Successful businesses require healthy cash flow, and if there’s a bottleneck, there are only two places it could be. Either payment needs to come in faster, or inefficient invoice management is straining the system. Often, the issue isn’t even over-purchasing, although duplicate payments and overspending are possible.
The fact is that manual invoice processing is prone to errors and incredibly slow. Long payment times can generate late fees, void potential early payment discounts, and create supplier churn. At the same time, the AP team likely wants to do more than manually type in the line details for every single supplier invoice.
An intelligent invoice approval workflow can help reduce these issues – and if it’s automated, you can turn workflow management from a stressor into an asset.
Why Create an Invoice Approval Workflow?
Whether you stick with a manual process or plan to automate your invoice management, a well-defined invoice approval workflow can help you identify bottlenecks and improve efficiency. Clear guidelines for your AP team, vendors, suppliers, and procurement team, and reduce time spent on deliberation and pending approval.
Furthermore, if you’re planning to purchase an invoice automation solution, having a clear approval workflow outlined in advance can make it easier to find the right solution and speed up implementation.
To get started, let’s look at the six steps of invoice processing.
6 Steps to Drafting Your Invoice Approval Workflow
Approval workflows typically have a short process. But just because there are few steps doesn’t mean it’s simple. Bottlenecks are common in invoice processing, which can strain supplier relationships and increase costs. And even adding automation, if the software isn’t robust or customizable, may be limited if the underlying approval process isn’t addressed.
So, how do you create an effective invoice management workflow that limits invoice exceptions? Let’s review the steps.
1. Review AP terms and conditions
Before you actually touch your invoice approval process, it’s essential to review your AP terms and ensure that all vendors are aware of and follow them. A standardized set of rules for pay periods and credit can reduce potential exceptions. You’ll also want to ensure that vendors know what information should be included on every invoice. Because even an AP automation solution can only extract data within the documentation.
2. Fine-tuning data capture
There are two ways to capture and log data. There’s manual data entry, which, let’s face it, takes far longer than it should and is prone to more errors. Or you can use invoice approval software that extracts data directly from scanned or PDF documents.
If you use a workflow automation tool, you’ll want a solution that can pull as much information as possible from incoming invoices.
For effective data capture, you’ll want a software tool that uses Optical Character Recognition (OCR), Intelligent Character Recognition (ICR), and Natural Language Processing (NLP). You may have heard of OCR and NLP before, but ICR allows the program to pull even handwritten notes and other unstructured data types from financial documents. In other words, you can automatically pull more information than ever from a handwritten invoice detail.
3. Validating invoices
Invoice matching can be either done by hand or via automation. An automated invoice-matching workflow should use Artificial Intelligence (AI) and Intelligent Verification technologies for accurate and fast processing. After all, depending on your invoice volume and financial documentation, a single invoice may need to be matched to a Purchase Order (PO) or any other document.
The more accurately a program can validate incoming invoices, the shorter the approval process can be. And with components like ML, it’s possible to improve AP automation performance over time.
4. Follow the approval hierarchy
Every approval workflow management process has a specific approval hierarchy. These can be built into the system via user roles directly into the AP automation software or your ERP. The approver should be able to quickly scan pending invoices, as well as have immediate access to all information regarding the expense. Ideally, most invoices will pass through the software without raising alarms, and the approver can focus only on the invoice exceptions.
5. Process payments
At this time in the invoice approval workflow, it’s time to disburse payments to suppliers, payroll, and other related expenses. This may be automated, or at least accelerated, with digitization.
6. Catalog the receipt
Finally, after you process and pay a vendor invoice, you may receive a receipt or verification of payment. When this happens, you’ll want to capture this data in your workflow and align it with the proper payment.
How Does Automatic Approval Work?
AP automation drastically speeds up approvals. For example, if straight-through-processing rates (STP) jump to 80% — meaning only 20% of invoices may need to be reviewed for errors or potential fraud. This reduces the time an approver has to spend mulling over invoices, most of which tend to be correct.
But invoice workflow automation only provides high-quality results when you have the right software for your needs. While the minimum requirements may be OCR and AI technology, intelligent AP automation solutions provide in-depth data capture from all major source types with greater than 98% accuracy.
Are there Downsides to Automatic Approval?
While there are many upsides to an automatic invoice approval process, there could also be some challenges based on business needs, budget, and their chosen solution.
For example, choosing a cheap solution that only offers Robotic Process Automation (RPA) or basic OCR may seem like a good trade-off initially. But the lower accuracy and fewer data types supported can translate into minimum returns. Each invoice may still require manual review and corrections, which defeats the purpose of workflow automation.
That said, you also want a customizable program that offers enterprise-level security and integrates with your ERP. When searching for invoice approval software, you’ll want to keep these factors in mind.
Evaluating an Invoice Approval Software
You’ll want to evaluate software carefully if you want to get the most out of your accounts payable automation – including capturing early payment discounts, eliminating manual processes, and reducing costs.
An ideal invoice automation software:
- Works with structured and unstructured data, at every level, including invoice line items
- Automatically reconciles and matches invoices
- Has a high STP rate (more than 67%)
- Has high accuracy and continues to learn (greater than 95%)
- Is built to ensure compliance
- No code for easy implementation and use
- Generates in-depth reports to monitor cash flow
- Works with multiple currencies in various markets
- Has a responsive support staff in case your AP team has questions
Accelerate Your Invoice Workflow with Itemize
AP automation allows small and mid-sized businesses to turn supplier invoices into a competitive advantage. With end-to-end visibility, audit-proof records, reduced costs, and time saved, an effective invoice workflow allows you and your team to focus on critical objectives rather than repetitive, low-level tasks.