Invoice approval management from A to Z
- 6 min read
Payment and invoice management systems are designed to provide a standardized method for managing, approving, and tracking invoices and, typically, involve multiple stakeholders such as buyers, suppliers, and finance teams.
The growing complexity of supply chains results in increased time spent on processing invoices by Accounts Payable (AP) teams, causing delays and, often, damaged relationships with vendors and suppliers. A recent Institute of Financial Operations and Leadership survey has shown that 88% of respondents believe that finance roles could be different if processes were improved.
This has put automation front and center for many finance teams. Businesses are increasingly looking to adopt best practices, such as electronic invoice processing and cloud-based systems, to reduce the manual effort associated with processing invoices.
Invoice approval workflow: basic steps
At companies that manually review and approve invoices, this process is typically completed by a designated invoice approver or authorized person within the organization. They are responsible for ensuring accuracy, minimizing errors, and increasing efficiency. As a rule, an invoice approval workflow consists of the following steps:
- Receiving the invoice: the vendor or service provider sends the invoice to the company.
- Verification: the AP team verifies the invoice to ensure it contains all the necessary information and is accurate.
- Processing: the AP team enters the invoice into the system, checks to see if the item has been previously ordered, and approves the invoice for payment.
- Approval: the invoice is sent to the relevant department head for approval.
- Payment: once the invoice is approved, the AP team prepares and processes the payment.
However, if rejected, the invoice is returned to the requestor for corrections or clarification, which may result in a lengthy back-and-forth process.
Invoice approval rules
The steps for approving an invoice may vary, depending on the company policy and the individual in charge of approving the invoice. Generally, it comes down to verifying the accuracy of the invoice, making sure the amount charged is appropriate, the payment matches the services received, and signing off on the invoice. If the payment document is for a large amount of money, there may be additional steps involved, such as seeking higher levels of approval.
When approving an invoice, remember the following:
1. Make sure all vendor invoices have the necessary supporting documentation such as purchase orders, shipping documents, etc.
2. Compare the invoice information to the purchase order to ensure the accuracy of the vendor’s charges.
3. Prior to payment, verify that the invoice is complete, accurate, and fully approved according to your internal protocol.
4. Always pay the invoices in a timely manner.
5. Prepare for the audit by continuously collecting and recording all the info on the invoices.
1. Do not approve invoices, until all associated documentation has been received.
2. Do not approve duplicate invoices.
3. Avoid making payments for services or goods that have not yet been received but should have been, or are not as agreed in the contract.
4. Do not make payments without proper authorization.
5. Never pay an invoice, without verifying the accuracy of the information in it.
Drawbacks of manual invoice approval workflows
Manual and paper-based processes create an inefficient and time-consuming invoice approval workflow. They can also lead to inaccuracies in the amount to be paid, incorrect payment recipients, duplicate payments, and other discrepancies. Additionally, manual paper processes are not secure and can be vulnerable to fraud or embezzlement. In general, when dealing with a manual payment approval process, AP teams observe drawbacks, such as:
- Delays in processing and approving invoices.
- Increased risk of errors, because of manual data entry and calculations.
- Inability to monitor the status of invoices in real-time.
- Difficulty tracking, organizing, and archiving invoices.
- An increased amount of time and resources is required to manually process and approve invoices.
- Higher costs associated with manual processing compared to automated solutions.
- Miscommunications between the departments involved lead to errors.
- In the case of rejection of the invoice, lengthy back-and-forth communications between the requestor and the approver.
- All entries in the accounting software have to be done manually
- More time is required for obtaining signatures from the necessary approvers.
Automating invoice management with approval software
In contrast, a digital approval workflow is automated and streamlined, and each process step is tracked automatically, from invoice receiving to payment authorization. Approvals are sent electronically and kept within the system, and any exceptions or problems are flagged and addressed quickly and accurately.
Invoice approval software can also generate insights into invoice data, providing more visibility and transparency, which is crucial when you deal with money. Automation eliminates the need for manual approvals and invoice tracking.
Invoice approval automation enables you to:
Create a standard invoice approval form. Determine the format of the invoice approval form, which will vary, depending on your specific needs. It may include a checklist, a table, or a form with multiple questions, and require some basic information relevant to the invoice.
Set up notifications and reminders for invoice approvals. Choosethe daily notification time to remind your approvers about unprocessed invoices.
Integrate with accounting software for 100% automated invoice management workflow. Some approval software providers, like Approveit, offer direct integrations with popular accounting apps. In this case, Xero, QuickBooks and FreshBooks.
By integrating Approveit with your accounting software, you can achieve:
- Creating and processing invoice approval requests right in your day-to-day communication channel (Slack, MS Teams, or email), even without access to your accounting app.
- Complete accuracy in your accounting records
- Transparency of the invoice management process: only fully approved invoices make it to the “awaiting payment” status.
- Shortening the invoice processing cycle by up to 80%, enabling your team to dedicate more time to creative and vital tasks.
Approaching approval automation
If you’d like to get started with automating your approvals, this article is for you! It has good practical tips on where to begin and what to avoid.
In case you prefer a personal touch, message us at firstname.lastname@example.org, and we’ll walk you through all the steps!
Automation may result in improved accuracy and efficiency in the invoice approval process and reduced turnaround time for invoice processing. Increased visibility and insights into the approval process, as well as data security and reduced risk of fraud or error, would positively impact the financial team’s morale and customer satisfaction, due to faster approvals.