Imagine this—you put in a purchase order for goods with your vendor, and they deliver it and raise an invoice. You receive the invoice, match it to your goods receipt note, and after confirming everything is in order, promptly pay the vendor. Sounds simple enough, right?

If only it were that simple, we will never be managing only one invoice at a time. In fact, the common figure for most businesses hovers around 1000 invoices per month. When the number rises to this, things get tricky and prone to errors.

These errors don’t just cost you financially but also affect your relationships with vendors and cost you your reputation. This is why you need a robust invoice approval workflow. In this article, we discuss everything you need to know about invoice approval workflows, from what it is and how it can impact your business to how to optimize it and streamline your operations.

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What Is an Invoice Approval workflow?

An invoice approval workflow refers to the process of checking and verifying the accuracy of invoices before making payments. It involves creating specific guidelines and processes that guide how invoices will be processed and approved before being cleared for payment.

An invoice approval workflow benefits the company by ensuring you get value for money. Further, it helps prevent you from becoming a victim of fraud as it requires meticulous checking of the invoice against important documents such as goods receipts and purchase orders.

For instance, building an invoice approval workflow for your company would mean laying down guidelines and policies that must be adhered to while verifying invoices. This could entail correlating it to a goods receipt note, getting a sign-off from the concerned department head, and the like.

An invoice approval workflow can be customized to suit every business’s unique needs and is best implemented through invoice approval workflow software. We’ll discuss this in detail ahead.

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Invoice Approval Workflow Steps

Here are the typical steps involved in an invoice approval workflow:

1. Receive and Record Invoice

The invoice approval workflow gets kicked off when you receive a supplier invoice for payment from your vendor. While the invoice can be in a variety of formats—physical copy, PDF, or e-invoice—your focus must be on ensuring it is recorded accurately—whether in a physical register or into a cloud-based solution. 

2. Match Invoice

Now, once your invoice is recorded, it must be compared against supporting documents such as goods receipt notes, purchase orders, and any other relevant document that can help verify the invoice. 3-way matching is a common method for this.

3. Ascertain Invoice Exceptions

Every once in a while, you will receive an invoice that might not match any purchase-related documents. It could be because of a discrepancy, data omission, or missing purchase order. In such a case, the invoice is redirected to the invoice approvers to track and correct the discrepancy. 

An added cautionary step is to conduct a fraud investigation—just to ensure you’re covering all your bases. 

4. Gain Approvals

Once the verification and matching process concludes, it's time for actual approval. For this, the invoice is shared with the relevant stakeholders, who confirm whether the invoice is correct, meets company policies, and fits within the budget. If all’s well, approval is granted.

5. Process Payments

After getting a thumbs up from all relevant stakeholders, the invoice is forwarded to the accounting department, where payment is initiated, and the invoice is closed. 

Invoice Approval Workflow Benefits 

Integrating a robust invoice approval workflow into your purchasing workflows allows you to streamline invoice processing and payments. Here are the benefits it brings you:

• Helps Track Spending: Invoice approval workflows help you monitor where your money gets spent in a streamlined manner. Gaining a clear idea of your spending helps you understand how well your budget is stuck to and helps you take calls about future budgetary decisions as well.
• Facilitates Quicker Access to Services: Invoice approval workflows facilitate quick and efficient invoice approval, saving you time. This also means quicker authorization and access to the products and services that your team needs to perform their duties effectively.
• Promotes Transparency in Financial Management: An efficient invoice approval workflow facilitates meticulous checking of all necessary documents to validate an invoice. This requires it to maintain records, which helps you gain an accurate picture of your finances. Further, since it expedites invoice payments, it also helps you work with the latest financial records during budget planning. 
• Fosters Improved Relationships with Vendors: Without an efficient invoice approval workflow, checking and authorizing payments to vendors can take a while. This can cost you your goodwill with the vendor. Consider integrating an invoice approval workflow to expedite invoice payments and keep your vendors happy.

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Top Challenges for Manual Invoice Approval Workflows

You can adopt a manual approval workflow process or onboard a specialized solution for the task. If you ask us, we don’t recommend the former. Here’s why:

• Requires a Significant Amount of Time

Manual invoice approvals are cumbersome, to say the least. Imagine getting physical paper invoices, examining the invoice details, manual data entry, informing the relevant stakeholders, and then approving the invoice- phew, it's tiring just thinking about it.

• Hampers Transparency

Reduced visibility = greater discrepancies. Manual invoice approval workflows are unable to give you insight into your invoice payments and hamper your ability to make informed decisions on budgeting, resource allocation, etc.

• Drives Operational Costs

Manual invoice approval workflows require data entry, physical document handling, and paper-based communication that increases expenses, compromising cash flow. The average cost of processing one invoice is between $15 and $40.

• Is Prone to Errors

Approving invoices through manual processes opens the door to issues like wrong data entry, missing details, and misinterpretations. These can cost companies dearly in the form of overpaid/underpaid invoices, loss of face with vendors, and other financial issues within the company.

• Lack of Centralized Processes

Manual invoice approvals require teams to juggle physical invoices, emails, and texts, which result in lost, missing, or misinterpreted invoices, compromising the smooth functioning of the company.

