What Is Invoice Coding?
Invoice coding is the process of assigning accounting categories such as expense type, department, and project to each invoice.
Example:
A $1,200 invoice from Adobe may be coded as:
- Expense Type: Software Subscription
- GL Account: 5250
- Department: Marketing
- Project: Brand Campaign Q4
Every code must match the company’s chart of accounts, and errors create reconciliation issues later.
Stat: According to IOFM, up to 27% of AP processing time is spent manually coding and validating invoices.
Why Manual Coding Still Exists
Manual coding persists in mid-market finance teams due to:
- ERP systems with limited native automation
- Complex cost center structures
- Lack of visibility into coding inefficiencies
- Misconception that coding must be manual to be accurate
The Hidden Costs of Manual Coding
Time Drain
Manual coding averages 5 minutes per invoice. At 1,000 invoices/month, that's 83 hours of labor.
Errors & Rework
Manual entries introduce misclassifications and compliance risks. IOFM estimates coding errors cost $50+ per fix.
Delayed Approvals
Non-PO invoices stall when coding isn't pre-configured, delaying the entire AP cycle.
Cash Flow Impact
Missed early payment discounts and distorted cash flow forecasts stem from unposted or misclassified invoices.
Automation Fixes the Flow
Modern AP platforms automate coding with:
- AI/ML models that suggest GL codes based on historical data
- OCR that extracts vendor and line-item details
- Auto-routing rules that push coded invoices for fast approval
Real Numbers: Manual vs Automated Coding
Best Practices for Scaling Coding Automation
- Start with invoices from repeat vendors
- Map historical data to train AI models
- Build exception thresholds (e.g. <$100 variance)
- Sync coding rules to your ERP for seamless handoff
Manual invoice coding is one of the most expensive inefficiencies hiding in AP. Automating it delivers immediate ROI saving time, improving accuracy, and freeing teams for strategic work.
Book a demo to see how Finofo’s AI-powered AP automation eliminates manual coding across entities and currencies.
