At its core, an invoice approval workflow is a standardised series of steps required before a company pays a supplier invoice. This process includes verifying the supplier, checking quantities received, performing a 2 or 3-way matching, and senior finance team members signing off on the purchase.
The point of this rigorous process is to safeguard your business against a host of potential pitfalls. By thoroughly scrutinising and authorising invoices, this workflow helps to catch errors, prevent fraudulent activities, avoid unnecessary or duplicate expenditures, and ensure there is a clear audit trail for every purchase. Essentially, it acts as a protective barrier, ensuring that only legitimate and accurate invoices are processed for payment.
What Does an Invoice Approval Workflow Look Like?
An invoice arrives at your company, usually as an email attachment. Here’s what happens next:
- Invoice Arrival: The invoice lands in your inbox.
- Invoice Upload: It gets uploaded to your Accounts Payable (AP) system or directly into your Enterprise Resource Planning (ERP) system.
- Legitimacy Check: The details are scrutinised for accuracy and any signs of fraud.
- Matching: The invoice undergoes a 2 or 3-way matching process, depending on your company's protocols. You can read more about matching here.
- Internal Approval: The invoice is routed to internal finance stakeholders, such as the CFO or financial controller, for approval.
- Payment Queue: Once approved, the invoice is queued for payment.
Are Invoice Approval Workflows Really Essential?
The necessity of an invoice approval workflow can vary. The initial stages—uploading, fraud checks, and matching—are indispensable best practices for managing invoices.
However, the need for a finance executive to approve each invoice before payment can be dependent on preceding processes. Companies with robust purchase order systems might find this step redundant and opt for auto-approvals of invoices that match pre-approved purchase orders. Ultimately, it boils down to the preferences of a company and their finance team.
How Can Automation Transform This Process?
Automation can significantly enhance the invoice approval process. Tools like Kloo's Smart Invoice Inbox offer advanced solutions:
- Automatic Identification and Data Extraction: As soon as an invoice is received, it’s automatically identified as an invoice or credit note, and data is extracted using advanced Optical Character Recognition (OCR) technology.
- Fraud Checks: Automated fraud checks are performed, cross-referencing the invoice data with existing information to ensure everything checks out.
- Automated Upload: The invoice is then uploaded to the Kloo platform and ERP system.
- Automated Matching: Depending on your preference for oversight, you can have AI-suggested matches that you review or fully automated matching.
- Approval Workflow Assignment: Based on pre-configured rules, Kloo assigns the invoice to the necessary approver(s) based on factors such as the invoice amount.
The Impact of Automation
Automation transforms several manual steps into a single automated process. This reduces invoice processing and payment times, fostering better relationships with suppliers, securing early payment discounts, and avoiding late payment penalties. Additionally, businesses can scale their invoice processing capabilities without a corresponding increase in workload, making automation a critical factor in efficient growth.
The Bottom Line
In summary, a well-structured invoice approval workflow is essential for maintaining accuracy, preventing fraud, and ensuring a smooth audit trail. While the specific components may vary based on business needs, the initial stages of upload, fraud checks, and matching are universally crucial.
Embracing automation technologies, can transform manual, time-consuming tasks into efficient, streamlined operations, significantly enhancing overall business efficiency and financial management. By integrating automation tools, businesses can optimise their accounts payable processes, strengthen their financial health and supplier relationships, and pave the way for scalable growth and long-term success.
