When it comes to managing accounts payable, a well-structured invoice approval process can make a significant impact on your organization. The right process can not only save time and money but also reduce the risk of fraud and improve collaboration between departments. In this article, we will delve into the best practices for the accounts payable invoice approval process, and how automation can enhance your workflow.

The Importance of a Solid Approval Process

An effective approval process is crucial to the success of any accounts payable system. Research has shown that accounts payable professionals spend approximately 20% of their time managing approvals, which can be frustrating and inefficient. By establishing a clear and well-defined approval process, organizations can minimize the risk of fraud, streamline their operations, and improve collaboration between departments.

Managing Approvals in Accounts Payable

The approval process in an accounts payable system typically involves the following steps:

  1. An invoice is received and matched to a purchase order.
  2. The invoice is coded and directed to the designated approver.
  3. The approver reviews the invoice and either approves or rejects it.
  4. If approved, the invoice proceeds to the payment stage.

It’s essential to have clear guidelines in place to ensure that this process runs smoothly and efficiently.

Best Practices for Approval Channels

When setting up approval channels, there are several best practices to consider:

1. Implement multi-level approvals: Establish at least two levels of approval for invoices. This can be done by setting up a dollar threshold, where invoices above a certain amount require approval from multiple individuals. Some systems allow you to customize this process so that an invoice can only proceed for payment once all approvers have given their consent.2. Separate approvals for invoices and payments: The person responsible for approving invoices should be different from the individual approving payments. This helps to mitigate the risk of funds being fraudulently routed and enhances your organization’s financial security.3. Formalize your approval matrix: Create a documented organizational structure for your approval channels. This should clearly outline who the approver is, the timeline for approval, and who the secondary approver would be in their absence.4. Segregate duties: Adhere to Generally Accepted Accounting Principles (GAAP) by separating duties within the accounting process. This prevents one person from having too much control over financial decisions and reduces the risk of fraud.5. Establish a purchase order approval workflow: Set up internal rules for making purchases before placing an order. This can involve creating a requisition for internal approval, which is then authorized by a manager or the finance department and sent to the supplier. Many workflow management systems allow for trigger-based actions to manage purchase orders effectively.

Embracing Automation for Approval Channels

Companies looking to enhance their approval channel controls can benefit from automated software solutions. Accounts payable automation offers customizable approval channels based on the unique requirements of your organization. Solutions like Beanworks and Tipalti provide highly customizable organizational structures with separate approval workflows for various accounting processes, including purchase orders, invoices, and payments.

Key Benefits of Automating Approval Channels

There are several advantages to implementing automated approval channels:

1. Restricted unauthorized access: Only authorized approvers can view the status, history, and previous reports of an invoice or payment. This helps to maintain a secure system and reduce the risk of fraud.2. Customized routing: Invoices can be routed based on factors such as location, department, project, or vendor. For instance, an employee in one location can code an invoice to the marketing head in another location. This allows for seamless collaboration and creates an electronic audit trail for all approval steps completed.3. Approval subsets: CFOs can establish subsets or criteria for specific types of invoices. For example, an invoice could be marked as approved after one of two approvers has given their consent. Companies can further customize this process by requiring approval from all designated approvers before an invoice is accepted.

The Role of Accounts Payable Automation in Saving Time and Money

Accounts payable automation can substantially reduce the time spent on the procurement-to-pay (P2P) cycle, with some organizations reporting time savings of up to 80%. By automating essential processes such as supplier tax compliance, invoice processing, and payment, your accounting and finance department can close the books more quickly and efficiently.

Key Features of Automated AP Software

Automated accounts payable software offers several features to streamline your workflow:

  1. Supplier onboarding, verification, and management:
  2. Vendors and suppliers can enter their information and upload invoices directly into the system, reducing manual processes and errors.
  3. Invoice automation and document matching:
  4. Invoices are either entered electronically through vendor upload or captured using Optical Character Recognition (OCR) technology. The system then automatically matches invoices with purchase orders and, if applicable, receiving reports.
  5. Integration with existing systems:
  6. Many AP automation solutions offer built-in integration with popular ERP and accounting systems like NetSuite, Sage Intacct, and QuickBooks.
  7. Customizable approval levels and workflow:
  8. Automated software allows you to create personalized approval levels and workflows based on your organization’s specific needs.
  9. Audit trail and enhanced security:
  10. AP automation software provides a detailed audit trail, enhancing internal controls and reducing the risk of fraud.

Incorporating Business Process Improvement (BPI) into AP Invoice Approval Workflow

BPI involves analyzing methods and workflows to identify opportunities for reducing bottlenecks, processing costs, and labor inefficiencies. By incorporating BPI into your accounts payable invoice approval process, you can streamline operations, save on costs, and avoid late payments.

Deloitte’s report on Strategies for Optimizing Your Accounts Payable https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/finance/ca-en-FA-strategies-for-optimizing-your-accounts-payable.pdf highlights the potential consequences of inefficient AP processes, such as late payments, missed discounts, and unfavorable payment terms. By embracing BPI and automating your AP invoice approval process, you can avoid these pitfalls and improve overall efficiency.

Executing Supplier Payments in the AP Invoice Approval Process

Expanding the invoice-to-pay process to include payment execution is possible when the payment system is controlled by the accounting system responsible for tracking invoices. Payment methods may include ACH transfers, wire transfers, global ACH transfers, e-Wallet/debit card transfers, and prepaid debit cards.

Automated AP systems address the challenges of vendor payee and invoice payment processing, using workflow automation, algorithmic business rules, and list screening to improve efficiency. Solutions like Tipalti offer a highly integrated approach to handling supplier invoices, combining OCR invoice processing, machine learning, and managed services for touchless, straight-through processing.

By incorporating automation into your accounts payable invoice approval process, you can save time, reduce costs, and strengthen your organization’s financial management.

Conclusion

In today’s fast-paced business world, a well-structured and efficient accounts payable invoice approval process is essential. By implementing best practices, embracing automation, and considering BPI principles, you can streamline your approval workflow, save time and money, and reduce the risk of fraud. Adopting these strategies will not only improve your organization’s financial management but also allow your team to focus on more strategic tasks and drive your business’s success.