How to automate your AP invoice approval process and close books faster

    by ProcureDeskLast Updated : Mar-19-2022

    Bonus: Invoice process Optimizer – Proven steps to reduce the invoice processing time by 50%.

    Companies that have a manual AP invoice approval process struggles with the following challenges:

    Paying invoices that are not received

    It is very hard for the AP team to match the invoices with the purchase orders with manual invoice processing. 

    If there is no purchase order, the team must rely on getting approvals from stakeholders, which is constant back and forth. 

    Since the process is manual, it is hard to ensure everyone follows it.

    Invariably, one of these days, you will pay an invoice that is not approved for payment because the product or service is not received. 

    And if that is a large invoice, it has a significant impact on the company’s cash flow. Unauthorized payments are the number one issue for cash flow. 

    Late payment penalties

    The manual business process takes time, and getting invoices approved from stakeholders is a frustrating back and forth of emails. 

    The result is that invoices are approved late, and hence you pay invoices late. 

    For some vendors, it might be ok to pay them late, and they won’t charge you any late payment fee.

    But most of the large vendors would charge anywhere between 1-2% late payment fees. 

    If you think you never pay any late fees, check your invoices closely!

    They are buried under other charges or finance charges. 

    Let’s take a simple case – let’s say you have $500K in monthly payments, and 20% of vendors charge you late payment fees. 

    At 2% that is $2,000 per month ($500,000 * 20% = $100,000 * 2% = $2,000)

    The other challenge with late payments is that the vendor might stop delivering the product or service. 

    If it is a critical vendor, it could have a significant impact on your bottom line because you cannot service your customers. 

     AP team working weekends

    The lack of AP automation software hurts the AP team’s productivity. 

    Your AP team members might have to work weekends to close books on time. 

    That leads to burnout and lower morale in the entire team. 

    Once in a while is fine, but no one looks forward to working weekends every month to close books on time. 

    If you are struggling with these challenges, don’t worry.

    This article will cover six steps you can take to automate the AP invoice approval process.

    With AP invoice process automation, you will not reduce the time spent processing invoices by at least 30% and free up the team’s time to work on other value-added activities. 

    What is the AP invoice approval process?

     AP invoice approval process refers to the steps followed by the AP team to get a supplier invoice approved and paid. It enables paperless, straight-through processing of supplier invoices.

    The AP invoice approval process includes the following steps:

    1. Receive the invoice from the vendor. 
    2. Match the invoice against an existing purchase order or not. 
    3. Send an invoice for review and approval. 
    4. Create the invoice in the accounting system. 
    5. Pay the vendor after the invoice is approved. 

    Depending upon the maturity of the AP (Accounts Payable) team and the procurement to pay cycle automation, this process can be fully automated or completely manual. 

    Cost of a manual invoice approval process?

     Before we look into automating the Accounts payable process, it is worthwhile to look at the cost of processing an invoice. 

    As per research firm Levvel (formerly Paystream advisors), the average cost per invoice is anywhere between $10 – $15 per invoice. Reducing the invoice processing cost can lead to substantial time and cost savings. 

    Three steps add up to the cost of processing an invoice:

    1. Capturing the invoice: This includes receiving the invoice from the supplier. This includes reading emails, downloading the attachments, scanning paper invoices. If the invoices are sent to the stakeholders, that also includes following up with stakeholders to receive all invoices.

    2. Processing and matching the invoice: This includes matching the invoice with the purchase order if one exists or processing the invoice as per your accounts payable workflow.

    Most of the time, the AP team might be looking up the PO against a spreadsheet managed by operations. The PO might match, but the AP team needs to follow up with stakeholders to see if they have received the product. Suppose there is no PO, then the AP team needs to get the approvals over email

    3. Creating the invoice: After the invoice is approved, you create the invoice in the accounting system and schedule the vendor payment.

    Based on our experience, we have found that the cost is roughly broken down as follows:


    Capturing invoice – 20%

    Processing and matching the invoice – 70%

    Creating the invoice in the accounting system – 10% 

     How long does it take to approve an invoice?

    The time it takes to approve the invoice is a major factor in the overall time and the vendor invoice policies. If you have a manual approval workflow, it takes more time.

    The approval cycle time varies due to automation or lack thereof. 

    In some cases, we have heard of a cycle time of up to 10 days because the manager who needs to approve the invoice is unavailable.

    It also depends on whether you have a manual or an automated process. 

    With an automated process, you might not need the approval of the invoice if you have a 3-way match. 

    With automation, we have a cycle time of fewer than 2 hours for most of our clients. 

     Do invoices need to be approved?

    The other factor that impacts the cost of processing the invoice is whether you need every invoice to be approved by one approver.

    This depends upon your compliance rules.

