Most invoice approval systems fail to reduce the time spent on processing invoices. The reason is that they only focus on automating what happens after you receive the invoice.
We argue that the invoice approval system is incomplete without enrolling your vendors and changing how you receive invoices. If you simplify the invoice capture process, the invoice approval process is much easier.
We have seen this strategy used by hundreds of ProcureDesk clients.
Companies using a comprehensive invoice approval workflow process see the following benefits:
On average, most of our clients see at least a 30% reduction in time spent on processing invoices and potential errors. This happens within the first 30 days of implementation.
It is primarily a result of reducing the time spent entering the invoices and manually matching the invoices to the purchase order. Manual invoice process can also increase the risk of human errors, duplicate payments, late payments, and cash flow issues which can delay the entire process.
After implementing the invoice approval system, you increase the purchasing compliance reducing the risk due to failure of internal controls.
If you are looking to raise capital, investors always favor companies with strong internal controls.
Having an invoice approval system ensures that only approved invoices are getting paid.
The stakeholders can review the invoices before the AP team pays the vendor.
With faster invoice approvals, you have the opportunity to avail of early payment discounts that vendors offer.
Let’s say you have a Net 30 payment term with the vendor.
A vendor might offer you a 2% discount if you pay the invoice within ten days of the invoice date.
It is written as 2% 10 Net 30.
So if you have a $100,000 invoice, you can save $2,000 by paying 20 days early.
You can only avail of early payment discounts if you have surplus capital or your borrowing rate is lower than the early payment discount.
This article will cover the key features you need in an invoice approval system. We will cover the key approval workflow requirements, but we will also cover the end-to-end payables process.
The invoice approval system allows accounts payable teams to automate the manual invoice approval process.
A manual workflow approval process involves figuring out what is wrong with the invoice, who needs to approve an invoice and working with different stakeholders to get the invoice approved for payment.
With invoice processing software, AP teams can define the workflow for invoice approval. The system automatically routes invoices for approval to prevent invoice approval delays caused by insufficient data entry and routing errors.
With AP workflow automation, you can get complete visibility into invoices and retrieve approval history to make the entire invoice approval process efficient.
When the invoice approval process is automated, the accounts payable department doesn’t have to chase employees to get an invoice processed manually. This results in faster invoice processing and allows the AP team to work on more strategic activities like cash flow management and audit trails.
This section will cover the key features you would need in a complete invoice approval system.
As we said before, automating the invoice approval process is not enough. Accounts payable teams need complete automation from invoice capture to invoice payments.
So the first step in the accounts payable process is to automate how you capture the invoices from the vendor and go completely paperless.
If you are receiving paper invoices through the mail, the first step is to receive invoices through email.
The process for capturing invoices through email involves the following steps:
You would need to continuously remind the vendors to make sure they adapt to the new process.
It should get you to 80% invoices through email. The remaining 20% might be non-Po invoices that you receive for taxes and utilities.
In our experience, it is hard to change the process many government agencies and utilities follow for invoicing their customers. So you still need to process some paper invoices.
Electronic invoices refer to sending the invoice data electronically from the supplier system to the buyer’s purchasing software.
Instead of emailing the invoice to the buyer, the supplier directly submits the invoice data.
There are different standards for exchanging vendor invoice data. The most common protocols are EDI and cXML.
If this seems overwhelming, don’t worry; it is not.
You can either ask your IT team about this.
It is automatically done for you if you are using an Accounts payable automation solution like ProcureDesk.
It does involve effort working with the vendor for setup and testing, so you should implement electronic invoices only for high-volume vendors.
So, for example, if a vendor only submits 10 invoices in a year, it is not worth the effort.
However, if you purchase from retailers like Amazon.com, you might have hundreds of invoices each month.
Use the Pareto principle to figure out the top 20% of vendors contributing to 80% of the invoice volume.
Then focus on those vendors to eliminate the need for data entry.
Here is an example of an electronic invoice:
When you first implement a three-way match, the AP team might have to perform manual matching for the vendor invoices with the purchase orders.
That is time-consuming and needs a lot of back and forth with the different stakeholders.
The AP team needs to get answers to the following questions before the invoice can be paid.
With accounts payable software, you can automate the three-way matching process.
With automatic 3-way matching, the AP automation solution automatically matches the three documents, i.e., purchase order, receipt, and invoice (hence 3-way), and identifies any discrepancies.
Here is an example of a missing receipt exception:
As you can see above, the vendor invoiced the invoice line, but there is no receipt in the system.
