Improving your invoice approval process

The AP Process

Paying suppliers is a core part of running any business. Suppliers expect their invoices to be paid on time and to be notified of what’s been paid by way of a remittance advice. As a business grows, this process expands as the volume of invoices increases. Keeping on top of this becomes the role of the accounts payable person and then perhaps team (AP Team). The process itself has a number of steps including:

1. Receive the invoice
2. Check the invoice is valid
3. Check any goods and services have been received
4. Key the invoice into the finance system with the correct coding
5. File the invoice away
6. Pay the invoice
7. Store the invoice for the statutory number of years.

It doesn’t matter whether the business or organisation received 10 supplier invoices or bills a month or 10,000. A similar process has to occur.

In this article we are looking at some of these steps in more detail and evaluating the ways in which the “check the invoice” step can be accomplished. This is very much the “invoice approval” part that this website focuses on.

Who’s doing the buying?

If we go back in the process further we can look at the buying process and understand who is doing the buying or placing the orders and look at the implications of these different purchase types.

Online Orders – Most common these days will be online ordering. Someone within the business ordered something from an online provider like Amazon. The accuracy of the purchase here is very high. The buyer no-doubt browsed a catalogue and chose products accordingly. The main question here though is this. Were they authorised to place this order? In terms of the accounts payable process, the question or validation is “Have you received the order?”

1. Did you have permission to order this?
2. Have you received it?
3. Whose budget or department does this go against?

Purchase Orders – Very similar to online ordering, the buyer has composed a purchase order with the goods or services required, sought a unique reference number (purchase order number) and sent the order to the supplier. The buyer has committed the organisation to a spend commitment and the finance team may well be the last to know that this spending commitment is now in place. The key questions to ask are the same as above.

1. Did you have permission to order this?
2. Have you received it?
3. Whose budget or department does this go against?

Trade Counter Purchase – Trade counter purchases are by nature likely to be pre-approved. An account has been setup with the supplier and the buyer knows this. The buyer may have placed this order in person or over the phone. Either way they will have received a collection or confirmation note which is the evidence required that this is a genuine purchase carried out by a member of the team and not fraudulent. The key questions here are more likely around quality and quantity:

1. Did you receive everything you ordered?
2. Was everything delivered of the right quality?
3. Which “job” was this purchase for?

Staff Expenses – The other type of purchase is the ad-hoc purchase made by a member of staff that may be classified as an expense claim. The purchase has been made with a company card or their own credit card and needs to be reimbursed. The key questions here are:

1. Was this purchase authorised?
2. Did you pay the right price?
3. Who’s budget is this being applied to?

Why approvals are important

As we can see from the above buying types, the questions relating to these purchases form part of the approval process of the subsequent invoice. Invoice Approvals protect the company for a number of reasons and are key to the AP Process. The most obvious reasons for checking an invoice are:

1. It's fraudulent – The invoice is pure fiction.
2. Authorisation issues – Was the buyer permitted to make this purchase? If the answer is no, education and prevention will help to avoid this again.
3. Quality issues – The order or service was delivered but the quality wasn’t acceptable. The supplier now needs to redress this issue.
4. Quantity Issue – The order was delivered but there is a mismatch between what’s been ordered and whats’ been received. This could be a temporary stock issue or it could be a structural error that again needs intervention.
5. Price issue – The order was placed and the price invoiced is incorrect. Perhaps a discount hasn’t been applied or the supplier has simply got it wrong. No business wants to pay more for goods or services than they need to.
6. Coding Issues – The invoice arrives and nobody in finance knows what it’s for or how to code it. There could be budgets in place and the invoice needs to be applied to a budget.

It’s perfectly likely that the vast majority of invoices that arrive into a business are relatively low maintenance. There could be great policies in place empowering the right people to buy from the right suppliers and the suppliers are incredibly accurate with their invoicing.  Therefore any invoice approval process needs to be dynamic and not be bureaucratic.

Different methods of approval

Good old-fashioned paper

The traditional way to approve an invoice was paper-centric. The invoice arrived at the business and is copied. The copy is physically sent to the approver either placing in their “cubby hole” or on their desks. The approver is then expected to act, perhaps by stamping it with “Approved” or “Rejected” and annotating the physical copy. This annotated document then finds it’s way back to the AP desk or team.