    For example – we have seen finance teams that want every invoice to be reviewed even if there is a perfect 3-way match. 

    In our view, every invoice doesn’t need to be approved. 

    You can automate the accounts payable invoice approval process. 

    The system automatically matches the invoice with the pre-approved purchase order and receipt. And if everything matches, there is no need for approval. 

    But if the invoice needs approval, the system can route the invoice to a stakeholder for approval. 

    Steps for automating AP invoice approval process

     Now let’s address how to automate the AP invoice approval process. 

    The steps are guidelines that you can use to eliminate manual invoice processing.

    You can create your own tools to automate the process using a system like ProcureDesk that helps you to automate the AP invoice approval process

     Step 1: Centralizing the invoice capture process 

    The first step is to automate the invoice capture process. 

    We want to centralize the invoicing process to capture all invoices through a standard set of processes. 

    For example, suppose a supplier sends an invoice to the stakeholder. In that case, the AP team doesn’t know if the invoice is received and can’t process it.

    The AP team benefits from a centralized invoicing process becuase they do not need to chase the stakeholders for invoices. 

    There are two components of the centralized invoicing process. 

     Setting up supplier invoicing policies

    This step defines a process to capture the invoices as per your business rules.

    Essentially what do you expect your vendors to do? This is the place to document that. 

    Here is what we recommend. 

    1. All suppliers must be sent to an email and not through mail or paper. Granted that some utility vendors might only send you paper invoices, but at least 95% of the vendors should be able to send you an email with the invoice as an attachment.
    2. If you haven’t already done that, set up an email address only for invoices. This could be as simple as You want to keep it separate from regular AP communication.
    3. There should be a purchase order mentioned on the PO. Basically, you are implementing a No PO, NO pay policy.

     What a policy in place, now let’s figure out how to communicate this to the vendors.  

     Communicating it to the vendors

    To ensure that the vendors follow the above policy, we need to do the following:

    Add the Bill to details on the purchase order document, so there is no confusion on where and how to send the invoice. 

    Here is an example of how you can add that to the purchase order: 


    1. Send a mass notification to all your vendors about changes in the process. 
    2. Inform your stakeholders about the change in the process. Instruc them either forward the invoices to the new email address or let the vendors know to send the invoice to the new email. 
    3. Add the instructions on all emails that are sent to the vendor. 

    Here is an example of how to do that.

    Email for invoices

    You should eliminate 20% of the cycle time with these two steps because you don’t have to chase stakeholders for vendor invoices. 

    Step 2: Electronic invoicing 

    What if you don’t even have to worry about entering the vendor invoices in the AP system?

    Yes, it is possible through electronic invoices. 

    With electronic invoices, the vendor sends the invoice to an AP system instead of emailing the invoice. 

    If an invoice is against a purchase order, it is automatically matched and sent for payment. This reduces the manual effort and any data entry errors.

    Isn’t that cool!

    If you are interested in doing that, here are the exact steps. 

    Identify suppliers

    Not all suppliers are good candidates for electronic invoices. E-invoicing does need an effort for customers and suppliers. 

    So it makes sense to only implement electronic invoicing only for large and high volume vendors. 

    For example, is a good candidate for electronic invoices. Given the volume of invoices, you would see immediate value in completely automating the invoicing process.

    To prioritize the vendors, it makes sense to look at the volume and spend. 

    If you have the invoicing history, download it in a spreadsheet and sort by the total invoice count by vendors. 

    Do the 80-20% analysis and select vendors contributing to 80% of the invoice volume. That should not be more than 20% of your supplier volume. 

    If you don’t have a purchase order system, you may be settling the bills using a credit card. That could change when you switch to a line of credit, so keep that in mind. 

    Check vendor capabilities

    Once you have identified the vendors, the next step is to check if the vendor has e-invoicing capabilities. 

    Most of the vendors that support e-invoicing support one of the two formats 

    1. cXML standard
    2. EDI standard

    If you don’t understand this jargon, don’t worry.

    Your IT team would know what these are. You can implement an Accounts Payable system like ProcureDesk that supports e-invoicing. 

    To start with, send a simple email like:

    “We are working on implementing an e-invoicing process. Given your high invoicing volume, we have identified you as a potential partner for e-invoicing implementation. 

    Do you have the capability to send electronic invoices using cXML or EDI standard?”

    Once they respond, you can involve IT to take this further. 

     Implement and test e-invoicing process

    The last step in this process is to implement and test the process.

    This includes setting up the infrastructure for you and the vendor, testing the connection, and so on. 

    Keep in mind that most e-invoicing vendors don’t send actual invoice copies with the invoice. It is just the data of the invoice. So you need a process to generate a preview of the invoice – in case you want an invoice document for audit reasons. 

