Imagine your finance team is swamped with paperwork at the end of month. Still, you've unpaid invoices piling up on desks and email inboxes, does it sounds familiar? You're not alone. The chaos of manual invoice processing can be exhausting and it will lead to missed deadlines and strained vendor relationships. But, there is a smart way to handle it—automated invoice approval workflows.
In this article, let's explore the invoice approval workflows, challenges with manual invoice processing, and how an automated system can make your life easier.
What is an Invoice Approval Workflow?
Typically, the invoice approval flow includes verifying the invoice, matching it with purchase orders and good receipts, and approve it to process the payment as per agreed terms. Having a standard invoice approval process helps you to pay suppliers on time, and eliminate fraudulent transactions. Timely invoice payments will help you to build better supplier relationship and avail early payment discounts.
Challenges in Manual Invoice Approval
Manual invoice approval process creates inefficiencies, errors, fraud risk, and delays. This can have significant implications to your business by affecting your cash flow and poor vendor relationships. Here are some of the key challenges in manual invoice approval:
Time-Consuming Process
In manual process you need to manually enter invoice data, verify and validate each invoice with relevant POs and GRN before sending it for approval and processing payments. This could be a time and effort consuming activity for everyone involved. Manual processing can lead to endless delays in each step, especially when you deal with a high volume of invoices every month.
Prone to Errors
Manual data entry is prone to human errors. The probability of making a mistake with the invoice value or budget codes or missing to file relevant documents are high. While the latter two could be fixed with a little bit of additional efforts, the mistakes with invoice amount can be costly. Because overpaying or underpaying your suppliers might eventually cost your job or build bad reputation with your suppliers.
Lack of Visibility and Tracking
When done manually it will be hard to track the status of an invoice payment status. It can easily get lost in the shuffle, and will take a zillion followups to know where the invoice got struct in the in the payment process. Lack of visibility into the process can make your job difficult as you need to keep your suppliers informed about their invoices.
Approval Bottlenecks
Especially, when you deal high volume of invoices, your AP team's bandwidth can easily become a bottleneck. Manually reviewing and validating every invoice will get tedious and cause a lot of delays. These delays can lead to late payments and miss out on early payment discount opportunities.
High Risk of Fraud
When the invoice volume is high and your accounts payable team is pilled up with invoices to process. It gets difficult for them to catch fraudulent and fake invoices. With no clear audit trial in manual processing, identifying and investigating these fraudulent transactions will be much harder.
What is Invoice Workflow Software?
Invoice workflow softwares help you to automate the invoice capturing, creation, approval, and matching process. With an automated system, you can easily route invoices to the right people for approval, and send reminders to get them processed on time.
It typically integrates with your existing accounting or ERP system, making it easier to reconcile and have accurate data across systems. Automated invoice workflow system simplifies the entire process, reducing errors, and improving the overall efficiency of your accounts payable team.
Why Do You Need an Automated Invoice Approval System?
An automated invoice workflow system make your invoice process more efficient, accurate, and scalable, eventually leading to cost savings and better supplier relationships.
- Increased Efficiency: Manual invoice process is time-consuming and labor-intensive. It requires manual intervention at every step. While with an automated approval flow you can speed up the process and reduce delays and the time spent on administrative tasks.
- Improved Accuracy: Automation eliminate invoice errors with latest technologies like OCR. You can be at peace as it made easier to capture information from a physical or electronic document in a click with 100% accuracy.
- Better Visibility: With invoice management softwares you gain real-time visibility into the entire invoice approval process. This gives greater control and transparency, making it easier to keep track of unpaid invoices and nudge relevant stakeholders as and when needed.
- Scalability: Invoice automation helps your team stay lean, while your invoice volume increases. It can easily handle increased volume and make your scaling look effortless.
- Cost Savings: Automation can drastically reduce your invoice processing times. It helps you to avoid late payments and take advantage of early payment discounts.
- Improved supplier relationship: With an automated system, you can empower your suppliers by having them as part of the system and enable them to receive real-time updates on their payment status. Timely invoice payments and giving them visibility into the process can lead to positive supplier relationships.
Setting Up an Automated Workflow for Invoice Approval
Key steps to an automated invoice approval flow are defining approval matrix, training the auto capture system for accuracy, and setting up discrepancy threshold limits. This will ensure that the process is efficient, error-free, and compliance with your financial policies.
Define Your Workflow
Understand your current invoice approval process and jot down all the steps from invoice receipt to final payment. Define who is responsible for each step, and what actions are required at each stage. This will help you to spot the current approval bottlenecks and inefficiencies.
Choose the Right Automated Invoice System
Based on your current process needs and gaps, select the right invoice automation software. The key capabilities you need to consider are: OCR, integration with existing financial systems, notifications, and custom approval workflow configuration.
Set Up Automated Data Capture
Typically the invoice automation system will have inbuilt Optical Character Recognition functionality that capture invoice data from various formats like PDFs or images. Since, each business might have different invoice formats, it is important to train the system with your invoices to increase its accuracy rate.
Configure Approval and Threshold
Define an approval matrix for your invoice process. It should include the number of approvals, thresholds for different approval levels, and approvers based on department or project codes. When it comes to threshold limits, it will help to flag exceptions (mismatch in invoice values) and auto approve your ok-to-pay invoices without manual intervention.
Set Up Notifications and Alerts
Automation allows you to set up notifications and timely reminders for approvers. Configure your system to send out notification to relevant stakeholder when an invoice come to their queue, and send reminders approvers when an invoice approval is due. This helps to eliminate delays and ensure that all invoices are processed in a timely manner.
Bring in efficiency to your invoice approval process
If you're handling high volume or value invoices, implementing an invoice automation software will provide you with monetary and efficiency gains. It can help you speed up processing times, avoid payment errors, spot fraudulent activities, and build strong supplier relationships. Not just that, it empowers your team to focus on more strategic activities.
Take the time to assess your current processes and build a solid strategy to reap the full benefits of an automated invoice approval system.