Removing the Invoice Approval Bottleneck

A production bottleneck can have a substantial impact on a company’s ability to create a product or deliver a service. If a bottleneck exists, your staff may put in extra hours to work around the bottleneck. Bottlenecks can affect product quality, and may lead to late customer shipments. 

If your firm is dealing with supply chain issues, a bottleneck compounds the problem. Assume, for example, that a company receives raw materials later than expected due to a supply chain issue. If the business has a production bottleneck, customer shipments will be delayed even longer.

Many businesses use ERP systems, but continue to perform some tasks manually, including invoice processing. A process that requires a large amount of manual input, or one that relies on emails and phone calls isn’t efficient. The staff will work more hours, and the risk of error is much higher.  As this podcast episode points out, manual processes make it difficult to scale the business while managing costs.

You can use technology to automate the invoice process, including invoice approvals. To illustrate, think about a business that requires multiple layers of approvals.

Approvals at a Manufacturer

Assume that Midwest Furniture manufactures tables, chairs, and other products for retailers. Most of the products are manufactured in Ohio and shipped to 12 distribution centers in the US. Midwest recently acquired Quality Cabinets, a business that manufactures goods in Missouri and uses the same distribution centers. 

The company processes 10,000 invoices on average each month, and the dollar amount processed averages $15 million. Here’s the management structure of the organization:

• Midwest’s home office, manufacturing facilities, and distribution centers each operate with an office manager and a VP of operations (operations manager). 

• There are three senior VPs of operations that each manage four of the distribution centers. Each VP of operations reports to a senior VP.

• Midwest’s management team includes the COO and a CFO.

The company has an invoice approval policy in place, based on the dollar amount of the invoice:

• $0 to $1,000: Invoice is approved by the office manager

• $1,001 to $5,000: The operations manager approves the invoice

• $5,001 to $25,000: Both the operations manager and the senior VP of operations (SVP) must approve the purchase 

• Over $25,000: This level of spending requires three approvals: operations manager, SVP, and the CFO

The approval policies apply to every purchase, and the policy is documented in a procedures manual which is available on the company cloud.

The current approval process

Invoices may come into Midwest by regular mail or through email. The company policy dictates that all invoices must be sent to the office manager for the particular location — in order to start the approval process.

Here are the steps Midwest uses to approve invoices: 

• An office manager is the first approver to receive an invoice. Invoices over $1,000 are emailed to the operations manager, along with supporting documentation (purchase orders, shipping receipts).

• If the invoice is $5,000 or less, the operations manager approves the invoice and emails the invoice and supporting documents to the AP department. Invoices over $5,000 are approved, and the data is sent to the correct SVP.

• The SVP reviews the documentation, the operations manager’s approval, and approves the invoices over $5,000. The invoice and supporting documents are forwarded to the AP department.

• Invoices over $25,000: The invoice and the supporting documentation moves from the operations manager, to the SVP, and finally to the CFO. Once all the approvals are completed, the CFO’s office sends the documentation to AP.

The AP department reviews the invoices and the supporting documents, and the details are coded into the ERP system. An expense is recorded, and the invoice is paid using cash, check, or some other form of payment.

Problems with the approval process

Midwest invoice approval process causes bottlenecks, and there are several reasons why:

Lost invoices, incomplete supporting documents

Midwest’s employees manage a large number of emails each day, and some invoice-related emails are simply missed or deleted in error. Invoices sent by regular mail are sometimes lost, or sit in the receiver’s inbox and are not processed.

When an invoice is sent to the next approver, the invoice may be missing supporting documentation, and the receiver has to contact the sender to get the missing data.

Invoice routed to wrong approver

If the invoice is sent to the wrong approver, there may be a delay before the correct approver receives the invoice. When the office manager has multiple invoices to submit for approval, the manager may misread the dollar amount and send the invoice to the wrong approver.

Poor communication to answer questions

Approvers often ask questions, particularly for larger purchases. For example, an operations manager asks the controller if a $6,000 equipment purchase is approved in the facility’s budget. The controller verifies that the spending is budgeted, but the question and answer is not communicated to the SVP, who must also approve the invoice. 

Raw material purchases generate a large number of invoices, and approvers need verification that the materials were received before approving payment. In many cases, the factory manager confirms that materials were received, but the verification isn’t documented.

Approval status: no system to monitor

Midwest processes thousands of invoices each month, but the company does not have a system to track the approval status of each invoice. 

