Grant Invoicing Best Practices: A Finance Director's Guide

Grant invoicing is one of the most critical—and error-prone—processes in nonprofit finance. Done well, it ensures your organization recovers every dollar it's entitled to. Done poorly, it leaves money on the table and creates audit risk.

This guide covers the essential practices every finance team should follow.

The Cost of Getting It Wrong

Before diving into best practices, let's understand what's at stake:

• <strong>5-15% of eligible expenses</strong> go uninvoiced at most organizations
• <strong>Audit findings</strong> can result in required repayments
• <strong>Cash flow delays</strong> from rejected or questioned invoices
• <strong>Staff burnout</strong> from manual, error-prone processes

Best Practice 1: Document Your Eligibility Rules

Every grant has different eligibility criteria. Before you can invoice accurately, you need to document:

• <strong>Allowable cost categories</strong>: Which expense types can be charged?
• <strong>Time restrictions</strong>: What's the grant period? Are there quarterly caps?
• <strong>Allocation rules</strong>: How should shared costs be allocated?
• <strong>Excluded items</strong>: What's explicitly not allowed?

Create a "grant profile" for each funding source that captures these rules in one place.

Best Practice 2: Categorize Expenses at the Source

The biggest invoicing errors happen when expenses are miscategorized in your accounting system. Fix this by:

• <strong>Using consistent chart of accounts</strong> that maps to grant categories
• <strong>Training AP staff</strong> on proper coding at entry time
• <strong>Reviewing categorization</strong> before month-end close
• <strong>Flagging ambiguous expenses</strong> for finance review

Best Practice 3: Reconcile Before You Invoice

Never invoice directly from your accounting reports. Instead:

• <strong>Pull expense reports</strong> from your accounting system
• <strong>Compare against eligibility rules</strong> for each grant
• <strong>Identify and resolve</strong> any questionable items
• <strong>Document your decisions</strong> for audit purposes

This reconciliation step catches errors before they become audit findings.

Best Practice 4: Maintain Audit-Ready Documentation

For every expense on an invoice, you should be able to produce:

• <strong>Original receipt or invoice</strong> from the vendor
• <strong>Proof of payment</strong> (check image, bank statement)
• <strong>Allocation calculation</strong> (if shared cost)
• <strong>Approval documentation</strong> (if required by grant)

Organize this documentation by invoice period so it's ready when auditors ask.

Best Practice 5: Track Coverage Gaps

Don't just track what you invoiced—track what you didn't. Maintain a log of:

• <strong>Expenses excluded</strong> from each invoice and why
• <strong>Patterns in exclusions</strong> (same vendor? same category?)
• <strong>Potential recovery opportunities</strong> for future periods

This visibility helps you identify systemic issues and recover more over time.

Best Practice 6: Close the Loop

After submitting an invoice:

• <strong>Track receipt</strong> and any questions from the funder
• <strong>Respond promptly</strong> to information requests
• <strong>Document any adjustments</strong> required
• <strong>Update your processes</strong> based on feedback

Conclusion

Grant invoicing doesn't have to be painful. By implementing these practices, you can reduce errors, speed up reimbursements, and ensure you're recovering every eligible dollar.

The key is consistency: document your rules, follow your process, and maintain your documentation. Your future self (and your auditors) will thank you.