Invoice Approval Workflows: Why They Matter and How to Optimize Them

Introduction

Managing invoices efficiently is crucial for any business. A well-defined invoice approval workflow ensures that all invoices undergo a structured review and authorization process before payment, preventing errors, fraud, and delays. An optimized invoice approval workflow structure is a cornerstone of streamlined Accounts Payable (AP) operations. To achieve this, it is pivotal to have a detailed understanding of the workflow structure and how to maximize its efficiency.

This guide will walk you through the essential steps of invoice approval workflows and the role of invoice processing automation in optimizing them. Are you ready to turn an AP headache into a seamless, cost-efficient operation?

Definition of invoice approval workflow

An invoice approval workflow is a standardized procedure that businesses implement to review, verify, and approve invoices before processing payments to vendors. This workflow is essential in Accounts Payable operations, ensuring that invoices are accurate, legitimate, and comply with company policies.

How the invoice approval process works

Implementing a structured invoice approval workflow ensures accuracy and efficiency. Below are the key steps involved:

1. Invoice reception: The process begins when a supplier’s invoice is received either electronically or physically, and directed to the appropriate department for processing.  

2. Data capture and validation: Invoice details are entered into the system and validated, typically by cross-referencing with purchase orders (PO) and/or Goods Received Notes (GRN). For companies handling a significant volume of non-PO invoices, automation solutions like Cevinio can streamline this process.

3. Routing for approval: Invoices requiring manual approval are forwarded to designated approvers based on criteria such as purchase amount or vendor.

4. Review and decision: Approvers examine the invoice details to either approve or reject the invoice. They may also seek input from colleagues or forward the invoice to other stakeholders, depending on the established workflow.

5. Handling rejections: Rejected invoices are returned to the AP team for further review or sent back to the vendor for correction. 

6. Final approval and posting: Approved invoices are recorded in the corresponding Enterprise Resource Planning (ERP) system for payment processing.

7. Post and Block: There are other common scenarios such as “post and block”, also known as posting block, where invoices are posted in the ERP with a payment block before the approval stage. Only once these invoices are approved are they unblocked and released for payment.

8. Archiving: All processed invoices are archived for future reference and audit purposes.

The specific steps and complexity of an invoice approval workflow can vary based on factors like business size, structure, types of goods or services purchased, and the volume of invoices processed. However, the core principles of accuracy, efficiency, and control are fundamental to any effective invoice approval process.

Manual processing of invoices often involves distributing them across multiple departments and approvers, which can lead to errors, missed deadlines, and strained vendor relationships. Implementing an automated invoice approval process can mitigate these issues, enhancing productivity and efficiency.

To get the most out of your automation efforts requires a thorough understanding of the processes and workflows you are automating , and what you expect to get out of the initiative. This is what we explore in our next section.

Why is an enhanced invoice approval workflow important?

A strategically developed invoice approval process, when combined with automation, provides multiple benefits to businesses. For example, businesses can streamline operations by:

• Ensuring timely payments to vendors
• Reducing manual errors and preventing fraudulent transactions
• Improving compliance with internal and regulatory financial policies
• Enhancing visibility and accountability in financial operations

Steps to create an efficient invoice approval process

Step 1: Define your invoice approval needs. Identify specific scenarios that necessitate invoice approval, such as:

• High-value invoices: Invoices involving substantial amounts typically require multiple levels of management approval to ensure the expenditure is justified and the goods or services were received as ordered.
• Invoices from new vendors: Implement strict policies for onboarding new vendors, which may include approving the initial invoices to verify vendor reliability and invoice accuracy.
• Invoices for complex goods or services: Such invoices may need approval from subject matter experts to confirm that the goods or services were delivered as specified and that the pricing is appropriate.
• Invoices with errors or discrepancies: Establish tolerance levels for purchase order discrepancies to minimize delays caused by minor mismatches.
  In addition to these general reasons, large corporations may also require approval of invoices for specific types of expenditures, such as travel, entertainment, and capital equipment.