AP can run a report of unpaid invoices by invoice date, but the AP staff does not know which approver, if any, is reviewing a particular invoice. This makes follow up on a particular invoice difficult, and AP must send individual emails to office managers and other approvers to determine the status.

Vendor communication is poor

Dozens of vendors contact Midwest each month to determine the payment status of an invoice. Midwest does not have a centralized system to check on approval status, and each vendor inquiry requires multiple emails. In addition, there is no efficient way to alert AP and the approvers that a vendor is asking about payment.

These problems create an invoice bottleneck, and invoices are not approved in a timely manner. The bottleneck impacts the business in a number of ways.

Impact of the invoice bottleneck

Midwest’s AP team spends dozens of hours each month following up on invoice issues. Emails and phone calls are required to find out where an invoice is in the approval process, and to obtain missing documentation. Communication between the AP staff and approvers is poor.

The company often does not take advantage of discounts offered for early invoice payment, and management cannot track the approval status of each invoice. Midwest cannot follow up with vendors quickly, some vendors are paid late, and the firm risks damaging vendor relationships.

Stampli offers the ability to quickly route every invoice to exactly the right approver, depending on your needs.

Automating Approvals Using Stampli

Stampli seamlessly integrates with your ERP system. The invoice data you process in Stampli is quickly synchronized into the ERP system. 

The Stampli AP Assignments tool provides a number of benefits that will save you time, and increase productivity. You can use invoice coding to assign invoices to approvers, and to indicate that the invoice is approved for payment. Automation reduces the risk of human error, and your invoices will be routed correctly. 

Users can only view and take action on invoices that are assigned to them, so that your AP system has proper segregation of duties. Stampli’s system also creates an audit trail, and you can easily review the approval process for any invoice.

Stampli is particularly effective for companies with multiple offices, regions, and/or subsidiaries. If you operate with a distributed AP team, or manage several profit centers, approval automation can sharply increase productivity.

Businesses can use several types of approval controls 

Choosing predefined approvals

If you have a fixed workflow in place for invoice approvals, you can set up predefined approvals. This system is most useful for complex workflows. Midwest, for example, has a specific approval policy that involves multiple types of approvers, and may be a fit for this process.

Users work with Stampli’s Customer Success department to build an invoice approval workflow. With a fixed approval system, assigned approvers cannot be changed unless the workflow is changed. 

You may prefer using a flexible process, so that approvers can be added or removed with less effort.

Selecting dynamic approvals

As the name implies, dynamic approvals offer flexibility and an approval process that adapts to the user’s needs. Billy the Bot, Stampli’s AI tool, suggests approvers based on prior invoice activities, which includes the type of invoice and vendor, among other data. Stampli also provides control when it comes to approval limits, as each individual user can have their own unique limit. 

As you use Stampli more often, Billy the Bot will provide more detailed suggestions. If someone is out of the office, you can delegate approval to another staff member.

Reviewing the approval process

All of your vendors can email invoices to a single Stampli email address. Once received, the AI and machine learning functionality will immediately provide auto-suggestions for invoice coding, saving the AP staff coding time. You can easily attach purchase order data and shipping receipts to each coded invoice. 

After an invoice is coded, it can be routed to one or more invoice approvers for approval and will enter the first approver’s queue. Then you can set the frequency of auto-reminders to get invoices approved in a timely manner. All of the invoice data is kept in one location, so that approvers are not forwarding emails to the next approver or to AP.

Stampli provides a communication hub, which allows all approvers and AP staff members to check the status of each invoice, review all questions and answers, and to verify when a particular approver signs off on an invoice. 

Users can grant access to the Stampli Vendor Portal, where vendors can track the status of each outstanding invoice, and ask questions of the AP staff. The Vendor Portal keeps your vendors informed and helps you maintain good relationships.

Stampli uses integration to sync continually with many ERP systems. Once an invoice is approved and reviewed by your AP department, the Stampli data will be posted to the ERP system so that the bill can be paid.

These tools remove the invoice approval bottleneck, so you can operate more efficiently.

Take Full Control of Your AP Process

Use AP automation to create a smooth invoice approval process, and avoid losing documents, missing emails, and frustrating vendors. Stampli’s end-to-end platform gives you full control and visibility over all your corporate spending, from cards to invoices to payments — all in one place. Don’t just manage your spend, control it with Stampli.