    Here is an example of the preview of the e-invoice. 

    approved supplier invoice

     Step 3: Purchase order (PO) and non PO invoices workflow automation

    If you just implement the first two steps, it should solve the invoice capturing process and eliminate the data entry for invoices.

    But what happens after the invoice is received?

    That is what we capture in this step. We will help you think through the process. 

    PO Invoices

    When you receive an invoice with the purchase order number on it, it is easier to match the invoice with the purchase order.

    It is a pretty involved process if you perform a 3-way match for the invoice(matching invoice with purchase order and receipt). 

    If you are doing it manually, it could involve reaching out to stakeholders to confirm the delivery of the receipt. 

    Or suppose there is a pricing mismatch between the invoice and the purchase order. In that case, it needs to be reviewed and approved by the appropriate stakeholder in your company. 

    This could be a pretty manual process. That is why you need to automate the 3-way matching process. An invoice approval software can help with this. 



    You also need approval workflows to route the invoices for review – in case of any issues.  

     Invoices without Purchase orders

    There will be vendor invoices where there is no related purchase order.

    It could be a service purchase, or the employee forgot to create the purchase order. 

    There are two ways to handle it. Create a purchase order first and then process the invoice. 

    Or, You can send the invoice for approval so that the payment is approved by the appropriate manager in the organization.

    A manual invoice approval process and email follow-up could be cumbersome; continuously chasing managers for approval is no fun!

    That is why you need to proactively identify the workflows for invoice approval and automate them so that a system can drive compliance for you. It reduces approval cycle time and provides a complete audit trail.

    Here is an example of automated routing of the invoice for approval.


     Step 4: Setup Invoice approval workflow

    In this step, you automate the invoice approval workflow so that you don’t have to manually chase the employees for invoice approvals.

    Setup the invoice approval workflow

    In this step, you define what should happen if an invoice needs approval after a three-way match.

    There are 3 different types of workflow that result from a 3-way matching process. 

    Missing receipts

    A common issue with the three-way matching process is missing receipts. The vendor sends the invoice, but the person who ordered the product has either not received it or simply forgot to create the receipt.

    If not handled properly, this can elongate the invoice approval cycle time.

    The invoices take more time to process because the AP team is waiting to create a receipt. 

    Here is an example of a missing receipt:



    This issue can be tackled by training employees on how and when to create a receipt. 

     The alternate way to handle this is to set up a workflow that automatically reminds the employee to create a receipt. 

     This workflow can be proactively triggered based on the delivery dates, or you can trigger this workflow when an invoice is entered against a purchase order. 

     Here is an example of automated reminders for creating receipts:


    Pricing mismatch

    The second common issue is pricing mismatch.

    For example, you ordered a widget for $10/each and the vendor invoice is $12/each.

    Pricing mismatch happens because of the following reasons:

    1. You don’t have a negotiated rate with the vendor, so they charge you the market rate.
    2. You are purchasing a volatile commodity, and the pricing keeps on changing. 
    3. You are purchasing custom parts, and the purchase order’s pricing could be different compared to what will show up on the invoice.

    Some of these issues can be avoided by negotiating the pricing with the vendor and keeping the cost fixed. 

    You could also implement a quote process to request a quote from the vendor before sending the purchase order to the vendor. 

    Here is an example of a price mismatch between the purchase order and invoice:



    When a pricing mismatch happens, you want a review workflow to approve the invoice or dispute the pricing with the vendor. 

    Quantity mismatch

    Similar to pricing mismatch, the quantity mismatch happens when the shipped quantity exceeds the ordered quantity.

    A common cause for this is the unit of measurement. For example, you ordered a widget from the vendor, but the vendor only sells that widget in a pack of 3.

    So you ordered 1, but the vendor shipped you three. 

    In this case, you need a review workflow to decide if the person who ordered the widget wants to accept the delivery or send the product back to the vendor. 

    Here is an example of the quantity mismatch:


    You can eliminate UOM(Unit of Measurement) issues by setting up a vendor catalog that matches how the vendor sells the product. 

     Reduce the manual intervention through auto-routing

    In some cases, there is limited information available.

    For example, you don’t have a purchase order number or know who the internal stakeholder is.

    You can handle this by identifying default internal contacts for different suppliers.

    By setting up a default invoice contact for each supplier, you can automatically route the invoice to a stakeholder within your company. 

    You could define rules for automatically routing certain exceptions to different stakeholders.

    Suppose you have a central warehouse department. It makes sense to send the receipt matching issue to the warehouse team.

    If you have a sourcing team, then it makes sense to send the pricing mismatch issues to the sourcing team to discuss the appropriate next step with the vendor. 

    Here is how you can set up rules for auto-routing:

    Approval workflow setup

    Make it easy for employees

    Employees are always busy with day-to-day operations, so the last thing you want them to worry about is approving invoices. 

