What is Invoice Approval Workflow and How to Improve and Optimize it?
Key takeaways
- Smooth financial approvals require a streamlined invoice approval process with greater transparency and visibility.
- In most businesses the invoice approval involves 2-3 people in the loop. For multi-level approvals sometimes even 6 people are involved in the invoice approval loop.
- A fully automated invoice approval workflow can overcome the challenges of manual approval workflows and also improve speed and efficiency of approval.
- The invoice approval workflow is a line of steps for validating an invoice.
- 71% of people in the Finance team believe that automation will be the biggest e-invoicing trend in 2023.
- Invoice approvals are the most commonly automated tasks in the finance and accounting function.
Invoice approval Workflow at a Glance
The simplest definition of the invoice approval workflow would be the set of steps involved in the validation of invoices. The invoice approval workflow validates invoices by checking the invoice data against data in the purchase order and goods receipt. Doing invoice data validation manually can be a chore for the accounting team. A fully automated invoice approval workflow overcomes these challenges and breathes productivity and efficiency into the approval process. Read on to know invoice approval workflows in detail, challenges in manual invoice validation, and ways to streamline the process.
Table of Contents
What is the Manual Invoice Approval Process?
A manual invoice approval process is where manual labor is put in charge of matching the order and invoice details and furthering the payment process. Statistically analyzing, many organizations still use the manual setup of practicing invoice approval. However, compared to an automated system, manual invoice processing has numerous limitations that bring down the efficiency of the process. Steps like mailing, faxing, and paperwork create enough bottlenecks, compromising the efficiency and productivity of the entire organization.
Steps in a Manual Invoice Approval Workflow
As manual processes are paper-based, proper documentation and routing of these documents for validation and approval can be extremely time-consuming. This can drag the process to days and even weeks as it demands all the involved employees’ time and availability. Generally, an invoice approval workflow consists of the following steps.
Step 1: Receive the Invoice
A manual invoice approval process starts when the organization receives the invoice from the vendor or the supplier. The accounts payable department takes up these invoices for processing for approval. This also falls under the procure-to-pay process. Broadly two categories of invoices are submitted for payment:
- PO invoices (These require three-way matching before the approval)
- Non-PO invoices (These have to be reviewed and approved by an authorized approver and a two-way matching process)
Even though they are categorized as different, both these types require some level of verification and review before they are approved.
Stage 2: Capture Invoice Data
The Accounts Payable team is responsible for manually entering the inputs into the organization’s accounting program or an ERP system. They capture the invoice data and document the invoice receipt. Based on whether the invoice is on paper, faxed, or digital, The capturing and documenting steps will vary.
For the physical invoices, the steps may include:
- Removing staples
- Fixing the tears
- Collecting POs and Goods Received Note (GRN)
- Photocopying invoices and attachments for documenting
- Indexing the digital images
- Sorting the invoices based on source or cost center
- Manually follow up for the missing information
Stage 3: Verify the Invoice
After the extraction of the data and documentation, this data has to be verified. For PO invoices, either of these will be carried out:
- Matching invoice to the related PO (two-way matching)
- Matching invoice to PO and GRN (three-way matching)
- Matching the invoice with PO, GRN, and Inspection report (four-way matching)
For non-PO invoices, the verification process includes:
- Matching it with GRN or the inspection report (two-way matching)
Stage 4: Flag and Correct Discrepancies
In case any errors are spotted during the verification process, the accounts payable department is responsible for cross-checking the information, getting connected to the vendor, and contacting the procurement team for details. These issues are common in a manual approval workflow.
Stage 5: Approve the Invoice and Payment
Once the manual verification and approval are done regarding the invoice details, the invoice is finally verified and approved. After the approval has been sanctioned, it is then moved to accounting for bookkeeping and future auditing purposes. The bookkeeping workflow process can be effectively streamlined using an automation solution, and optimize the process to efficiency.
Challenges in a Manual Invoice Approval Workflow
With more and more human labor being involved in the process there are several limitations associated with the manual invoice approval process. Let us explore some of the challenges in a manual invoice approval workflow.
1. Decentralized invoice approval process
There needs to be a standardized procedure and a centralized receipt system, the chances of succumbing to the limitations happen easily in such a situation. Issues like invoices missing in the clutter of emails, tools, or even a system. Therefore, a tool providing a common space for all the tasks to be centralized becomes necessary.
2. Inefficient and time-consuming task processing
Without a proper framework or streamlining of the invoice approval process, inefficiency grows within the process. The manual process is paper-based and does not allow smooth running of the process. Imagine having to take paper documents to different approvers and getting them approved.
3. Lack of control and transparency
When there is a lack of a defined structure to any process, exercising control over the process becomes difficult. Most often, rather than a streamlined process, the tasks tend to overlap each other with zero transparency in the process. This may lead to wrong or duplicate payments, fraud, or even non-compliance, hence creating higher risks.