• Prolonged Payment Cycles

All the issues mentioned above have a cumulative effect of prolonged payment cycles. Approval delay can result in injury to reputation, late payment penalties, and compromised vendor relationships.

• Vulnerable to Fraudulent Activities

Manual invoice processes lead to a lack of transparency and a decentralized system that, in turn, leaves gaps for fraudulent activities such as unauthorized approvals and tampered invoices. After all, if you don’t have robust financial control and detailed visibility, it's easy to overlook suspicious activities, driving your risk of fraud.

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Optimize the Invoice Approval Workflow with Automation

An invoice approval workflow automation is a software solution that helps you track and manage the approval of your invoices from the receipt stage to payments, ensuring efficiency, accuracy, and adherence to regulatory requirements and company policies. 

Not only that, but this automation system can also help you cut costs by 60%-80%, by bringing the average cost per invoice down to $5 or even lower.

Invoice approval workflow automation helps you optimize your invoice approval processes by: 

• Validating Quickly

We can argue that validation is by far the most time-consuming part of the invoice workflows, demanding substantial manual effort. But with invoice approval workflow automation, it becomes a breeze as this allows all validation processes to take place on a single platform.

It allows you to compare documents, provides AI capabilities to spot errors, and connects all stakeholders to ensure invoices are verified faster and more efficiently. Automated expense systems integrate with accounting solutions to quickly cross-check details. Further, any error correction or invoice reissuing also takes place faster than the time it would take in the case of a physical invoice.

• Automating Approval Routing

An invoice approval workflow automation requires you to determine your invoice flow at the onset before you begin receiving invoices. The result? A well-thought-out flow that allows invoices to be sent directly through the correct approval line automatically.

This eliminates any chance of misdirected invoices, lost invoices, and the like.

• Speeding Up Invoice Approvals

Expense management solutions help you set up multi-level approvals across emails, web applications, and other platforms. Further, they allow you to add multiple stakeholders to the approver list to ensure all relevant team members are informed about the status of invoices (fresh or pending approval request). 

Not only that, but these individuals can also request additional details on the solution itself to ensure all invoice-related activities are tracked on a centralized platform. Such features help speed up invoice approvals.

• Establishing a Single Source of Truth and Transactions

With an invoice approval workflow automation, you establish a single source of truth for all your invoices.

It helps you scan your purchase orders on the date of issuance. If two or more invoices correlate with the same purchase order and have similar details, they are automatically flagged and removed from the approval track to prevent duplicate payments to the same vendor for the same goods or services.

Further, with automation, you can bid adieu to misplaced purchase orders, lost invoices, and damaged goods receipt notes. With invoice approval workflow automation, every important document is meticulously stored and organized.

This doesn’t just drive your invoice approval process’ efficiency but also contributes to improved relationships with suppliers and vendors, enhanced decision-making, and a better industry reputation.

• Safeguarding Against Fraudulent Activities

Invoice fraud costs companies over $ 1 million annually, and 43% of finance executives say they’ve been a victim of deep-fake scams. Fraud is a very real threat in the world of invoice approvals and can be effectively tackled with robust invoice approval workflow automation.

You see, such solutions allow you to set budgets and approvals to gain a clear picture of the source and destination of each invoice generated. With policies and guidelines setting limits at each stage, any diversion gets flagged immediately and helps you recognize fraud risks before they snowball into bigger issues.

• Improving Vendor Management

With an invoice approval workflow automation, all invoices get systematically processed, ensuring your vendors get paid on time without hassle. This helps foster positive vendor relationships, enhances their confidence in your growth (owing to a systematic, organized, and streamlined way of functioning), and improves your chances of gaining favorable vendor proposals.

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Conclusion  

Here are the key takeaways from the above:

• Automating your invoice approval workflow reduces errors, accelerates processing, and saves up to 80% on costs compared to manual methods.
• Streamlined and timely payments foster trust and goodwill with vendors, ensuring smoother collaborations and improved vendor proposals.
• Automated workflows provide detailed records and immediate fraud detection, safeguarding financial processes against risks like duplicate payments or unauthorized approvals.
• Centralized dashboards and real-time tracking offer valuable insights into spending patterns, aiding informed budgeting and decision-making.

To achieve all this and more, Spendflo’s Workflow Engine is the ultimate solution. It simplifies and automates your invoice approval process by offering a no-code builder that helps you customize workflows, offers centralized visibility, and seamlessly integrates with your existing tools. 

Discover the Spendflo difference by experiencing our automated invoice approval workflow in action. Book a demo today!

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FAQs

1. How do I set up an invoice approval workflow?

It's best to set up your invoice approval workflow with the help of an automated solution. For this, designate authorized invoice approvers, specify their contact details, and follow the setup instructions shared by the invoice approval workflow solution provider.

2. How do you approve an invoice?

To approve an invoice, you must be authorized personnel, for starters. Next, you need to review the supplier’s invoice and correlate it with other necessary documents, such as purchase orders and goods receipts, to validate it. If everything is in order, you can approve the invoice and authorize payment.

3. Who approves invoices? 

Typically, small business owners, managers, and designated supervisors or personnel who have budgetary control approve invoices. That said, if the invoice amount is beyond a specific figure, additional approval (from a higher-level executive) might be required. This depends on company policy. 

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