Demystifying the Accounts Payable Invoice Approval Process
The accounts payable invoice approval process isn’t a “who done it,” like Agatha Christie’s Murder on the Orient Express. You won’t find small hidden clues seeded as the long story unfolds. Instead, it’s straightforward as long as you have the basic tools and processes in place. These tools and processes include using an automated AP invoice approval workflow, electronic document capture and matching, and real-time approval requests for designated approvers.
Because in your business story, the longer you wait to set up the accounts payable invoice approval process, the more savings and related cash flow opportunities you lose. Then you’re no longer the hero CFO or valuable payable team member. To help you avoid that, this article explains accounts payable invoice approval best practices in a simple and clear way.
How Can I Save Labor Hours and Money by Automating the Accounts Payable Invoice Approval Process?
Accounts payable automation helps you reduce the AP portion of procurement to pay (P2) cycle time–closing the books sooner.
Automated AP software verifies vendors and validates accounts payable invoices. It sends the approval requests to the right person in the organization. As an approver, you’re emailed the information you require before approving an invoice for payment. It doesn’t matter if that’s two-way or three-way approval. (Two-way approval is invoice matching with the purchase order. Three-way approval is invoice matching with the purchase order and receiving report.)
When you automate the AP process, it makes an authorized approver’s job easier and quicker. It helps you avoid duplicate payments and our company can take early payment discounts to save money. You’ll avoid late payments to suppliers that could result in shipment cut-offs by vendors when you greatly exceed payment terms. The accounts payable department can escape the time-consuming, endless approver follow-up that happens with a manual invoice processing workload.
Incorporating Business Process Improvement into Accounts Payable Invoice Approval Workflow
Business process improvement (BPI) is the analysis of methods and workflows to find opportunities for reducing bottlenecks, processing costs, and the waste of labor hours due to inefficiencies. It uses workflow diagrams to graph business processes and changes processes where needed to be more efficient.
The accounts payable invoice approval process–which is part of the AP invoice processing and payment processing workflow–is an area that your business can streamline with BPI to yield significant cost-savings benefits.
Deloitte issued a report titled Strategies for Optimizing Your Accounts Payable and the report cautions business readers:
“A failure to adopt effective accounts payable processes can hamper a company’s ability to process invoices on a timely basis, take advantage of available discounts and set either longer or shorter payment terms with suppliers, depending on which are most favorable. These consequences can arise when businesses:
- Rely too heavily on error-prone manual processes to approve requisitions, scan supplier invoices, and issue payments …
- Incorrectly load supplier and/or contract information into master data files
- Lack processes and systems to prevent late payments, under- or over-payments, duplicate payments or missed payments.”
The Accounts Payable Invoice Approval Process in AP Automation Software
An AP automation app has built-in integration to NetSuite, Sage Intacct, QuickBooks, and some other ERP accounting systems. Look for an app that uniquely provides end-to-end accounts payable automation, starting with the self-service onboarding of suppliers. AP automation SaaS cloud software uses artificial intelligence (AI), thousands of business rules or algorithms, and robotic process automation (RPA) to automate routine payable processes. You can work anytime at your office, work remotely, or anywhere you have Internet access. Use your computer or mobile device, including a cell phone or tablet.
Supplier Onboarding, Verification, and Supplier Management
Vendors and suppliers enter their contact information and upload invoices for invoice processing and approvals in the advanced AP system. The uploading of invoices by suppliers gets invoice data into the system, reducing manual processes of getting paper invoices into the system. It saves time by offloading some of the traditional accounts payable department workload and reduces errors. Suppliers also enter W-9 (US) or W-8 (international) tax forms, which are digitally captured. Part of the supplier management process is vendor verification using a KPMG system, which is also useful in the accounts payable invoice approval process.
Invoice Automation including Document Matching
How do you process accounts payable invoices? Automated invoice processing is part of the payable process leading to accounts payable invoice approval. Supplier invoices are either entered in the system electronically through vendor upload or incorporated through OCR capture if necessary.
The invoice data in the system include invoice number, invoice date, due date, payment terms, item number, item description, quantity, invoice amount, and related PO number. The next step is automatic electronic system matching of invoices with purchase orders (POs). WIth this is also receiving reports if relevant to substantiate ordering by an authorized company employee and receipt of goods, if applicable. The purchase orders should be matched with signed purchase requisitions by the system.
Before payment processing, the next step is the accounts payable invoice approval process.
Accounts Payable Invoice Approval Levels
Who is authorized to approve accounts payable invoices in your company? A written company policy should set approval levels by invoice amount and responsibility center. The person with cost center budget responsibility should be an invoice payment approver. As the AP invoice amount reaches a higher range stated in the company policy, the company will require additional approvals.
The other approvers should be designated managers who supervise the original approver. Large invoice amounts may require preauthorization and CFO, CEO, and perhaps the Board of Directors’ approval for strong internal controls and corporate governance.
As part of your approval process, you can also control costs for low-cost, repetitive items purchased like office supplies. Your policy and supplier approval process can include automatic business rules for adequate cost control management of tail spend, without requiring too much human time spent on approvals.
Once the accounts payable invoice approval process is complete for an invoice, automated payment processing begins. Look for the choice of efficient large batch payments or individual bill pay when it’s needed. AP automation software should provide an audit trail, which also improves internal controls.
Now that we’ve demystified the accounts payable invoice approval process, learn about more features and benefits of AP automation and global mass payments software. You don’t need to rely on your standard outdated manual data entry system for accounts payable.
After you start using your cloud SaaS subscription that’s available as an app from your preferred ERP accounting software vendor or through the developer, you’ll have extra time to binge on Netflix or curl up with your favorite mystery novel. And you’ll gain some finance cred as a decision-making FP&A analyst and company strategist, having to explain less unfavorable budget variances.