Step 2: Define approval roles and their corresponding responsibilities. Clearly outline the roles and responsibilities of each individual involved in the invoice approval process to ensure proper routing and prevent duplication of efforts.

Step 3: Set approval  and routing rules. Establish approval paths based on the value of the invoice. For example, invoices below a certain amount may only require approval from one person, while invoices above a certain amount may require approval from multiple people. Use routing rules to automatically send invoices to the appropriate approvers based on the invoice amount, vendor, cost center, or GL account, among other criteria.

Step 3: Automate data capture and validation. Utilize invoice automation software to automatically capture and validate invoice data, such as vendor information, invoice numbers, and purchase order (PO) details. This can significantly reduce manual data entry errors and streamline the approval process. 

Step 4: Delegate approvers based on authority levels. Assign approval responsibilities according to individuals’ authority levels and the invoice value, ensuring appropriate oversight and preventing bottlenecks.

Step 5: Establish clear approval timelines. Set defined timelines for invoice approvals to ensure timely payments and maintain positive vendor relationships.

Step 6: Implement automatic reminders and notifications. Use automated reminders to notify approvers of pending invoices, keeping the process on track and preventing delays.

Step 7: Implement a two-way or three-way match. Verify invoice accuracy by matching it with POs and goods received notes (GRNs). This helps to ensure that goods or services were ordered and received as specified and that the pricing is correct. Want to dive deeper into the benefits? Check out this blog post on the key benefits of 3-way matching for more insights.

Step 8: Use a centralized invoice processing system. Adopt a centralized invoice processing automation system to receive, process, store, track, approve, and manage invoices, providing a single source of truth and simplifying status tracking.

Step 9: Monitor and improve the process. Regularly review your invoice approval process to spot bottlenecks and opportunities for improvement. Leverage key accounts payable KPIs and metrics to track approval times, error rates, and overall efficiency, ensuring a smoother and more streamlined workflow.

Disclaimer: The steps outlined in this guide are important actions to take toward an optimized invoice approval workflow, but they do not necessarily need to be followed in this specific order. Every company operates differently, and some of these steps may already be in place or in progress within your organization. It’s essential to assess your current processes and implement improvements based on your unique business needs and priorities.

Implementing a streamlined and efficient invoice approval workflow is crucial for businesses aiming to ensure accuracy, compliance, and timely payments to vendors. Automation plays a pivotal role in achieving these objectives by reducing manual errors, preventing delays, and enhancing overall efficiency.

For more insights on optimizing your invoice process, check out this guide on accounts payable optimization for practical tips and strategies that go beyond just the approval process.

Transform your invoice approval process with advanced AP Automation

A automated and efficient invoice approval workflow is essential for businesses looking to ensure accuracy, compliance, and on-time vendor payments. But with manual processes, bottlenecks, and complex approval structures, achieving this can be a challenge.

That’s where automation comes in. By reducing manual errors, preventing delays, and optimizing efficiency, AP automation plays a pivotal role in modernizing financial operations.

Cevinio AP Automation is a centralized invoice processing system designed to radically improve the efficiency of your accounts payable operations. Whether your company manages a high volume of PO and non-PO invoices or navigates a multi-layered approval structure, Cevinio’s intelligent automation simplifies the process.

Our solution enables automatic approvals and smart approval workflows, ensuring invoices are routed to the right approvers with minimal manual intervention. Plus, with built-in reminders, escalations, and delegations, Cevinio accelerates invoice handling drastically reducing processing times and increasing AP team productivity.

Ready to take the complexity out of invoice approvals? Let automation do the heavy lifting.

Conclusion

An efficient invoice approval workflow is essential for businesses aiming to streamline accounts payable operations, improve compliance, and enhance financial visibility. By leveraging AP Automation and following best practices, organizations can reduce inefficiencies and ensure timely invoice processing.