Invoice Approval Explained with Workflow Steps

An effective invoice approval process gives you a holistic picture of your organization’s spending, vendor relationships, and payment status. It also centralizes all past, current, and future payables data to give you a complete overview of your financial obligations and cash flow.

All this makes it easy to optimize spending (preventing late fees and duplicate invoice payments), improve vendor relationships (by paying on time), and better manage working capital (with full visibility into upcoming payments).

Not sure how to switch from a manual approval workflow to an efficient process? This guide gives you the insider scoop to take invoice approval to the next level.

What is invoice approval?

Invoice approval is the process of reviewing and authorizing payment for goods or services purchased by an organization. It involves verifying that the invoice details match the purchase order, goods receipt, and vendor contract before releasing payment.

The benefits of an invoice approval process

Streamlining invoice approvals pays dividends. An effective invoice approval process improves visibility, control, and efficiency while preventing fraud and errors. It strengthens vendor relationships through timely and accurate payments.

Broadly, you can improve three key areas that will, in turn, deliver many benefits:

Increased visibility

Centralized payables data, making it accessible for optimizing spending and cash flow. This includes data on invoices, purchase orders, vendor contracts, and payment status.

Once you have full visibility, you can track key metrics like days payables outstanding (DPO) and take advantage of early payment discounts — helping improve working capital management.

Spend control:

An efficient invoice approval process improves procurement governance, budget tracking, and fraud prevention.

It gives you a birds-eye view of organizational spending with useful data to identify savings opportunities. All of this facilitates better spend management, reducing maverick spending and keeping budgets on track.

For example, invoice approval workflows ensure invoices are checked against purchase orders and receipts. This three-way matching helps catch errors, prevent overpayments, and identify potential fraud.

Improved efficiency:

Manual errors in invoice processing are plagued by lost invoices, approval delays, and late payments. An automated approval workflow solves this, consolidating invoice data in a central system. Plus, it routes invoices for coding and approval, ensuring timely payment.

The resulting efficiency improves vendor relationships, reduces processing costs, and eliminates time wasted chasing down invoice approvals. Finance can close the books faster with real-time visibility into payables.

Strong Vendor Compliance:

Invoice approval workflows reinforce vendor compliance with your organization’s policies and contract terms. Automated compliance checks ensure invoices match purchase orders, contracts, and goods receipts — reducing payment errors and fraud risks

Proper invoice coding, approvals, and documentation are enforced before payment. This simplifies audits and promotes good vendor management practices.

Meaningful long-term supplier relationships:

Efficient invoice processing is key to strong supplier relationships. Timely and accurate payments avoid late fees and supply chain disruptions.

Automation reduces friction caused by manual errors and delays. Faster payments improve supplier’s cash flow, building trust and loyalty. This can lead to better terms and service.

Steps for an invoice approval process workflow

The steps for an efficient invoice approval process workflow include understanding current challenges and tying them to business goals, defining roles and responsibilities for all stakeholders, selecting the right accounts payable automation software, and more.

Here’s your blueprint:

Step 1: Understand current challenges and tie them to business goals

Before you begin, understand the biggest challenges with your current process.

• Is it high processing costs due to the manual invoice approval process?
• Is it missed early payment discounts?
• Is it maverick spending due to lack of visibility?

Also tie improvements to broader business objectives around spend management, vendor relationships, cash flow, etc. Aligning with strategic priorities helps build a case for investing in automation.

Step 2: Map out roles and responsibilities

Identify all stakeholders involved in invoice approval and clearly define their roles

• Requesters submit purchase requests
• Procurement issues POs and manages vendor invoices and contracts
• AP processes invoices and handles payments
• Management approves high-value invoices and some invoices also require multi-level approvals
• Finance oversees spending and cash management

Understanding who does what is key for designing efficient cross-functional workflows.

Step 3: Select AP automation software

AP automation or an invoice approval software centralizes invoice data, automatically routes invoices for coding and approval, and enables electronic payments. This improves efficiency, transparency, and control over invoice processing.

Key capabilities to look for:

• OCR data capture to eliminate manual entry
• Configurable approval workflows
• PO matching and exception handling
• Vendor portal for submitting invoices electronically
• ERP integration for smooth data flow

Get detailed requirements from all stakeholders before evaluating solutions. Build a business case with relevant documents showing time and cost savings.

Step 4: Standardize invoice receipt and data capture

Establish clear policies for how invoices enter your system. Best practice is to have vendors submit them electronically via an online portal. This reduces errors and manual data entry.

For emailed and paper invoices, use OCR software to automatically extract header and line-item data.

Set up validation rules to check for missing or incorrect information. Define required fields like PO number, vendor ID, amount, etc.

Step 5: Design approval flows based on business rules

Map out approval chains based on invoice amount, department, cost center, vendor, and other criteria. For example:

• Invoices under $1,000 auto-approve if matched to a PO
• Invoices over $10,000 require CFO sign-off
• Facilities invoices route to the Facilities Manager
• Marketing invoices route to the CMO

Configure conditional logic in your AP automation system to automatically route invoices to the right approvers. Leverage PO and receipt data to minimize exceptions.

