You Need An Automated Invoice Approval Workflow, Here’s Why

Invoice approval workflow

A traditional paper-based invoice approval workflow leans on the side of being haphazard. This is especially the case when invoice approval workflows involve humans tracking down documents, manually keying in data, obtaining approvals in person or over long email threads, and moreover, presents a lack of internal controls and visibility for the company.  

That said, there’s also a better way to handle invoices outside of the traditional manual process that works with your unique invoice approval workflow.

In this article, we identify the key pitfalls of the traditional invoice approval process, how accounts payable (AP) automation technologies work with your unique invoice approval workflows, and how you can deliver a more efficient AP function while maintaining control over accounts payable.

The Drawbacks of Traditional Invoice Approval Workflows

The Drawbacks of Traditional Invoice Approval Workflows

From the onset of a manual invoice approval workflow, the invoice itself should be sent directly from the vendor to the accounts payable (AP) department. While not always the case, invoices sometimes arrive at the department which initiated the invoice, then the invoice will eventually make its way over to AP which only extends the time it takes to process the invoice. When the invoice finally makes it to the right department (i.e. AP), an accounts payable specialist will then manually key the invoice into their company’s system, gather supporting documentation such as a purchase order (PO) or delivery receipt to ensure the invoice is valid and hasn’t been paid already, then route the invoice for approval.

Here’s why paper-based and manual invoice approval processes are fraught with potential errors.

Errors from Manual Input

A survey of over 10,000 office workers on AiThority data entry to be their most-hated task. Manual data entry and inefficient processes also presents challenges to invoice approval workflow. 

Approval Takes Too Long

Here’s another scary stat: As of 2017, small businesses were losing around $3 trillion annually to late payments. With 30.2 million small businesses stateside and the U.S. accounting for 15.2 percent of the world’s GDP, this suggests the average American small business loses around $15,000 a year for late payments.

And it doesn’t just happen with businesses waiting for money to come in so they can pay their bills. Too often, it’s about invoice approvals taking entirely too long, with the average small or mid-size company needing weeks to process. It’s a big part of the reason the median invoice costs $5.83 to process, according to CFO.com.

Lack of Control & Transparency

No one really knows what’s going on with an invoice when it’s part of a manual approval process. It can be hard to know where it is in the pipeline, who needs to see the bill before it’s paid, and whether it’s a priority. 

The uncertain visibility with manual invoice approval makes it easy for things to fall through the cracks and for avoidable issues to become magnified, all of which lacks controls finance needs to ensure efficient and timely operations. 

Duplicate Payments & Fraud Risks

Manual processes can also lead to double payments. Paying an invoice twice often happens when there is a stack of paper invoices needing to be processed which AP is trying to get through the door. Equally as devastating is when AP is behind the aforementioned stack of unpaid invoices, which leads to the vendor to submit another invoice and before anyone knows it, the first invoice is processed along with the second.  

Double paying also occurs when invoices arrive in departments outside of accounts payable. The problem here is that an invoice can be sent by email, and by mail, and with the goods or services supplied. The same invoice being sent via different mediums and likely different departments only increases the odds of the invoice being paid more than once when not leveraging technologies like AP Automation which automatically intakes invoices and flags duplicates. 

The poor transparency also lends itself to potential fraud, whether by dishonest vendors, disgruntled employees, or third-party actors. 

A study by the Association of Certified Fraud Examiners found that billing schemes affected nearly 22.2 percent of businesses in the study, with average losses at $100,000. Meanwhile, check tampering, which can also result from outdated accounts payable and invoicing practices, affected 11.4 percent of businesses in the study, with average losses of $158,000.

Needless to say, businesses need every tool in their arsenal for combating fraud, including by espousing 21st century invoice approval workflow processes.

10 Best Practices for Automating Your Invoice Approval Workflow

Delivering a more efficient approval workflow for invoice processing is about ensuring processes are under control and legitimate vendor invoices are paid on time. This is done by leveraging technology to solve for process weaknesses and upgrading away from the arcane, manual paper-based approach to processing invoices. It’s about implementing an invoice workflow solution that works the way your company works and identifying the AP automation technologies that can support your unique invoice approval process.

Here are 10 guideposts for optimizing your invoice approval workflow with automation.

1. Set Expectations Internally

First off, make sure everyone is on the same page about the need for an invoice approval workflow system, how it will be similar in terms of processes, and areas in which it will differ from the manual invoice approval workflow.

Some employees loathe formal workflows, preferring intuitive approaches. Educating employees on the ease-of-use of an automated invoice approval workflow is the first step to getting buy-in and ensuring the new workflow will be adopted.

2. Onboarding Invoice Approvers  

With the advancement of intelligent financial technologies, accounts payable is now starting benefit from AP Automation when it comes to invoice approvals. After invoices have been automatically coded by the system, AP simply verifies all the information is correct and ensures the system has identified the correct approves for that specific invoice – in addition to the correct order for approval. 

Communicate how the approval process will be the same, but much easier and more intuitive with AP Automation. Call out control features such as thresholds by dollar amount if your workflow requires it — can be enabled so additional approval is required before the invoice can be processed for payment. 

Another benefit to call out is how every invoice with AP Automation is provided to approvers with context, meaning that every action made on the invoice and information such as previous vendor invoices are all easily accessible on top of the digital invoice itself. 

Then when approvers have questions, they can easily make them on the invoice itself and invite any required party to that particular invoice to provide additional context. 

