Regardless of its industry of operation, what are some quintessential aspects that determine a company's success?
The answer: reliable systems to handle things like invoicing, supplier payments, and the management of vendor relationships. These systems are crucial because they allow businesses to manage and deliver specialized products or services.
Thus, companies need to be skilled at handling the various details and information that come with managing relationships with partners, buyers, suppliers, and vendors. In addition, timely delivery of payables is essential to avoid losing out on potential business prospects.
This is where the role of an efficient, consistent, and reliable invoice approval process comes into the picture. Here's an extensive guide that covers several critical aspects of this process.
Invoice approval refers to the procedure by which an organization verifies and authorizes supplier invoices for payment. As soon as a buyer receives a supplier invoice, the invoice approval process typically kicks in.
Following categorization and verification of the information, the invoice is sent to the relevant stakeholder for matching the invoice against supporting documents before final approval.
Prevention of fraudulent charges, verification of invoice legitimacy, and conformity with purchase records necessitate a well-thought-out process. Therefore, a swift and cost-efficient medium of clearing and paying the invoice should be employed.
While in small and medium-sized businesses, the employee in charge of finances or a member of the administrative staff may handle invoice processing, the accounts payable (AP) division is responsible for this task in larger organizations.
Typically, invoices get processed according to established policies at most companies. Although the procedures vary from company to company, they can be broken down into two broad categories:
Let's look at the standard steps involved in the invoice approval process depending on whether the supporting documentation exists or not.
It all begins with a vendor or supplier sending an invoice to a concerned company division like accounts payable, accounting, or finance.
Invoices can be sent electronically or on paper, and either way, they should include all pertinent details regarding the transaction, such as:
The invoice gets reviewed by the employee in charge of purchasing that product or service. Invoices are then verified by matching/comparing them to relevant documents such as purchase requests, purchase orders, order receipts, etc.
This procedure is required solely for non-original invoices, such as those made in response to purchase orders.
Price inaccuracies, omissions of data and information, and disparities in the number of goods are all examples of invoice irregularities.
Once these issues get identified, the invoice will be forwarded to the concerned parties so the matter can be resolved or rectified.
Invoices are forwarded to the relevant individuals for approval once they have been verified and validated, relying on the details included in the applicable purchasing documents, such as the requester's name and department, PO number, etc.
The predetermined financial figures also dictate who must sign off on the contract.
After an invoice is reviewed and authorized, it is forwarded to accounts payable so that payment can be made for the products or services received.
As soon as the funds get transferred, the invoice is officially approved and recorded in the books.
Although the process appears straightforward, when hundreds of invoices are involved, things soon become complicated.
The accounts payable or financing and accounting departments face their set of challenges that can build up with time, causing chaos and accounting errors.
Some major problems that frequently arise with manual invoice approval processes include the following:
Payment delays disrupt suppliers' cash flow, cause tension, and damage a company's relationship with them.
Additionally, they place an immense burden and strain on the shoulders of the accounts payable team. In certain cases, even monetary fines could be levied against the business.
Paper invoices are prone to be misplaced either en route to the workplace or in a pile of other paperwork. Furthermore, unless lost invoices are retrieved, payment cannot be released.
This search would be time-consuming and stressful for the accounting team. It also harms the business's relationship with its vendors and suppliers since it disrupts their cash flow.
Manual errors in the form of inaccurate or missing data occur frequently when accounts payable employees must do three-way matching manually.
If that weren't bad enough, it's much worse when the AP division approves an invoice before the products have even arrived. Fixing a problem such as this takes a lot of effort and time.
Several leading digital invoice approval solutions facilitate businesses by offering capabilities such as data capture, contract administration, automatic routing, and seamless integration across platforms.
Employing such automated systems, organizations can streamline the invoice approval process by:
Further, there are countless ways in which a system like this may help businesses of all sizes. A plethora of advantages become available to them:
Earlier, in most organizations, reviewing and approving invoices used to be a labor-intensive manual process.
However, in the modern business arena, it is no longer practical to manage invoices and accounts payable manually because of the time and error implications involved.
When it comes to the approval of payments, like with any other aspect of business administration, automating it can assist every company save time and costs.
Thus, employing reliable invoice automation software must be preferred for preventing fraud, maintaining transparent bookkeeping practices, and gaining the trust of customers, suppliers, and even employees.