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Accounts Payable Best Practices: Revolutionizing the Invoice Approval Process

In the world of Accounts Payable (AP), efficiency and accuracy are essential to success. As AP professionals, we understand the importance of streamlining processes and avoiding potential pitfalls. One major area in need of improvement is the invoice approval process. With AP professionals spending roughly 20% of their time managing approvals, organizations must look for ways to enhance this process. In this article, we discuss accounts payable best practices and suggestions for revolutionizing the invoice approval process, ensuring it is secure and efficient.

The Challenges: Why Invoice Approvals are a Pain Point

Invoice approvals can be tedious and time-consuming for several reasons. Often, the process is hindered by poorly defined approval channels or inadequate management. When multiple employees are involved without clear segregation of duties, the risk of errors or fraudulent activities increases.

A shocking example of fraud occurred when an Oregon employee embezzled $4.5 million from their company over a 15-year period. By approving fraudulent invoice payments and directing them into a personal account, the employee exploited the lack of segregation of duties. Clearly, there is a pressing need for a more secure and efficient invoice approval process.

The Solution: Implementing Best Practices for AP Approval Channels

To create a solid and secure AP approval channel, we recommend the following best practices:

1. Multi-Level Approvals

Setting up at least two levels of approval can enhance security and reduce the risk of mistakes. Criteria can be established, such as requiring higher-value invoices to be approved by multiple individuals. By enabling double verification, the process becomes more reliable and secure.

2. Distinct Approvals for Invoices and Payments

To strengthen risk prevention and protect company funds, the individuals responsible for approving invoices should be different from those approving payments. This separation of duties prevents fraudulent activities, as it requires collusion among multiple employees to bypass the system.

3. Formalized Approval Procedures

Develop and document a formal organizational structure for your approval workflow. Ensure all involved parties understand and adhere to the defined structure, which should include the primary approver, their deadline for approval, and a secondary approver in case of absence.

4. Segregation of Duties

In line with Generally Accepted Accounting Principles (GAAP), segregating duties is crucial for accounting best practices. Keep the individuals responsible for creating and maintaining financial records separate from those responsible for approving transactions.

5. Purchase Order Approval Workflow

Establish internal rules for purchasing before placing an order. Begin by creating a requisition for internal approval, then obtain authorization from a manager or finance department before sending the order to the supplier. Many workflow management systems allow for trigger-based actions to manage purchase orders effectively.

Embracing Automation: Enhancing Approval Channels with Technology

Organizations looking to take their approval process to the next level should consider automation software. AP automation solutions, like Beanworks, offer customizable approval channels based on your company’s requirements. With separate approval workflows for purchase orders, invoices, and payments, these solutions provide a highly customizable organizational structure.

The Benefits of Automated Approval Channels

  1. Restricted Unauthorized Access:
  2. Limit access to authorized approvers, who can view the status, history, and sign off on invoices or payments. This restriction prevents unauthorized individuals from tampering with the process.
  3. Customized Routing:
  4. Route invoices based on location, department, project, vendor, etc., allowing for efficient collaboration among team members. For example, an employee in one city can code an invoice to a team leader in another city, who can then collaborate online without the need for paper or email trails. This method creates an electronic audit trail for every approval step.
  5. Approval Sub-Sets:
  6. CFOs can establish criteria for specific invoice types, allowing for further customization of the approval process. For instance, an invoice can be marked as approved after only one of the two approvers has signed off, or the process can be adjusted to require approval from all designated approvers.

The Bottom Line: Investing in Approval Process Management

With the financial arm of businesses playing a crucial role in success, investing in approval process management is a wise decision. By implementing the best practices and automation solutions discussed in this article, organizations can reduce costs, eliminate inefficiencies, and focus on more strategic work. Ultimately, this investment will lead to a more secure and efficient accounts payable process, safeguarding your organization’s finances and fostering growth.

Don’t let outdated systems and methods hold your business back. Embrace the revolutionary changes in the AP world and transform your invoice approval process into a streamlined and secure operation. Contact experts in AP automation today to see how you can improve your business and stay ahead in the ever-evolving world of finance.

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