Invoice approval management from A to Z

Understanding the invoice approval workflow

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 overseen by a designated invoice approver or authorized person within the organization. They are responsible for ensuring accuracy, minimizing errors, and increasing efficiency. Commonly, 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.
• Coding and processing: the AP team enters the invoice into the system, codes the invoice appropriately, and routs it for approval
• Approval: the invoice is approved by the responsible team members. The approval process itself depends highly on the organizational structure and internal rules. Often, conditional logic is applied – depending on the department the invoice came from, or the amount of the invoice, approvers can be different.
• Payment: once the invoice is approved, the AP team prepares and processes the payment.

However, if rejected, the invoice is returned to the requestor (a procurement manager, vendor, or vendor owner) for corrections or clarification, which may result in a lengthy back-and-forth emailing.

The feedback loops can last for weeks, dragging out the invoice processing flow and stalling payments.

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, there may be additional steps involved, such as seeking higher levels of approval.

So, how to approve an invoice?

When approving an invoice, remember the following:

Dos:

• Make sure all vendor invoices have the necessary supporting documentation such as purchase orders, shipping documents, etc.
• Check the bank details the vendor mentioned in the invoice and if they match the ones you’ve chosen in the system.
• Make sure the vendor who issued the invoice is company-approved and safe to collaborate with.
• Compare the invoice information to the purchase order to ensure the accuracy of the vendor’s charges (if applicable).
• Prior to payment, verify that the invoice is complete, accurate, and fully approved according to your internal protocol.
• Make sure the due date of the invoice is within your contractual obligations.
• Schedule payments taking due dates into account.
• Have a paper trail for all the approval steps and changes the invoice underwent for future audits and compliance checks.

Don’ts:

• Do not approve invoices, until all associated documentation has been received.
• Do not approve duplicate invoices.
• Avoid making payments for services or goods if the contractual obligations of the other party haven’t been fulfilled.
• Do not make payments out of schedule without checking your cash flow
• 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 are 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 to obtain signatures from the necessary approvers.

Benefits of an efficient invoice approval process

Now that we’ve covered the drawbacks of the manual process, time to turn to the benefits of the automated one.

It goes without saying that “automated” on its own means less manual labor which is always a desirable change. However, for the business more automation doesn’t always mean less expenses or better processes, so let’s take a look at other common benefits of automation apart from freeing up your hands.

• Reduced invoice processing time: automation and proper workflow management significantly reduce the time required to process invoices. In our experience, invoice processing cycles can be shortened by up to 80% with proper automation.
• Improved accuracy: manual data input unavoidably leads to errors, since we’re all human. Automated data capturing with OCR or AI-driven algorithms ensures almost 100% accuracy in invoice data which leads to avoiding lengthy feedback loops and as a result, faster invoice processing.
• Enhanced compliance: a structured workflow ensures that all invoices go through the necessary checks and approvals, ensuring compliance with company policies.
• Saved costs: saved time always translates into saved money for business, but it doesn’t end there. Solid approval policies exist first and foremost for detecting fraudulent invoices, avoiding redundant payments, and auditing amounts spent. Paying ONLY the invoices you NEED to pay and doing that on time saves millions of dollars annually for businesses worldwide on late payment fees, lost funds, and uncontrollable in-house spending.
• Better financial management: an efficient process provides better visibility into the company’s expenses and cash flow, aiding in more effective financial management and resource allocation.

Automating invoice management with approval software

Digital invoice approval workflow that is automated and streamlined puts your thoughts to rest. Approval requests are sent out automatically and kept within one system. 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. Choose the 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: 

1. Creating and processing invoice approval requests right in your day-to-day communication channel (Slack, Microsoft Teams, or email), even without access to your accounting app.
2.  Complete accuracy in your accounting records
3. Transparency of the invoice management process: only fully approved invoices make it to the “awaiting payment” status. 
4.  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 support@approveit.today, 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.