Setting up an effective invoice approval workflow is a powerful way to enhance your accounts payable processes. By establishing a clear and structured approval system, businesses can reduce manual workloads, minimize errors, and ensure timely payments.
We’ll dive into the essential steps for creating a successful invoice approval workflow. Supported by practical insights and examples from organizations that have improved their financial management, this Rillion guide will help you implement best practices for your workflow.
With the right approach, your business can optimize its invoice processing and achieve greater financial control.
What is an invoice approval workflow?
An invoice approval workflow is a structured process that outlines the steps and approvals required for an invoice to be reviewed, approved, and processed for payment within an organization. This workflow ensures that all invoices are handled efficiently, accurately, and in compliance with company policies and financial regulations.
Key components of this workflow include:
- Receipt of the invoice, data entry and validation
- An initial review to check for completeness and discrepancies
- Approval routing to designated approvers
- Approval or rejection decision
- Payment processing
- Record keeping for future reference
Each step is designed to enhance efficiency, accuracy, and compliance, ultimately ensuring timely payment and effective financial management.
Steps to Create an Effective Invoice Approval Workflow (+ Best Practices)
1. Map Out the Current Workflow
An invoice approval workflow typically involves several key stages, each essential to accurately processing and approving invoices. By mapping out these steps, you can establish a standardized process and identify areas that might benefit from automation.
The core stages include:
- Invoice Receipt: The AP team receives the invoice, either through email, mail, or an invoicing platform.
- Data Capture and Verification: Invoice details are extracted and verified for accuracy, ensuring that amounts and vendor details match purchase orders (POs) or contracts.
- Routing for Approval: The invoice is forwarded to the relevant approvers based on the organization’s approval matrix or hierarchy.
- Approval or Rejection: Approvers either approve, reject, or request further information on the invoice.
- Payment Authorization: Approved invoices are cleared for payment, and the AP team initiates payment based on the company’s payment schedule.
Best Practice:
Collect input from your AP team and any departments involved in invoice approvals. Getting insights directly from those engaged in the process will help you pinpoint specific challenges to address.
Read also: 10 Key Benefits of Automated Invoice Processing
2. Establish Clear Approval Hierarchies
A well-defined approval hierarchy is key to efficient invoice workflows, particularly in organizations with large teams or complex expense policies. Approval hierarchies specify who needs to review and authorize each invoice type based on factors like:
- Invoice Amount: Low-value invoices may only require one level of approval, while higher-value ones might require multiple reviews.
- Vendor Type: Some vendors may require specific approval processes, especially if they’re new or require compliance checks.
- Department: Invoices related to different departments may go to different approvers.
Best Practice:
Assign backup approvers for each approval level to keep things moving when a primary approver is unavailable. This reduces bottlenecks due to absences or other unforeseen delays.
3. Implement Automation in Key Workflow Stages
Automation can greatly enhance invoice approval workflows by reducing manual data entry, routing errors, and approval bottlenecks. Companies using Rillion, for example, have found that automation not only speeds up data capture but also improves accuracy in matching invoices to purchase orders, as experienced by clients like Perryman.
Key areas to consider for automation include:
- Invoice Data Capture: Optical Character Recognition (OCR) and AI tools can extract data from invoices automatically, minimizing human error and reducing processing time.
- Approval Routing: Automated workflows can route invoices to the correct approvers based on predefined rules, ensuring invoices move efficiently through the workflow.
- Notifications and Reminders: Automated reminders alert approvers of pending invoices, keeping the workflow on track and reducing payment delays.
Best Practice:
Use AI-driven solutions to recognize invoice patterns and automate data entry. Rillion’s AI-driven automation continuously adapts to different invoice layouts, improving data capture accuracy over time. In fact, AP teams using AI in invoice processing are up to 90% more accurate at predicting account coding, saving both time and reducing errors.
Read also: How to Implement AI Invoice Processing
4. Set Up Audit Trails and Tracking for Transparency
An effective workflow provides visibility into the status of each invoice, from receipt through approval and payment. This transparency enables AP teams to identify bottlenecks, view outstanding invoices, and ensure compliance with internal policies. Setting up audit trails, for example, allows organizations to track who approved each invoice, providing essential documentation for audits and compliance.
Automation platforms like Rillion offer centralized dashboards and audit trails, which enable companies to monitor invoices in real time. Cypress Creek found that with Rillion’s AP automation, they gained complete control over their invoices, allowing for faster approvals and a reduction in processing time.
Best Practice:
Use secure, cloud-based AP automation software like Rillion that offers robust security features to safeguard financial data. This is particularly important for industries like healthcare and finance, where compliance is critical.
5. Create a Consistent Policy for Handling Discrepancies
Establish a reliable system for managing discrepancies in invoices to prevent delays. Discrepancies in invoice amounts, terms, or details can disrupt the approval workflow. By having a standardized policy to address these inconsistencies, your organization can quickly resolve discrepancies and keep the workflow on track.
Policies should include:
- Documenting and Flagging Issues: Use the AP software to flag any discrepancies and document the reason for delay, so teams are informed and can take corrective action.
- Automated Checks: Automate checks for common discrepancies, like mismatched amounts between POs and invoices, to catch errors early in the process.
- Designated Team Members: Assign team members to resolve specific discrepancy types, helping avoid a backlog of unresolved issues.
Best Practice:
Conduct routine reviews of the discrepancy policy to ensure it aligns with current AP practices and update automated checks regularly to capture new or evolving types of errors.
6. Implement Security and Compliance Measures
Protecting sensitive financial data and ensuring compliance is critical for invoice approval workflows, particularly in sectors with strict regulatory requirements, such as healthcare and finance. Automated AP solutions support secure workflows by limiting data access to approved team members and maintaining audit trails.
Companies find that secure automation provides enhanced data protection, allowing them to manage compliance across multiple clients more effectively. Ensure that any automation solution you choose supports these security features to maintain data integrity and minimize risk.
Best Practice:
Use secure, cloud-based AP automation software like Rillion that offers robust security features to safeguard financial data. This is particularly important for industries like healthcare and finance, where compliance is critical.
7. Monitor and Optimize the Workflow with Analytics
Continually monitoring and refining the workflow helps improve efficiency and address potential issues before they become bottlenecks. By analyzing metrics such as processing times, approval durations, and error rates, companies can identify areas for improvement.
AP automation platforms like Rillion provide analytics tools that allow businesses to monitor these metrics. Technopolis used Rillion’s analytics to optimize their AP process, giving them valuable insights into performance, which informed their decision-making and helped reduce operational costs.
Best Practice:
Schedule periodic reviews of workflow metrics and involve the AP team in discussions around the findings. Collaboratively identify and implement changes to optimize efficiency and meet evolving business needs.
Conclusion
Creating an effective invoice approval workflow is essential for organizations seeking to improve their accounts payable processes. By using Rillion, following the steps outlined in this article, and implementing best practices, you can streamline your workflow, enhance accuracy, and reduce processing times.
Embracing automation and fostering collaboration among team members will ultimately lead to more efficient financial management and improved overall business performance.
Looking to improve your invoice approval workflow? Schedule a demo today to experience our automation solutions in action!