Step 6: Establish service level agreements (SLAs)

Set expectations for how quickly stakeholders need to act on invoices assigned to them. AP automation can help enforce SLAs by triggering alerts and auto-escalating delayed approvals.

Typical SLAs include:

• Requesters have 1 day to code non-PO invoices
• Approvers have 2 days to approve or reject
• AP has 3 days to research exceptions

Aim for paying invoices within 10 days to capture discounts.

Step 7: Track KPIs and optimize

Define KPIs to measure performance of your invoice approval process:

• Time to process invoices from receipt to payment
• Percentage of invoices processed straight-through
• Percentage of invoice exceptions
• Dollar amount of early payment discounts captured

Monitor metrics in real-time dashboards and reports. Analyze root causes of bottlenecks and implement continuous improvements.

Invoice approval rules

Invoice approval rules are predefined conditions based on the amount, vendor, approval time, expense type, and department that determine processing and approval requirements.

To ensure efficiency and control, define approval rules based on:

• Invoice amount (e.g. tiered approval for larger invoices)
• Department or cost center (e.g. route marketing invoices to CMO)
• Vendor (e.g. auto-approve invoices from preferred suppliers)
• Exception type (e.g. require additional approval for missing POs)

Rules can be configured in AP automation software to enable “touchless” processing of routine invoices.

Best Practices in Invoice Approvals

Digitize everything

Relying on paper-based invoicing is inefficient and prone to human errors. By transitioning to electronic or digital invoices, you can streamline the entire process from receipt to payment.

Implementing a vendor portal allows suppliers to directly submit their invoices electronically, reducing the risk of lost or delayed invoices. This also enables real-time visibility into invoice status for both you and your suppliers.

For any remaining paper invoices, using intelligent data capture technology like OCR

(Optical Character Recognition) can automatically extract key information and digitize the invoice. This eliminates manual data entry, reducing errors and processing time.

Centralize data

Having a single source of truth for all invoice and payment data is crucial for efficient invoice processing.

When data is scattered across multiple systems or departments, it becomes difficult to get a complete picture of your payables and make informed decisions.

Integrating your procurement and AP systems allows easy access to related documents like purchase orders, receipts, and vendor contracts. This helps in verifying invoice accuracy and resolving any discrepancies quickly.

Expedite approvals

Delayed approvals are a common bottleneck in the invoice process.

Setting up approval workflows that balance control and efficiency is key to expediting the process.

Implementing approval hierarchies based on invoice amount and type ensures that invoices are routed to the appropriate level of authority.

For example, high-value invoices may require additional scrutiny and approval from senior management or the relevant personnel.

Enabling mobile approvals allows busy executives to review and approve invoices on-the-go, reducing delays due to lack of availability.

Make payments strategic

While the primary goal of invoice processing is to ensure timely and accurate payment, it also presents an opportunity to optimize cash flow and supplier relationships.

By analyzing the data on invoices for payment, you can identify opportunities to capture early payment discounts offered by suppliers. These discounts can add up to significant savings over time.

Negotiating better payment terms with preferred vendors based on your spend volume and payment history can also help optimize cash flow and reduce costs.

Measure and improve

Continuous improvement is key to optimizing your invoice approval process. Tracking key metrics like cost per invoice, exception rate, and days payable outstanding (DPO) is important.

Setting performance goals and benchmarking against industry peers allows you to measure your progress and identify best practices to adopt.

Take invoice approvals to the next level with Spendflo

Having a standardized procedure for invoice approval workflow delivers exceptional ROI. It improves visibility, control, and efficiency while strengthening vendor relationships.

But remember, the key to maximizing benefits is using automation to streamline the end-to-end process. It’s the only way to achieve truly touchless invoice processing.

This is where Spendflo comes in. Spendflo is a leading SaaS buying and optimization platform that helps businesses streamline their software procurement and management processes.

While not an AP automation solution per se, Spendflo can significantly enhance your invoice approval workflow for SaaS subscriptions.

Spendflo also automates the SaaS procurement process, from request to approval to provisioning. By integrating with your existing AP and procurement systems, we ensure that SaaS invoices are accurately captured, coded, and routed for approval.

Ready to take your SaaS invoice approvals to the next level? Talk with us now!

Frequently Asked Questions on Invoice approval

• How can I make invoice approval easier?

Implement AP automation software to digitize invoices, automate workflows, and provide real-time visibility. Enable touchless processing for PO-based invoices. Set up approval rules and alerts to expedite processing.

• Who is the Invoice Approver?

Invoice approvers are typically budget owners and managers responsible for the goods/services purchased. This can include requesters, department heads, and senior executives, depending on invoice amount and type. AP and finance also review for accuracy and compliance.

• What is the invoice verification process?

Invoice validation or verification is the process of verifying the accuracy and completeness of an invoice before approving it for payment. This includes checking the invoice against the corresponding purchase order, receipt, and contract to ensure that the goods or services were received as expected and that the pricing and terms are correct.

• Who decides the invoice number?

The invoice number is typically assigned by the supplier who issues the invoice. This unique identifier helps both the supplier and the buyer track the invoice throughout the approval and payment process.

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