too long, resulting in late payment costs or missed cash discount deadlines 

How to digitally verify and process invoices automatically

Learn in our whitepaper how your company can benefit from electronic accounts payable processing – through higher efficiency, fewer sources of error and maximum compliance.

learn more

How to Do it Better: Automated, Digital Invoice Workflows 

Rather than being a value-added activity, checking incoming invoices is a compulsory task that must be completed as quickly as possible without errors or stress. This process is therefore destined to be massively simplified through digitalization and automation. 

So, how do digital workflows work in concrete terms? Incoming invoice processing applications first convert incoming invoices in paper format into digital documents using standardized processes. This enables you to work with digital formats further down the line. By the way, invoices in a digitally structured format such as ZUGFeRD, XInvoice, or EDIFACT meet these requirements anyway. In the next step, the invoice data can be automatically checked for formal and factual correctness and integrated into individually definable approval processes. 

Not only can authorized persons view and conveniently track all these steps in the digital invoice workflow at any time; the processing time for incoming invoices can be reduced to a fraction of the processing time for paper invoices. Another benefit is that the digitalized process ensures that the defined process is also followed. 

The bottom line is that digital verification and processing of incoming invoices makes the entire workflow more secure, transparent, and efficient. 

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