A beginner’s guide to invoice approval workflow

Whichever industry you play in, whether you offer products or services, invoicing is a big part of business success. Business owners should always keep an eye on payables in order to maintain a long-term relationship with external vendors. Invoicing affects your internal workforce too. An efficient invoice approval workflow will ensure your invoices are paid on time and there’s no fraudulent activity going on.

Invoicing doesn’t have to be a confusing task, though you could look to the Process Bliss workflow process guide for help. The modern invoice approval workflow has become automated across industries. Let’s take a closer look at what an optimized invoice approval workflow looks like before we dive into how to automate yours for maximum results.

The invoice approval workflow explained

An invoice approval workflow consists of all the steps that you need to follow to pay out, i.e., clear an invoice. A 2022 Webinar Care report shows that approximately 80% of companies that use an automated invoice system expect increased investments in the next three years. The workflow acts as a useful checklist that is used to ensure that you’ve done the necessary tasks before you can request a payable or payout on an invoice.

Every organization is different when it comes to the invoice approval workflow. Small businesses might have one person handling the entire system while bigger businesses have dedicated accounting departments to look after invoicing. The important thing is to ensure there are no mistakes or discrepancies in numbers, even if you have a flexible workforce system.

The process usually begins when a business utilizes services from a third-party vendor or supplier and receives an invoice to be paid by an agreed-upon date. The date is usually decided prior to the invoicing process as a verbal contract between the accounts department and vendor. This agreement is then formalized once the supplier sends their invoice.

Larger businesses that deal with hundreds of vendors per week use tools like a VoIP PBX service to take these calls. There are numerous negotiations to be made before either party decides to finalize the services being offered. A larger business needs efficient operations to handle calls from vendors. The amount and date given on the invoice are decided in advance to avoid nasty surprises or fraudulent behavior. 

Once the final invoice has been received, the accounting department checks it for inconsistencies. They do this by reviewing the services rendered with the items listed on the invoice. If this is a large invoice, they might run it by the department that worked with the payee. Automation is encouraged here as 67% of accountants prefer to work through the cloud, meaning companies with remote workers also expect a smooth invoice approval workflow.

Once this process is complete, the invoice is paid out and all dues cleared with the relevant supplier. A more specific breakdown looks like this:

• Verification: This is the first step. The invoice is verified, i.e., double and triple-checked against other relevant documents like purchase orders or receipts. Compare this to the inventory management process for a clearer idea: if an SKU is missing from the inventory list, it will be investigated twice and thrice over until the product is found.
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• Exceptions: The second step comes in if the invoice fails the verification process. If an invoice is missing information or has erroneous data, it’s sent back to the person in question for fixing.
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• Approval: The third step is where the invoice gets forwarded to the accounting department, provided it has passed all verification checks.
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• Payment: The accounting department makes the final payment and clears the invoice according to the supplier’s preferred method. The invoice is then closed.

Paper vs. paperless

There are two ways to go about your invoice approval workflow. The first is the manual method, which involves handling lots of paper, copying invoices, and keeping a track of mail orders. The second method is automation and it uses emails, databases with real-time updates, and electronic files. Different companies will have their own preferences for these methods. Let’s take a closer look at both.

The manual entry method

When you use a manual payment method and a manual invoice approval workflow, you’ll have to undertake a series of steps to ensure an efficient process. Here’s an example of the kind of checklist you will need to follow:

1. Manually type and print the purchase order
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2. Seal in envelope and mail to supplier
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3. Receive the relevant invoice by mail
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4. Get individual signatures by necessary personnel
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5. Write an official check and mail it to supplier
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6. Manually show proof of payment in company accounts to balance them

This is the traditional method and has served a lot of businesses well for many years. With the advent of modern tech, however, it doesn’t seem like the most efficient way to do business. When you add in the high potential of human error, the risks associated with the manual entry method become even higher. This doesn’t include unplanned or unexpected issues like, for example, your accountant taking sick leave and the whole system gets backed up.

A checklist with too many tasks will ultimately become exhausting to follow, especially in a bigger company that sends hundreds of purchase orders on a weekly basis.This is why most companies use The paperless method. 

The automated invoice system has a lot of distinct advantages. One of the first is that an electronic workflow system reduces time spent sending, checking, collecting, and approving both purchase orders and invoices. It also adds transparency and accountability to the process because data can be updated in real-time and the chain of ownership remains traceable and intact throughout.

Here’s the checklist you can expect to use when you have an automated system:

1. Create an electronic purchase order
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2. Email the order to the supplier
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3. Receive the electronic invoice and notify relevant staff
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4. Process the payment (pay through bank transfer, PDF QR code scan, or other method)
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5. Automatically update financial records

The paperless invoice approval system significantly reduces the chances of human error. It saves the company precious money and increases efficiency overall. Invoices can be instantly scanned, exported, categorized, and sorted into appropriate folders for easy access. 

Key benefits of the paperless system

1.   Save space

Storing invoices and receipts as digital files instead of hard copies saves you a lot of space. If you run short on digital space, you can always purchase additional cloud storage. Working with the cloud is safe and secure because it backs up regularly.

2.   Categorization

Once you install automation software, you never have to sort through multiple documents to find the one you need. The paperless system gives you the option to create digital categories and the software takes care of the rest.

3.   Three-way matching

This is possibly the best feature of an automated invoice approval system. Three-way matching ensures that all your relevant documents, i.e., the purchase order, receipts, and invoice have matching details. This saves you from fraudulent invoices and saves a lot of precious hours for the accounting department.

How should you choose?

Finding the perfect automated software for your invoicing needs can be a bit of a challenge. But there’s a lot of information available out there to help. Begin your search by comparing pricing and fee models. Some software is available as a one-time purchase while other versions offer cloud computing with a subscription model. Make sure you pick a price that works with the company’s budget and take the number of daily invoices into consideration. 

Another element to look for is complete automation. Check to see whether the software executes basic tasks that will help you create a smooth invoice workflow system. Here are some elements to check for:

• Basic and customized invoice creation (with templates)
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• Basic and customized purchase order creation
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• Digital notifications whether through email, texts, or other
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• Automated payment processing through a medium of your choice
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• Regular and automated financial updates for real-time data
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• Three-way checking to cut down on time and costs

Full automation means complete optimization and business owners should aim to streamline as many of their processes as possible, perhaps even moving onto cloud accounting. Your invoice approval workflow should be bug-free and uncomplicated so you can consolidate and present accurate financial information when necessary. It will also ensure that the process is transparent and there’s no fraudulent activity happening.

Final Thoughts

A fully automated invoice approval system will add efficiency and reliability to your business operations. It will bring down the chances of frequent human error, improve your relationship with external stakeholders like vendors, and ensure that your financial data is well-organized and transparent in case of audits. Automate your workflow to enjoy a smooth, hassle-free process and resolve cash flow issues.  

John Allen is the director of SEO at cloud-based business communications services company 8×8.