Introduction

The Accounts Payable (AP) departments of most companies have internal rules for invoice management that include approvals. What are invoice approvals?  What is a manual invoice approval workflow?  Why automate the invoice approval workflow?

Read on to understand the invoice approval process.

Looking to automate the Invoice Approval process? Give Nanonets™ a spin for higher accuracy, greater flexibility, post-processing, and a broad set of integrations with other Accounting, ERP systems & more!

The operation of the Accounts Payable (AP) department in a business, be it product- or service-oriented, is critical for the productivity of the company and for the maintenance of good supplier relationships. An efficient AP department that provides financial, administrative, and clerical support to the purchase process of a company, must have an organized system that seamlessly integrates the various functions of the procure-to-pay process that spans purchase order management, vendor communication, invoice management, product tracking, and payment.

Invoice management that commences when an invoice is received by a company and ends with the payment of the invoice, is one of the most important functions of the AP department of the company.  As simplistic as it may sound, invoice management is not, or should not be, a two-step process of ‘receive invoice, pay invoice.’ This is especially true for companies that make a lot of purchases and end up with a large number of invoices. A good invoice management protocol must necessarily involve verification of the legitimacy of all invoices and multi-level approvals before they can be processed for payment.

The invoice approval workflow

The invoice approval workflow is a cascade of steps in the procure-to-pay process that are taken to ensure that an invoice received by the company is legitimate and matches the order made. The invoice approval involves multiple levels of checking by personnel responsible for a purchase order and/or a vendor.  Each company can have its own unique approval workflow

A typical invoice approval workflow comprises the following steps:

An invoice arrives at a company. The invoice may be in the form of a hard copy, or a PDF attachment or a more advanced form of a digital invoice, that must be filed in the appropriate section for processing.

• Invoice validation: Once filed, the invoice is linked to any other documents related to that particular transaction such as purchase requisition, purchase order, the quotation from the vendor, other communication from the vendor, etc. This is commonly referred to as “three-way matching”, the three documents to be matched being Purchase Order, Invoice, and Delivery receipt, but matching may include other documents as well. Other factors to consider for validation include:
  Are the payment terms matched?
  Are any promised discounts included?
  Has the invoice been coded to the appropriate expense accounts?
  Are there performance issues post receipt that warrant withholding payment?
• Invoice exceptions: An exception is raised when an invoice has incomplete or incorrect information. The invoice is rerouted to appropriate employees to track and correct the error. This is followed by invoice re-issues, re-verifications, and matching in case of error correction, or fraud investigation in case of unresolved exceptions.
• Approval: Once verified, the invoice is routed to personnel at various levels depending upon the policies of the company. The number and nature of approvals varies between companies, departments, product type and invoice amount. As an example, the purchasing department may have to approve an invoice to confirm the accuracy of the vendor’s billing before payment can be processed. Some companies require invoice amounts higher than a threshold to require additional approvals from a manager or CFO.
• Payment: The invoice enters the payment queue after all approvals have been obtained.

Many small and mid-sized companies continue to have manual invoice approval workflows. These may involve actions as rudimentary as having a word processing document à la an SOP, with delineated steps and distribution of the document to the various participants of the workflow to be used as a guide.  This is, as can be imagined, a disorganized process that requires the participants to keep referring to the document following the steps, which may lead to errors.

In many small companies, there is not even such an SOP and there is just a general procedure that is passed on word-of-mouth to the various participants, which is a recipe for disaster when the company undergoes any form of alteration, be it scaling up or changing its employee base.

Looking to automate the Invoice Approval process? Give Nanonets™ a spin for higher accuracy, greater flexibility, post-processing, and a broad set of integrations with other Accounting, ERP systems & more!

Problems with the manual invoice approval workflow

Some of the specific challenges of manual invoice approval workflow are:

• Errors: Human errors due to overwork or simply oversight can lead to double payments, underpayments, delayed payments or missed payments, all of which can cost the company more money and time.
• Missing documents: Paperwork can result in misplacement and loss of important documents like invoices. This can lead to a plethora of issues across the accounting payable cycle, starting with friction with the vendor to delayed operations.
• Wastage of human effort: Manual approval processes waste human effort that can be more constructively employed in more productive activities.
• Time delays: When several approvals are required for an invoice to be approved, and when the company deals with multiple invoices over the course of its business day, just obtaining approvals before processing the invoice can be time-consuming. Up to 20% of invoices regularly contain incorrect or incomplete information, and a manual invoice approval workflow results in the AP department spending 25% of its time resolving issues and tracking down missing information.
• Delayed Payments: Delays in getting approvals may in turn lead to delays in payments, which may, as mentioned earlier, be costly to the company. In the US, $3 trillion was tied up with late payments among small businesses in 2019, which led to hiring pauses, inventory purchase limits and a reduction in employee hours to make ends meet. Delays can also snowball into late receipts of ordered items, poor credit rating, poor relationships with vendors and fees/fines.
• Opacity of the invoice path: It is difficult or even impossible to track the status of an invoice in its path of validation and approval, which makes backchecking and fore-planning difficult.
• Fraud vulnerability: Invoice fraud may be third-party fraud, labor mischarging, duplicate payments due to delays, or internal. A watertight approval process is required to prevent fraud. This is especially true during crisis times. For example, the Covid-19 pandemic reportedly increased the incidence of invoice fraud in 2020. Invoice frauds may manifest as abnormal invoice volume, unaccountability of goods versus invoice, discrepancies between PO and invoice, and dubious employee behaviour. These cannot be manually detected, especially when the business volume is high.