If you were doing this by a manual process, you have to send an email and follow up with the employee who ordered the product.
With ProcureDesk, the follow-up is automated. The system sends an email to the respective stakeholder, asking them to confirm if they have received the product.
In some cases, the price doesn’t match what was on the purchase order. It is called a pricing exception.
Here is an example of a pricing exception:
There are two ways to resolve such exceptions:
An invoice approval workflow helps route the price exception request to the appropriate person.
The invoice approval system is an integral part of the AP automation solution.
Invoice approval workflows allow you to automate routing invoices to different stakeholders for further review of the invoice.
There are a couple of scenarios where you need an invoice approval workflow software:
You need a workflow to route the invoice exceptions to appropriate people. For example, if the invoice pricing doesn’t match the purchase order, someone needs to review and resolve that exception.
With an approval workflow, you can define who should review the invoice in case of an exception.
If you don’t have a procurement team, you can send the invoice to the order contact (The employee who created the purchase order).
If you have a procurement team or a buyer, you should send the invoice to the buyer.
The buyer can then work with the vendor to resolve the pricing exception.
Here is an example of how to configure that workflow:
Let’s say you hired a software development firm to develop the company’s website.
The vendor will deliver the output in different milestones, and the vendor will invoice you for each milestone.
When the AP department receives the invoice, they don’t know if the milestone was delivered and as per the agreed scope.
That is why the accounts payable department needs to send the invoice for review before they can pay the invoice.
This workflow is called invoice review.
Here is an example of how you can set up an invoice review process in an invoice approval system:
The invoice is sent to the order contact for approval, as you can see above. Order contact is the person who requested the service.
Once the invoice is received, it is ready for payment.
It is a best practice to have purchase orders for everything,
Purchase orders allow the managers to review the expenses before making the purchase.
But that is not always the case. You will always have invoices that are without a purchase order.
It could be that the vendor forgot to add the PO number on the invoice, or the buyer didn’t issue a purchase order.
Non-PO invoice is also common with services like legal services etc.
With a non-PO invoice workflow, you can route the invoice for approval before marking it ready for payment.
Here is an example of a non-PO invoice workflow:
We recommend that you follow the same process as a purchase order. Even though the expense has already occurred, you still need authorization from the appropriate level to pay the invoice.
With an invoice approval system, you can automate the whole process. Still, sometimes the stakeholders forget to approve the invoice for payment or review invoices on time which can cause approval delays.
We get it; everyone is busy.
If you have automated reminders and alerts, you don’t have to do manual invoicing or remind and follow up with employees to approve invoices.
So here are a couple of ways an invoice approval system can automate the notification process:
The system sends email notifications when the AP team requests invoice approval.
There are different types of automatic email notifications based on the activity performed by the system. Here are some examples:
Here is an example of a missing receipt email notification:
Even though real-time emails for approvals work, managers get busy with daily work and forget to approve invoices on time.
That is where automatic reminders like summary reminders help. With summary reminders, the system sends a daily summary of all pending items that need approval.
This allows the department head or manager to approve the invoice requests at once.
Here is an example of the summary reminders:
An approval dashboard provides a single place to see all your pending approval requests.
You can easily view all the requests and then approve them one at a time.
Here is what an approval dashboard looks like:
With automatic alerts and notifications enabled on the mobile app, you can be sure not to miss any approval requests.
ProcureDesk mobile app allows approvers to approve the invoice approval request on the go.
Invoice approvers also get real-time notifications when a new request is sent to the approver.
Here is an example of approvals using the ProcureDesk mobile app:
With an invoice approval system, you can reduce the time spent creating and approving supplier invoices.
However, you need these invoices also created in your accounting system so that you can pay the vendors and update the general ledger accounts. That is why you need an invoice approval system that integrates with your accounting system.
The integrated application allows you to create an invoice once and automatically sync the invoice data to the accounting software. You don’t need to create the invoice/bill in your accounting system.
With the accounting system integration, all your master data like charts of accounts and suppliers are automatically pulled into ProcureDesk.
Once the bill is created and approved by the respective stakeholders, the bill is sent to the accounting system.
Once you pay the vendor, the payment status of the invoice is sent back to an invoice approval system like ProcureDesk.
If the employees can see the payment status, it reduces the calls to the AP team to enquire about payment status.
Here is an example of an invoice with the payment status:
So there you have it – key features that you need in invoice approval software.
Here are some potential next steps:
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