3. Integrate 

The benefit of moving away from paper is that AP Automation systems offers both API and file integrations to automatically or manually synchronize data between systems to ensure all financial information is synchronized. Keep your current investment (i.e. financial system or ERP) and integrate it with your AP Automation system to ensure data is up to date for a more controlled invoice approval workflow. The best part is that AP Automation scales as you grow, so when your business outgrows one financial system and is ready for the next, the AP Automation system can easily make the change. 

4. Control Your Master Vendor File

AP Automation systems treat your financial system as the master record for your vendors and provides control by only enabling vendors to be added to the AP Automation system via export from your financial system to Stampli. Make sure to keep your master vendor file up to date in addition to your AP Automation system.

5. Tell Vendors Where to Submit Invoices

No matter your workflow, all invoices should be sent to the same place (i.e. accounts payable). AP Automation technologies use mailboxes that vendors can send their invoices to which will initiate the workflow automatically and ensures all invoices make it into the same secure system.  Aside from instructing vendors where to submit their bills, this will likely also involve training internal staff who inadvertently get sent invoices on where to forward them on to. Doing this ensures nothing gets lost.

6. Introduce Vendors Contacts to the Vendor Portal

Now that your company is using AP Automation , vendors no longer have to send multiple invoices or call or send emails checking on the status of their invoice. AP Automation systems come with Vendor Portals that makes engaging with vendors easy, convenient, and trackable. The Vendor Portal facilitates Vendor Engagement for AP by enabling vendors to view the status of invoices and ask questions regarding their invoices. By giving your vendors visibility, it in turn minimizes the communications overhead AP would have spent answering vendor inquiries such as “did you receive the invoice?”

7. Use Data to Identify Approval Delays 

AP Automation systems like Stampli have built-in Invoice Management Overview Dashboards to help companies improve the overall efficiency of their accounts payable function by providing a variety of metrics. One of which is in identifying delays in the invoice approval workflow. For instance, you can easily see the number of days that it takes for invoice approvers to approve invoices as it’s automatically tracked in the AP Automation system.

8. Set Notification & Reminders for Invoice Approvals

Automation systems for accounts payable can automatically send out emails to users for invoice approval requests, question requests, and field update requests. As mentioned in the identifying approval delays section above, these systems track invoice approval laggards and can also increase the frequency of notifications and reminders to busy approvers which require additional reminding. This also works the other way for those approvers who prefer a clean inbox, where AP can decrease the frequency at which notifications are sent.

9. Make Approvals Easy & Contextual with Invoice Attachments 

As the invoice moves through the approval workflow process, users can attach relevant documents to the invoice. This attachment functionality can be used by means of comments or invoice communications to answer questions which helps streamline the invoice approval workflow. In addition, AP can attach and make Vendor documents (i.e. contracts, W9, certificates of insurance) visible with all invoices from a vendor to make it easier for invoices to be processed and approved.

10. Use Advanced Search for Audit or Reference

AP Automation Advanced Search functionality offers comprehensive reporting capabilities that can be used for either audit or later reference long after the invoice has been paid. This includes all actions made on the invoices from field changes to comments. This can be done using a variety of filters to quickly create custom reports, such as invoice status, amount, date, vendor, any invoice fields, including custom fields, and even based on text. Reports that are created can include an unlimited amount of records with the option of exporting the search list file. Invoices can also be filtered by the company level and for those frequently recurring searches, users can save them for quick access. 

How Audits, the Cloud, and Automation Can Perfect Your Invoice Approval Workflow

benefits of automated invoice approval

Even once a company has opted for an AP invoice approval workflow process or software, that doesn’t mean that all of their invoice processes will immediately run smoothly. Here are a few steps to follow.

Hone Your Process With an Audit

Over time, a good invoice approval workflow process will become shorter and more refined, with unnecessary steps trimmed out. “At every point of your organization, you’re trying to do more with less,” as one author noted. “Your accounting department is no exception.”

One great way for honing your invoice approval workflow process can be to do an audit. We’re not talking an Internal Revenue Service audit — which about one in 100 businesses get selected for each year — but a voluntary, internal audit.

These are good for any business. As one industry professional notes, audits “can lower the business risks and help your management target issues during the early stages so the problems have less of an impact on processes.” It’s why audits can help ensure that a new invoice approval workflow process is up and running smoothly.

Look to the Cloud

As perhaps anyone who’s closely followed technology developments in the past decade or so knows, cloud computing — essentially, storing data through service providers such as Google or Box — has grown rapidly in popularity in recent years. 

Cloud storage is cheap, just $10 for 100 to 200 gigabytes of data, and quickly accessible even in times of disaster, as this piece on the benefits of the cloud notes. Better yet, AP Automation systems store your files for free up to 7 years. 

For companies that process hundreds, if not thousands, of invoices per month, the data storage savings alone can justify moving invoices to the cloud. It can also help avoid the need to build an expensive proprietary system internally that may or may not work from a remote location. That is, with consideration of the COVID-19 pandemic and need for remote access to files and financial information to ensure processes continue moving forward.

Consider Automation

Invoice approval workflow automation tools have become more popular in recent years, with 52 percent of companies in a study by Levvel Research noting that they use them.

Benefits for invoice automation abound, with more than 60 percent of respondents citing perceived paper volume reductions or quicker invoice approval. Barriers remain, with 36 percent of respondents in that same study citing a lack of budget and other hurdles including a lack of executive understanding or buy-in. 

All in all, though, the research is an encouraging sign of the world to come for businesses and why it’s imperative to ditch outdated invoice approval practices sooner rather than later.

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