How does it Work?

The invoice approval process differs from company to company. However, the process generally involves these processes:

1. Receiving the invoice

The invoice approval process begins when the company receives the invoice, which can be through a digital AP automation system or a physical paper invoice sent by the supplier. 

The accounts payable (AP) department then carefully examines the invoice to confirm that all necessary details have been provided.

2. 3-way matching

Once the invoice is reviewed, it undergoes a matching process, which is typically done through a three-way matching system. 

This involves comparing the invoice with other documents such as the Goods Received Note (GRN) and the purchase order (PO) to determine its accuracy. 

This matching process confirms that the organization ordered goods or services from a supplier and received them accordingly.

3. Invoice for approval

After the invoice has undergone the matching process, it is then submitted for approval to personnel who have the authority to approve the payments. This individual could be a procurement manager or anyone else responsible for authorizing such payments.

4. Journal entries

After the invoice approval and payment processing are completed, the accounting entries are recorded in the corresponding journals. 

This process involves reducing both the accounts payable and cash accounts simultaneously to reflect the payment made to the vendor.

Steps in Creating an Invoice Approval Process

It is common for businesses to have a well-defined process to handle incoming invoices. While these processes may differ from one organization to another, they are generally classified into two categories:

• Invoices that have a purchase requisition or purchase order.
• Invoices without an associated request or purchase order.

Here are some steps that you can follow to ensure faster and more accurate approval of invoices:

1. Making invoice

In this step, all relevant information should be included in the invoice and entered into the organization’s invoice approval system.

2. PO matching

The next step is to classify the invoice. This involves identifying and linking other purchasing documents like order receipts, purchase requests, purchase orders, etc. 

3. Define exceptions

Invoices that fail validation due to discrepancies or missing information are sent to the appropriate personnel to correct errors and resubmit for approval.

4. Route approvals

Validated and matched invoices are routed to specific approvers based on the information in the purchasing documents such as PO number, requester name, or department.

5. Process payment

Approved invoices are automatically forwarded to the finance team for payment processing. Once payment is completed, the invoice is closed.

Why You Should Automate Your Invoice Approval Process

Many organizations still rely on a manual, paper-based invoice approval process which can be time-consuming, costly, and prone to errors. 

This outdated process often involves numerous exceptions and provides little to no visibility into the approval status of invoices, causing delays and frustration for both vendors and the internal accounting team.

By utilizing a solution/software to manage invoice approvals, an organization can eliminate the need for paperwork, minimize manual errors that may arise during data collection and retrieval, speed up the approval cycle, and enhance straight-through processing capabilities.

Furthermore, by implementing automated systems, businesses can streamline their operations, reduce processing times and costs, and improve their overall efficiency and accuracy.