4. Expensive Process
One of the biggest challenges of the manual invoice approval process is that it is not cost-effective. There are a lot of hidden areas that demand a lot of expenses. The more time spent on the task the more expenses have to be dealt with. In a paper-based and manual, some of the time-consuming areas are:
- Reviewing the invoice
- Correcting the errors in the data entered
- Storing the physical invoices
- Calculating discounts lost or penalties undergone due to late payments or even errors.
- Employees have to spend time on these errors and mis-conduction rather than employing their time in assigned functions
These errors that occur are costly and can be effectively avoided by implementing automation software.
5. Mistakes with manual entry
No matter how skilled and reliable a team can be, human errors are inevitable. It could happen due to several reasons. Lack of understanding and attention can often lead to these errors. These problems can also create overpaid or underpaid invoices, and also create financial issues for the organization itself.
6. Vulnerability to Fraud
In a manual setup, there is scope for fraud to take place. Fraudulent billing is a huge problem, and detecting this in a manual approval process is difficult. These frauds often go undetected, finally resulting in loss.
How to Improve the Invoice Approval Process?
Improving the invoice approval process is an essential step any organization can take. Implementing sudden changes will not do much good but disrupt the existing workflow. Instead what can be done is to take a holistic approach while optimizing the process. Focus on the key areas that need to be improved such as precision, transparency, speed of the process, and the money being spent.
With an automated system, the invoice approval workflow can be made less complex and transparent. This also reduces any errors or fraudulent activities and thus improves the authenticity of the process.
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Benefits of an Automated Invoice Approval Workflow
Some of the benefits acquired from implementing an automated invoice approval workflow are as follows:
- Improve transparency into the process and better trackability
- The automated system will save a lot of time and further drive productivity
- Enhanced supplier relationship management
- Completely removes human-dependent tasks removing the chances of errors and fraud
- Centralization and standardization of the entire task is achieved
- Reporting and analytics are made simple and easy to understand
- Transaction costs are greatly reduced
- The process is streamlined, enhanced, and most importantly increases the productivity of the business by improving the speed of the process.
Manual vs Automated Invoice Approval Workflows
| Automated Invoice Approval Workflow | Manual Invoice Approval Workflow |
|---|---|
| The software tool that automates the process, improves the speed of the process as well. It also easily places the data into the accounts payable system | In a manual setup, due to the human inputs, the process becomes slower and delayed |
| Invoice management is achieved with accuracy with zero errors in an automated invoice approval workflow | Manual invoice approval workflow is error-prone, this again causes more delay in the process. |
| Automated three-way matching is achieved without much time being deployed into it. | Human labor has to be employed to perform the three-way matching for each invoice. The process is highly time-consuming |
| Archiving, reviewing, and retrieval of the data are made much simpler and hassle-free with cloud-based storage. Auditing of the invoices can be done with ease with the digital paper trail | Handling paper documents is hectic. There is always the risk of losing these documents as there is no effective storage storage system. Thus, it is difficult to track these as well |
| When the approval process is faster, it means that the payments are also done at a faster pace. This improves the smooth functioning of the organizations and the vendors | With the lack of an efficient approval process, the payments tend to go overdue and often lead to the work getting delayed. The vendors will have to wait for a longer time to process the payment and supply. |
Build a Robust Invoice Approval Workflow with Cflow
Cflow is the most apt tool to efficiently take care of the invoice approval process with the automated workflow creation. Our platform is one of the most preferred no-code automation tools available with business-friendly features that help streamline the processes and bring productivity to the business.
The invoices can be effectively verified and sanctioned for the transaction as the tool gives a common space for the employees to carry out these tasks. For finance and payment transactions especially, Cflow gives a deep sense of clarity with its zero-coding ability. Approvals can be easily passed with seamless and instant three-way matching making the process much faster than before. Cflow lets its users work with 1000+ other applications simultaneously with its powerful integration feature.
Some of the perks that Cflow offers are:
- Payment approvals are made simpler invoice approval workflow with automatic verification of the invoices
- It enables the users to store and review invoices digitally
- It allows the users to simultaneously keep track of all the transactions, dealers/vendors, and payment receipts.
- Guarantees a seamless review and approval of purchase order invoices which can be processed without any delays.
- Offers a centralized platform where errors and frauds can be easily detected and removed.
- The platform allows seamless integration with other necessary third-party applications for the smooth conduction of the process.
- Helps the users to maintain a healthy relationship with vendors and suppliers, with automated features like contract negotiation, cost control, and mitigating vendor risks
Conclusion
An effective invoice management system offered by invoice approval automation software like Cflow can empower the invoice approval process to the next level. It provides an incredible shift from a manual and strenuous process to an upgraded version that is more efficient and authentic.
The challenges that business organizations face when manually performing the process can all be overcome effortlessly with an automated invoice approval workflow. Explore more about Cflow’s features and unfold the wide spectrum of possibilities for optimizing your business. Sign up now!
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