Any business, whether it’s big or small, has expenses. And how you manage those expenses can make a huge difference in your balance sheet and your relationship with suppliers.
Paying your suppliers on time is crucial for several reasons. If you pay your invoices on time, you can get early discounts and avoid late payment fees and other charges that can increase your costs. If you’re frequently making late payments, it could hurt your credit rating and make other forms of financing harder and more expensive to obtain in the future.
Finally, a good reputation goes a long way, and paying on time is the only way to ensure that you have a prominent partnership with your suppliers and a reliable source of the goods and services you need to run the business.
So how can you improve your accounts payable workflow to ensure that invoices are paid on time?
One way to do it is by addressing the things that make it slow and inefficient, like manual processing and approval workflows.
What Is An Invoice Approval Workflow?
Simply put, it’s a process of receiving, validating, and approving invoices for payment.
The invoice approval is a part of the larger invoice processing workflow and focuses on clearing invoices before they are paid.
The process typically begins with the initial review and approval of an invoice by the relevant financial stakeholder before being passed onto an authorized signer or accounts payable team. From there, it is checked further to ensure accuracy and then moved on to payment.
This involves several stakeholders, including financial departments like accounts payable, budgeting and finance managers, as well as managers of other departments who need access to information about payments or expenditures.
For example, a marketing department can order a specific marketing service for the company and collect the invoice from a supplier. In that case, marketing staff will be responsible to check the invoice before sending it to the AP department to process the payment.
The invoice approval workflow ensures that all involved parties review the requested payments or expenditures before processing them. Without proper workflows in place, invoices can get lost in the shuffle, and payments could end up delayed or forgotten entirely. Setting up the right processes around invoice approvals is important to avoid those issues while ensuring that payments are made on time.
5 Steps In The Invoice Approval Workflow
- Receive the invoice
- Validate the invoice
- Resolve discrepancies
- Collect approvals
- Set for payment
1) Receive the invoice
A supplier usually delivers an invoice electronically via email or in the form of a physical document.
2) Validate the invoice
Validating or verifying the accuracy of the invoice means checking that the goods or services listed on the invoice were received or provided and that the prices are correct. In this step, invoices are matched with purchase orders (PO) or delivery receipts (DS) in a 3-way matching.
3) Resolve discrepancies
If the invoice doesn’t pass verification because of any missing information or inconsistency, it should be sent back to the supplier to fix the mistakes, and after discrepancies are resolved the approval process starts again from the beginning.
4) Collect approvals
Making sure that invoices are approved quickly and don’t get stuck in lengthy approval processes is essential for paying suppliers on time. Getting approvals from someone with the authority to authorize payments or from various people can prolong the whole process, especially if it’s done manually and includes back-and-forward email communication.
5) Set for payment
When the invoice is approved, it can be processed for payment. The accounts payable department prepares the transaction, initiates an electronic payment, or uses a company credit card to pay the supplier.
Manual vs Automated Invoice Approval Workflow
There are still companies that manage accounts payable manually, which makes the whole process from data capturing to payment very slow and prone to errors.
While manual invoice approval can provide more control over the decision-making, automated processing allows you to quickly review a large number of invoices at scale, making it more efficient overall.
Automated invoice approval utilizes technology like artificial intelligence (AI) to scan and assess invoices according to predetermined rules. On top of that, AI can reduce human error, meaning fewer mistakes in data capturing.
Benefits of Automated Invoice Approval Workflows
Automating invoice approval workflows can be a major transformation for any business.
Successful implementation of this process can lead to improved efficiency, cost savings, and better audit controls. Having the right process in place assures accuracy and completeness, reduces manual efforts associated with collecting documentation for approvals, and increases transparency between all stakeholders.
Here are some of the main benefits of automated invoice approval workflow:
Improved accuracy
By following a structured, predetermined process for reviewing and approving invoices, companies can reduce the risk of paying for goods or services that were not received or were overpriced. The automated, streamlined process also improves efficiency in terms of the time it takes to approve invoices.
Enhanced control over cash flow
With the invoice approval process companies can make sure that invoices are accurate and complete before any payments are made. This saves time and money in the long run, avoids fees for potential late payments, and helps to manage the cash flow more effectively through faster payment processing cycles.
Increased efficiency
Automating the invoice approval process not only saves time but also reduces the risk of errors. By reviewing and approving invoices electronically, mistakes can be quickly resolved without any costly delays.
Enhanced compliance
A well-set and structured invoice approval process can help companies meet regulatory requirements and avoid penalties or fines. Automation also secures improved compliance with company policies, enhanced audit control, and reduced administrative costs within finance departments.
Improved supplier relationships
Paying suppliers promptly and accurately leads to a good reputation and helps companies maintain good relationships with their suppliers.
In conclusion, introducing an automated invoice approval workflow is likely to have a positive impact on any business no matter its size. By leveraging automation technology and streamlining the process, companies can save time, money, and effort while ensuring accuracy in their payment system. With these advantages in mind, it’s easy to see why implementing an automated solution could be a smart decision for any company looking to optimize its financial operations.
