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invoice approval workflow

Managing invoices and keeping track of your payables are essential aspects of business operations – regardless of your industry.

For that reason, an effective invoice approval workflow is key to running a successful business. To achieve this, many businesses are turning to automation. Some, however, still cling to manual processes, and that comes with significant challenges.

In this guide, we’ll cover what an invoice approval workflow is and how it works, step by step. We’ll also take a look at the challenges of sticking to a manual invoice approval workflow, and how automation can benefit your approval process.

What is an invoice approval workflow?

An invoice approval workflow is the structured process used to review, validate and approve invoices from vendors before payment is made.

The invoice approval workflow functions as your checklist. It allows you to clear your vendor invoices quickly and simultaneously ensure that they’re accurate, legitimate and comply with your company policies.

Typically, the invoice approval process begins when an invoice is received. The invoice is then verified and validated against other purchase-related documents before being sent for approval.

In small businesses, invoice approval is often handled by a single person, while enterprises typically have an accounting department that handles invoice approval and related processes.

Step by step: What an invoice approval workflow looks like

Invoice approval workflows are unique depending on the individual business. However, certain key steps remain largely the same for every type of business:

  1. Invoice receipt
  2. Validation and matching
  3. Approval routing
  4. Scheduling and payment

1. Invoice receipt

The invoice approval workflow starts with accounts payable (AP) receiving an invoice. Invoices can be received in a variety of formats, including faxed documents, paper documents via post, e-mails with attachments and electronic documents received through e-invoicing software.

Regardless of its format, AP’s task is to log the invoice in your accounting system. To do this, AP reviews the invoice to ensure that it contains all necessary information.

The invoice should contain the following:

  • Date of the invoice
  • Contact details of vendor and buyer
  • Description of the product/service
  • Amount of product/service
  • Pricing and total amount owed

2. Validation and matching

During this step in the approval workflow, AP cross-references the invoice information with other documents to verify the accuracy of the invoice and that it contains no obvious errors or discrepancies.

This involves matching the invoice with purchase requests, purchase orders (POs) and goods receipts. In some cases, AP only needs to match the invoice to the PO – typically for services where no goods receipt is necessary.

3. Approval routing

Next, the invoice is routed to the relevant approvers. For this purpose, you can set up predefined approval hierarchies based on factors such as the invoice amount, department or type of expense. This ensures that incoming invoices always make it to the right people.

If the invoice is accurate and matches the PO and goods receipt, it’s approved for payment and moves on to the final stage in the invoice approval workflow. If there are issues or discrepancies, AP returns the invoice to the sender with a request for correction or additional information.

4. Scheduling and payment

When approved, the invoice moves to the payment processing stage – the final step in the invoice approval workflow. At this stage, the invoice is scheduled for payment according to your company payment terms and policies.

Once paid, the invoice is closed and archived, and the invoice approval workflow is complete.

The challenges of a manual invoice approval workflow

Although automation is increasingly becoming the standard of invoice approval workflows, some companies still cling to manual processes – and that makes it difficult for AP to keep up.

There are many challenges of keeping up a manual invoice approval workflow, including:

  • Human errors: Even the most reliable team members aren’t immune to manual entry errors. Discrepancies can lead to numerous problems, including overpaid and underpaid invoices, which can prove a problem for your company in the long run.
  • Delayed payments: Manual invoice approval is a time-consuming process. It can easily lead to delayed payments – and too many delays can lead to strained vendor and client relationships.
  • Lack of transparency: A manual invoice approval workflow makes it challenging to track the status of your invoices. Without transparency, it’s difficult to keep your vendors updated with estimated payment clearance times.
  • Vulnerability to fraud: One of the biggest challenges of accounting is fraudulent billing. Companies with a manual invoice approval workflow are particularly vulnerable to this. It’s easier to forge or falsify documents in a manual system. It also requires more resources to manually verify invoice details, leaving room for error – and that means fraudulent invoices are more likely to be approved.

You might also be interested in: ‘What is invoice validation – and how do you benefit?’

How automation can benefit your invoice approval workflow

Many companies are turning to automation to optimise their invoice approval workflow – and not without reason. An automated invoice approval workflow can benefit your business in a multitude of ways, leading to everything from more efficient processing to lower labour costs.

Let’s take a look at some of the most important benefits your business stands to gain from automating your invoice approval workflow.

Increased efficiency

An automated invoice approval workflow speeds up your approval process significantly. It reduces the time you spend on manual data entry, matching and routing. This leads to faster processing times – and timely payments to your vendors.

Reduced errors

An automated system minimises human errors associated with manual data entry and verification. This reduces the risk of overpayments, underpayments and duplicate payments.

Enhanced accuracy

With an automated system, your invoices are automatically matched against purchase orders and receipt records. This way, discrepancies can be identified early in the process, ensuring a more accurate invoice approval workflow.

Cost savings

Automation reduces the need for manual labour in your approval workflow. This lowers your operational costs – and with enhanced accuracy, it also lowers the costs associated with handling errors and discrepancies.

Enhanced visibility

An automated invoice approval workflow provides real-time insights into the status of invoices. This helps you better track and manage cash flow. It also allows you to keep your vendors informed of estimated payment clearance times, helping you build stronger vendor relationships.

Better fraud prevention

Automation allows you to cross-reference details and verify the authenticity of invoices with greater accuracy. This lets you detect and prevent fraudulent activities, enhancing security and reducing your risk of financial losses related to fraud.

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