Every business handles invoices. But what is the invoice approval process and how do you optimize it? Read on to find out!
What is the invoice approval process?
The invoice approval process is the steps you take to approve invoices for payment. It usually involves the following steps:
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- Receipt of invoice. This is when your organization receives the invoice, whether physical or digital, from the supplier.
- Invoice verification. This is when the invoice is reviewed to ensure it includes all the required information and that there are no inaccuracies.
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- Exceptions handling. If there are any discrepancies or missing information on the invoice, these are clarified and settled with the supplier.
- Approval decision. The invoice is either approved or denied based on an assessment. If rejected, it can be sent back to the supplier for further negotiation.
- Payment processing. Once approved, the invoice is paid via the agreed-upon transaction method (check, electronic funds transfer, etc.).
Now that you know the basic invoice approval process, here are eight ways to optimize it:
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Standardize invoice formats
One of the first things you should do to streamline the invoice approval process is to standardize all your invoices. Ideally, you can create a template invoice that you require your vendors to use. That way, you can understand and process the invoices quickly.
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Work together with procurement
Your procurement team is responsible for ordering third-party services and supplies. Ensure that they work closely with the invoice approval team to limit errors.
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Invest in AP automation
Manual invoice approval can be slow—especially when you require multiple levels of approval. So consider creating an automated invoice approval workflow.
This can involve investing in automation software that allows for online collaboration, customization, and implementing pre-approval rules and controls to automatically flag invoices that fall outside of pre-defined conditions (e.g. a certain price).
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Clearly define the exceptions handling process
Exceptions handling is when you resolve any discrepancies or errors in an invoice. To ensure this runs smoothly, you need to establish a clear process. Staff members should know exactly what to look for and what protocol to follow when issues arise.
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Delegate duties
Don’t leave invoice approval to one person. Delegate the responsibility among different staff members. This helps reduce the risk of fraud and mistakes (such as missed or duplicate payments).
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Practice three-way matching
Before approving invoices, try to match them with the relevant purchase order, shipment notification, and receiving document to ensure there are no discrepancies (aka three-way matching). Do this whether the invoice is paper or digital.
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Hold regular staff trainings
It’s important to hold regular staff trainings for all those involved in the invoice approval process. This keeps everyone up to date and on the same page about policies and changes. Invoice approvers and other stakeholders should be reminded about key steps and how to reduce inefficiencies.
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Track key performance metrics
Ultimately, you can’t expect to improve the invoice approval process without measuring key metrics such as the number of late payments, the number of missed payments, the number of invoices approved per month, and so on. Tracking these allows you to identify areas for improvement and implement needed changes.
Final thoughts
Invoice approval is an important part of any business. A single mistake could be very costly. So it pays to develop a process that works well and get it right the first time. You wouldn’t want to lose revenue just because you failed to establish a clear and robust invoice approval process from the start.
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