The invoice approval workflow is a critical component of financial management within organizations, serving as the gateway to ensure accuracy, compliance, and efficiency in the payment of goods and services.
This multifaceted process involves various stakeholders, each playing a crucial role in scrutinizing and authorizing invoices before they are processed for payment. The goal is not only to prevent errors and discrepancies but also to establish a transparent and controlled workflow that aligns with organizational policies.
In this blog, we will explore invoice approval workflow, learn about its challenges, and understand how automation helps to establish a more efficient workflow.
What is an Invoice Approval Workflow?
An invoice approval workflow is a systematic process that organizations use to review, authorize, and approve invoices before they are paid. This workflow is designed to ensure that all invoices comply with the company’s policies, match the goods or services received, and have proper documentation before they are processed for payment. The primary goal of an Invoice Approval workflow is to prevent errors, and fraud to ensure that the organization only pays for legitimate and properly authorized expenses.
Stages of Invoice Approval Workflow
The specific steps and participants in an Invoice Approval workflow can vary depending on the organization’s structure and policies. However, the typical process may involve the following stages:
Stage 1: Receiving Invoice
This is the initial step where the organization receives the invoice from the vendor. The invoice can be in various formats, including paper, pdf, or e-invoices. It’s crucial to ensure that all invoices are captured and entered into the system for processing.
Stage 2: Capturing and Entering Invoice Data
The information from the received invoice needs to be accurately captured and entered into the organization’s accounting or ERP system. This step involves recording key details such as the vendor name, invoice number, date, and the amount due. It is a time-intensive manual process and is often prone to human errors.
Stage 3: Matching Invoice
In this step, the entered invoice data is compared and matched against supporting documents, such as purchase orders and GRNs. Usually, companies employ a 3-way match to perform this task. The purpose of invoice matching is to verify that the goods or services listed on the invoice were indeed received and aligned with the terms agreed upon in the purchase order. Any discrepancies or exceptions are flagged for further investigation.
Stage 4: Getting Approvals
Once the invoice and supporting documentation have been reviewed and matched, the next step is obtaining approval. The invoice is typically routed to the relevant stakeholders based on predefined rules or hierarchies outlined in the organization’s approval matrix. Approvers assess the accuracy and legitimacy of the invoice, ensuring it complies with organizational policies and budgetary constraints. Multiple levels of approval may be required, depending on the organization’s structure.
Stage 5: Processing Payments
After the invoice has successfully navigated the approval process, it moves on to payment processing. The authorized invoice is forwarded to the accounting department, where the payment is initiated and the invoice is closed. This can involve various payment methods, such as electronic funds transfer, checks, or ACH.
Challenges of Traditional Invoice Approval Process
Lost or missing invoices become an expensive headache for AP teams that spend hours juggling between email threads, text messages, and systems in the absence of a centralized solution.
For AP teams handling a large influx of invoices, manually capturing invoice data, performing invoice matching, and routing approvals becomes a time-consuming and repetitive task. According to reports, the average time to process an invoice can range between 10 to 45 days.
The lack of visibility into the approval status and progression of invoices creates transparency issues. Without a clear view of where each invoice stands in the approval pipeline, stakeholders may struggle to make informed decisions and ensure compliance with financial protocols.
High Operational Costs
Traditional invoice approval processes often involve higher operational costs. The need for physical document handling, data entry, and paper-based communication contributes to increased expenses, impacting cash flow. According to reports, the average cost of processing an invoice ranges from $10 to $40.
Manual data entry and approval processes are susceptible to human errors, such as data inaccuracies, misinterpretations, and oversight. Discrepancies can result in overpaid invoices, underpaid invoices, and a variety of other issues that might pose financial difficulties for the organization in the long term.
The cumulative effect of decentralized processes, manual handling, and delays in approvals can result in prolonged payment cycles. This delay causes strained vendor relationships, late payment penalties, and poor credit ratings.
Manual processes put organizations at higher risks of fraudulent activities, such as invoice tampering or unauthorized approvals. A lack of controls and visibility can make it easier for fraudulent transactions to go unnoticed until significant damage occurs.
Top 4 Strategies to Optimize Invoice Approval Workflow
Establish Clear Approval Policies
Define and communicate clear approval policies, specifying the criteria for approvals and the hierarchy of approvers. Develop an approval matrix that outlines thresholds for different levels of approvals, ensuring consistency and transparency across the organization.
Enhance Visibility with Real-Time Tracking
Implement solutions that provide real-time tracking and visibility into the status of each invoice in the approval pipeline. This transparency improves communication, allows for proactive issue resolution, and empowers stakeholders to make informed decisions.
Integrate with Accounting Solutions and ERP
Integrate the invoice approval process with the organization’s ERP or accounting system. This integration ensures data accuracy, reduces duplicate data entry, and facilitates seamless communication between different departments, leading to a more efficient and error-resistant workflow.
Implement Automation Solution
Leverage automation tools to streamline the invoice approval process. Automated workflows help in routing invoices to the right approvers based on predefined rules, reducing manual intervention, minimizing errors, and expediting the approval cycle.
Upleveling Invoice Approval Workflow with Procure-to-Pay Automation
Procure-to-pay solution eliminates the need for paper-based processes throughout the procurement cycle. It streamlines the purchasing process, from order placement to reviewing purchase orders to invoice processing, the solution automates each step of the process.
Procure-to-pay solution allows you to efficiently cross-check invoices with purchase orders and GRNs, fast-track approvals, and seamlessly capture and store invoice data.
Benefits of Automating Invoice Approval Workflow
Here are some of the many benefits of automating invoice approval workflow:
- Provide a single source of truth by consolidating purchasing and invoice data on a single platform.
- Improve productivity and reduce time spent on repetitive manual tasks.
- Lower transaction costs and improved visibility into trends and metrics.
- Fosters strong vendor relationships by speeding up invoice processing.
- Minimized human dependency resulting in fewer errors and a smoother workflow.
How Procure-to-Pay Solutions Benefit the Stakeholders
How Peakflo Helps in Invoice Approval Workflow
- Automatically capture invoice details such as name, discount, tax, etc. through OCR
- Sync all the details with your existing tech stack.
- Seamlessly perform invoice matching with a few clicks and identify mistakes even on line items.
- Create approval workflow as per your business needs.
- Automate payouts based on the due date of the invoices.