Is your business losing money and productivity to an inefficient and outdated invoice approval process? You might be surprised to learn that, even in an age of technological advancements like workflow automation, artificial intelligence, and data analytics, many companies continue to rely on manual invoice approval as part of their default procure-to-pay (P2P) process. And as a result, they’re losing money to process inefficiencies, wasted time, and missed opportunities for value-boosting early payment discounts.
Streamlining and optimizing invoice processing can have significant benefits for your procurement and accounts payable teams, as well as your company’s health, profitability, and competitive power. Taking the time to research and implement a few user-friendly changes can help you stop losing value to suboptimal invoice processing and ensure you’re getting the most for your money when it’s time to pay the bills.
Why You Need a Formalized Invoice Approval Process
In a perfect world, the invoice approval process is fairly simple and straightforward: the buyer receives an invoice from the supplier, verifies it is correct, and then routes it to the appropriate stakeholder for approval. Once it’s approved, accounts payable (AP) issues payment and updates the company’s financial records accordingly.
In practice, however, the potential for breaks in the approval chain, human error, invoice fraud, and other problems necessitate the creation of a formalized invoice approval process. Invoice approval workflows will vary from company to company, but generally speaking, a fully-developed invoice approval workflow will look something like this:
- Invoice Capture
When an invoice is received from a vendor, all of the information relevant to the transaction (including original purchase order number (PO number) invoice number, invoice amount, quantity and quality of goods ordered, terms and conditions, etc.) should be transferred to the recipient’s purchasing system.
- Invoice Validation/PO Matching
Once captured, the invoice is categorized and linked to any other documents related to the transaction, including the original PO, shipping documents, purchase receipts, and correspondence with the vendor about any changes to the order. This is commonly referred to as “three-way matching,” but may include documents beyond the trio of PO, invoice, and shipping manifest.
- Exceptions and Corrections
If an invoice has incomplete or incorrect information, it is routed to staff members who track down the correct or missing information and then re-verified and matched. Invoices that cannot be reliably traced to an existing transaction may trigger a fraud investigation.
- Invoice Approval Routing
After verification and matching are complete, the invoice is routed to the proper approver(s), based on criteria established by the company’s business processes. For example, an invoice may need to be approved by both the manager of the department placing the order as well as a senior manager if the amount is outside specific spend limits or is related to a specific project budget.
- Payment Processing
Approved invoices are forwarded to the accounts payable department for processing and payment. Processed invoices are closed out and the accounting records updated.
With a formal invoice management process in place, it’s much easier to minimize potential errors and disruptions. However, even the smoothest manual process is prone to preventable issues that can be addressed through invoice automation.
“Beyond developing a formal invoice approval process, the best choice you can make to improve your company’s efficiency, accuracy, and savings from invoice processing is to automate.”
Problems Created by Manual Invoice Approval Processes
Manual invoice processing and approval workflows adhering to business rules can certainly provide adequate (if not optimal) performance for small businesses with minimal supply chains. However, larger businesses and those pursuing strategic growth will soon discover that a growing supply chain brings with it greater demand for staff time, talent, and resources—and manual processes simply cannot meet that demand in an effective and efficient way.
Some of the most common problems that can plague manual invoice processing include:
- Poor Spend Transparency and Increased Risk. Manual processes make it tempting for malicious parties to submit a false invoice for payment, and increase the risk of such invoices being paid and not discovered until it’s too late. In addition, manual workflows can allow orders to “slip through the cracks” as maverick spend, particularly if users circumnavigate approved purchasing policy to buy items and receive invoices and other documents without accounts payable in the loop. This can lead to incomplete and inaccurate spend data, which in turn can have a devastating impact on financial reporting, audit trails, cash flow, and strategic decision-making.
- Lost invoices. One of the challenges created by paper-based document management is the frequency with which invoices can be lost or destroyed. Tracking down misfiled invoices in a vast sea of paper is time-consuming and can damage supplier relationships with needless delays.
- Human error. When fingers meet keyboard, the risk for errors and oversights multiplies. Manual data entry can lead to incorrect or incomplete payments, and make it much more difficult to verify invoices.
- Duplicate payments. Another symptom of manual invoice processing, duplicate payments can be made for a number of reasons, including delays from inefficient data entry and approval workflows or routing errors that lead to the same payment being processed twice. Without automatic verification, it’s all too easy—and expensive—to pay more than once for the goods and services you need.
- Approval Workflow Delays. Manual workflows slow down every process. And if there’s no system in place to provide back-up and reminders for approvers who are out of the office or simply too swamped to pay close attention to their inbox, invoice approvals can be delayed, leading to late payments, loss of potential early payment discounts, and goodwill with suppliers.
- High Staff Overhead. Invoice workflows based on pen, paper, and people are slow, labor-intensive, and expensive. Excessive labor costs can push the average cost of processing a single invoice into the stratosphere.
Transform Your Invoice Approval Process with Automation
Beyond developing a formal invoice approval process, the best choice you can make to improve your company’s efficiency, accuracy, and savings from invoice processing is to automate. Invoice approval software, or AP automation software, as part of an overall Procure-to-Pay software, like PLANERGY, can achieve this goal. A 2018 report from research firm Levvel (formerly Paystream Advisors) found that the top three invoice processing concerns for enterprise organizations were missed discounts (44%), late payments (39%), and duplicate payments (29%)—three potential problems that are readily addressed through the power of automation.
But it doesn’t end there. Cloud-based AP automation software—including invoice processing—gives your procurement and AP teams several immediate and powerful improvements, including:
- Optimal accountability; automated workflows track every transaction in real-time, so you’ll always know where your invoice is in the approval chain. You can set up workflows with contingencies and reminders to minimize roadblocks, and mobile access for the fastest approvals possible.
- Total spend visibility.
- Accurate and efficient invoice cycles with automatic 3-way matching.
- Easy integration with existing accounting and enterprise resource planning (ERP) systems to connect all stakeholders across business units and departments.
- Higher productivity thanks to hands-free automated workflows that free staff from low-value, time-consuming drudgery so they can focus on more strategic tasks.
- Massive cost and time savings through process optimization and the elimination of paper-based document management.
- Reduction or elimination of human error and invoice fraud.
- Faster, more accurate financial reporting, forecasting, and audit trails.
- More early payment discounts and few or no late payment fees.
Automate and Optimize Your Invoice Workflows with Invoice Approval Software
Getting maximum value from your invoice approval workflows can be challenging, but it doesn’t have to dominate your schedule or stress your staff with needless complexity. With a well-developed invoice approval process and the right AP automation solution, you can reduce the risk in your invoice processing, improve your productivity and efficiency, and enjoy substantial savings from reduced waste, lower labor costs, and less resource consumption.
Take the Stress out of Invoice Approvals and Improve All Your Workflows with PLANERGYFind Out How