Accounts Payable (AP) professionals are no strangers to the frustrations and inefficiencies that can come with managing invoice approvals. In fact, many AP professionals report spending a significant portion of their workweek chasing down approvals and navigating poorly defined processes. This not only hinders productivity, but also opens the door for potential fraud. To help combat these challenges, we’ve compiled a comprehensive guide of best practices to streamline your AP invoice approval process, improve efficiency, and safeguard your organization’s finances.
- The Importance of an Efficient AP Approval Process
- Identifying Common Challenges in AP Approval Management
- The Role of Technology in AP Invoice Approvals
- Best Practices for Establishing a Solid AP Approval Channel
- Implementing Multi-Level Approvals
- Separating Approvals for Invoices and Payments
- Formalizing Your Approval Matrix
- Segregating Duties for Enhanced Security
- Building a Purchase Order Approval Workflow
- Automating Approval Channels for Optimal Efficiency
1. The Importance of an Efficient AP Approval Process
An efficient AP approval process is essential for maintaining a healthy cash flow, reducing costs, and preventing fraud within an organization. By streamlining the approval process, AP professionals can focus on more strategic tasks and avoid wasting valuable time chasing down approvals.
2. Identifying Common Challenges in AP Approval Management
One of the primary challenges in AP approval management is the lack of a clearly defined approval process. Without proper guidelines in place, employees may struggle to navigate the approval channel, leading to delays, miscommunications, and potential errors. Additionally, inadequate segregation of duties can create opportunities for fraudulent activity, as was the case when an Oregon employee embezzled $4.5 million over 15 years by approving fraudulent invoice payments.
3. The Role of Technology in AP Invoice Approvals
Technology can play a crucial role in streamlining the AP invoice approval process. By implementing automated AP solutions, organizations can reduce human error, improve efficiency, and strengthen security measures. Such solutions often provide customizable approval channels, electronic audit trails, and restricted access to unauthorized users, ensuring a more controlled and efficient process.
4. Best Practices for Establishing a Solid AP Approval Channel
To construct a secure and efficient AP approval channel, organizations should adhere to the following best practices:
a. Implementing Multi-Level Approvals
Setting up at least two levels of approval can help reduce the risk of fraud and improve oversight. This can be achieved by establishing a dollar threshold, where invoices above a certain amount must be approved by multiple approvers. Organizations can further customize this process by requiring all approvers to sign off before proceeding with payment.
b. Separating Approvals for Invoices and Payments
To enhance risk prevention strategies, the individuals responsible for approving invoices should be different from those approving payments. This separation of duties can help prevent fraudulent routing of company funds and provide an additional layer of security.
c. Formalizing Your Approval Matrix
Documenting a formal organizational structure for approval channels can improve clarity and efficiency. This structure should clearly define the approver, their timeline for approval, and any secondary approvers in their absence. By adhering to a well-defined matrix, organizations can reduce miscommunications and ensure a smoother approval process.
d. Segregating Duties for Enhanced Security
Following Generally Accepted Accounting Principles (GAAP), organizations should segregate duties to prevent one individual from having too much control over financial decisions. This separation of responsibilities can help reduce opportunities for fraud and promote a more secure financial environment.
e. Building a Purchase Order Approval Workflow
Implementing internal rules for making purchases can help streamline the approval process. By creating a requisition for internal approval, organizations can ensure proper authorization before sending orders to suppliers. Utilizing workflow management systems can further automate this process by triggering actions based on specific criteria.
5. Automating Approval Channels for Optimal Efficiency
Companies looking to implement sophisticated approval channel controls should consider automation software. AP automation solutions, such as Beanworks, offer customizable approval channels based on an organization’s requirements, providing separate workflows for purchase orders, invoices, and payments. By automating approval channels, organizations can enjoy numerous benefits, including restricted unauthorized access, customized routing, and the ability to create approval sub-sets for specific types of invoices.
In today’s fast-paced business environment, it’s essential to continuously update and improve processes to stay competitive. By implementing the best practices outlined in this guide, organizations can streamline their AP invoice approval process, reduce costs, and protect their finances. Embracing AP automation solutions and following a well-defined approval matrix can help organizations achieve greater efficiency, security, and overall success.