    Whether a request for a missing receipt or invoice approval, you can make the approval process easier for your employees. 

    For example, you can enable an email-based receipt confirmation process.

    Here is an example of an email-based receipt request:




    The employee can easily confirm the receipt by clicking on the link in the email. It is that simple!


    Alternatively, you can provide a mobile app so that it is easy to approve invoice exceptions on the go.

     Here is an example of the mobile app for invoice approval:


     Step 5: Setup tolerance levels 

    Tolerance allows you to automate the process of approving invoice exceptions.

    Let’s unpack that a little.

    Suppose you don’t negotiate pricing with the vendor, and the vendor charges you a marketplace rate.

    If you ordered a widget for $5/each, the vendor might charge you $5.10/each because the pricing has changed. 

    It could be frustrating for employees and managers to approve such small price changes. 

    That is where tolerances can help.

    By setting up a tolerance, you let the system auto-approve the matching exception if the exception is under a certain amount. 

    For example, you can instruct the system to not raise a pricing exception if the pricing is up to 5% higher but raise an exception for anything over that. 

    Setup up a tolerance for auto-approval

    Here is how to set up a tolerance for auto-approval.


    Two values control tolerance matching. 

    The amount and % threshold. You want to do that because it allows you to handle different scenarios.

    For example, if you set up a 5% threshold. Now 5% on 100 is $5 and 5% on 100,000 is $5,000.

    So a % based tolerance could lead to huge deviations. 

    You can offset that by also entering an amount. 

    The system can then select the amount or % based range, whichever is the smallest. 

    Let’s say you set up an amount tolerance of $50.

    Then in the above case, the system will ignore the 5% range and consider the $50 amount because it is lower. 

     Step 6: Dashboard for invoice approval tracking

    The last step in the AP invoice approval automation is implementing a central invoice approval tracking process. 

    This allows the AP team to keep track of invoices with an invoice approval tracking dashboard. 

    Here is what you want to track:

    Summary of all invoices

    This is a quick summary of the invoices in the system. For example, you want to track what invoices are approved, paid, pending approvals, etc.

    Or you want to track what invoices are still pending processing. 

    The supplier invoice dashboard provides you with that information. 

    Supplier invoice dashboard

     Pending invoices that need followup

    One of the invoice approval process challenges is the continuous follow-up to get the invoices approved. 

    Suppose you lose track of invoices that are pending approval. In that case, it could lead to delayed payments and issues with deliveries, etc. 

    Here is a simple report that shows you all the pending approval invoices.


     You can see what invoices are pending approval, with whom, and for how long.

     It not only makes the follow-up easier, but it also helps you identify repeat offenders. 

    Invoices that are missing receipts

    Here you want to track all the invoices that are missing receipts. This allows the AP team to follow up with stakeholders.

    Here is an example of a report that shows all invoices that are pending receipts. 



    You can then have a cadence to follow up with stakeholders to get the receipts created. 

    Alternatively, the system automatically follows up with the respective team members.

    For example, we have an automatic reminder feature that looks at all invoices that are missing receipts and sends reminders to respective stakeholders. 

     Step 7: Integration with your Accounting system

    Once the invoice is approved, you need to send the invoice for payment. 

    Invoice automation is not complete unless you have a way to automatically create the invoice in your accounting system.

    This avoids redundant data entry into two different systems. 

    Once a single invoice is approved, the system should automatically create the invoice in your accounting package. 

    You can also batch this process and send multiple invoices for payment simultaneously. 

     Now your turn!

     By automating the AP invoice approval process, you can easily reduce the time spent processing invoices by 30-40% and have a better cash flow management process.

    AP automation saves the AP department 50+ hours each month. It also allows you to scale the operations without adding additional headcount to your team. 

    The finance team gets better cash flow visibility that enables better decision-making.

    So here is how to get started:

    1. Document your current AP invoice approval process. 
    2. Identify the steps that can be eliminated.
    3. Automate the rest of the process using the best Accounts payable software.

     If you are interested in seeing how ProcureDesk can help you with AP process automation, click the link below to schedule a demo with one of our product specialists.  


    What you should do now

    Whenever you’re ready… here are 4 ways we can help you scale your purchasing and Accounts payable process.

    1. Claim your Free Strategy Session. If you’d like to work with us to implement a process to control spending, and spend less time matching invoices, claim your Free Strategy Session. One of our process experts will understand your current purchasing situation and then suggest practical strategies to reduce the purchase order approval cycle.
    2. If you’d like to know the maturity of your purchasing process, download our purchasing process grader and identify exactly what you should be working on next to improve your purchasing and AP process.
    3. If you’d like to enhance your knowledgeabout the purchasing process, check out our blog or Resources section.
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