This was a slow process with a high propensity for error. If a supplier called to ask why their invoice wasn’t paid, the AP team would need to start chasing and calling to get any kind of answer.

The tracker process

As the volume of purchase invoices being emailed into the business increased, the AP team realised that there was an opportunity here to simply forward them onto the approver. This usually involved some sort of tracker though so they at least had a record of the invoice. This certainly cut down on paperwork and made it easier for the invoice approver – provided they took action and didn’t forget about it!

Invoice Approval Software

And finally we the advent of invoice approval software, linked to the finance system, it’s become possible to really streamline the process. Now the approver can take action on a mobile device, and receive reminders automatically. Better still for the AP team, having a real-time list of all the invoices out for approval, and who they are now with (because some invoices require more than one person to approve) is a huge bonus for efficiency. The key features to look out for:

• Multi-step approvals - the business can ask more than one person to approve
• Coding approvals - the finance team can have the approver markup or code the invoice
• Approval reminders - Automate the nudging if the approver needs it
• Flexible Approval Rules - Create rules that route the right invoices to the right people and allow some invoices to flow straight through as pre-approved.

 

Changes in working practices

We were slightly “ahead of the curve” here at Zahara before everything changed. Prior to Covid and the 2020 pandemic, Zahara staff were working from home two days a week and expected to come into the office 3 days (3 : 2).

Little did we know that within a few months this would be full-time home-working for over a year. Whatever the opinion of the senior leadership now around home-working, it’s safe to say that modern working practices have changed forever. More and more people are working remotely – what could be called a “work from anywhere” culture. At the time of writing this, we have a testing team in Scotland, a developer in Kiev, another developer in Krakow, a colleague taking 5 weeks warm weather working in Portugal, our team in Brisbane and various colleagues satelliting in and out of our office in Bath (UK). This is us. This is now and it’s how thing will likely be going forward.

What this means for our subject matter of invoice approvals is that any process needs to reflect that very few people are now tethered to their desks. Any software approval process needs to have:

1. Reminders – because people miss things. It’s human nature and we are all busy.
2. Absence settings – sometimes we are on holiday and need a delegate
3. Convenience – I’m busy, make it easy for me please!

User engagement

One of our customers has approvers who earn big. We wouldn’t want to calculate their earnings per minute or second but it’s an impressive number. So, when they came to introduce automated invoice approvals, it had to be easy. They wanted minimum disturbance but maximum ease of use.

This is where a mobile app comes in with progressive disclosure allowing the approver to approve at various different stages of engagement. Put simply, it’s got to be easy. Allowing an approver (or rejecter of course) to engage in multiple ways is important and this should include:

1. Mobile app
2. Desktop App
3. Emails

If something is easy to use, it gets used. Choosing software with an engaging user-interface (UI) is important. One of our adages here is “If they can use Facebook, they can use our software”. It’s impressive how discerning users are these days and quickly notice wasted clicks.

Linking to finance systems

As we have seen earlier in the document, the validation part of the invoice approval process are just some of the steps involved in getting an invoice paid. What if we could automate the entire process though so that the receiving of the invoice, understanding who it’s from and what it related to, routing it to the right approver and then getting it into the finance system could all be done using one tool?

The receiving and reading of the invoice removes the need to log anything as this is done automatically and removes the need to key anything into the finance system as this again can be done automatically as part of the overall process.

The invoice approval software you choose should have all of the elements you need to fully automate the process so invoices can literally travel through the process hands-free provided all of the rules you create are met.

Conclusion

The Accounts Payable Process is perfect for automation and streamlining and has a fast return on investment (ROI) when the volume of invoices processed is high or set to increase to levels that will overwhelm the finance team. Whether your goal is cost savings or efficiencies, automating the process to cover the receiving and approving is one thing but joining the dots so the finance system is updated and then the actual payment of the invoice can be automated and scheduled is the next frontier we can look to achieve in 2024.

There are many benefits to front-end loading the process of buying as well. Having the buyers purchases evaluated for approval instead of an invoice can facilitate straight though processing, especially if delivery information is made available as well. A complete purchase to pay solution would then have:

• Purchase Requisition Approvals
• Purchase Orders
• Deliveries & receipting
• Invoice processing and matching
• Automated Payments

Although this more involved process can add a huge benefit to any business, especially around controlling costs, the initial pain point of invoice approvals can be picked off relatively quickly and easily by adopting flexible software that can grow with you.

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