Automation of the invoice approval workflow

Automation of invoice approval can help ease the process and save time. Some of the advantages of invoice approval automation are:

• Faster validation: This is perhaps the most important benefit of automation. Automated comparison of the invoice with other related documents can eliminate the time delays associated with manual three-way matching since all documents related to one transaction are digitally stored in the same place and can be easily compared either visually or through an AI based software. Automated invoice approval workflows can be integrated with databases and other accounting systems for automatic matching without human intervention.
• Faster approvals: Automated notifications and reminders can eliminate delays in invoice approvals. The integration of electronic signatures and digital forms can enable on-the-go approvals from different participants of the process so that physical absence from the office would not delay the approval process.
• Cost savings: A 2018 report by Levvel (formerly Paystream Advisors) showed that missed discounts (44%), late payments (39%), and duplicate payments (29%) were the main invoice processing concerns in businesses, and all three can be overcome using automation.
• Accountability: Automated tracking of transactions in real-time allows visibility on the status of the invoice in the approval chain. The inclusion of contingencies and reminders into the workflow can eliminate roadblocks and allow transparency for faster approvals. Automation of the approval process also creates an audit trail that shows the various levels of approvals that have been completed and those levels that aren’t.
• Document safety: Digitization of all documents as part of the automated invoice approval workflow can prevent loss of documents commonly associated with physically moving the document around the company for validation and approval. Automation allows integration of the workflow with the company’s document management system and other bookkeeping tools for automatic updation and archiving of records.
• Regulatory compliance: Automated invoice approval workflow enables easy access to all relevant data during audits, which eases regulatory compliance.
• Better business intelligence: Automated invoice approval workflows can enable easy access and assessment of purchase data and spending, thereby allowing better reporting mechanisms and decision making.
• Better vendor management and relationship: Systematic organization of invoice approval processes can help in better vendor management and the obviation of delays in payment can benefit vendor relationships.
• Elimination of fraud: Automation of the invoice approval workflow can eliminate fraud by allowing checks across the workflow and increasing visibility. Irregularities can be automatically flagged during the automated three-way match and electronic signature verification can prevent both internal and external frauds and associated losses.

Looking to automate the Invoice Approval process? Give Nanonets™ a spin for higher accuracy, greater flexibility, post-processing, and a broad set of integrations with other Accounting, ERP systems & more!

Fully automated invoice approval process

• Invoice digitization: Invoices in various format must first be digitized into a standard format. Since each invoice holds key data that are used in accounting resource planning, and decision-making within the business, accuracy in data extraction is essential. The data that’s read from invoices are usually then transferred to ERP, accounting, or data analytics platforms used by the company for subsequent processing.
• Automated validation: Automated three-way matching can capture pertinent data from invoices, POs, and receipts and auto-process them in a way that mimics the human mind. Of them, the AI-enabled processing can also compare and match records and make decisions such as passing the transaction, flagging errors or raising exceptions.
• Automated exception handling: When errors are flagged or exceptions raised, the invoice is immediately routed to appropriate personnel who can fix the errors. This can reduce time delays that are associated with manual error handling.
• Automated approvals: After matching and validation, the invoices are automatically transmitted to the appropriate personnel for approval. Application of digital signatures and approvals in digital form can prevent delays.
• Process payment: After approval, the automated system forwards the invoice to the finance team for payment processing after which the transaction is closed and the data is archived.

Companies that seek to adopt automated invoice approval workflow systems must consider the following factors in choosing the tool for it:

• The infrastructure and IT resources required to support the software
• The financial commitment involved in setting up and running the system
• Integration with other systems within the company
• The levels of automation and human intervention required/possible within the business
• Availability of know-how within the company and customer support from the maker of the software
• The levels of data security required
• The level of access – this would decide where the data would be stored – in a local machine, a central server or the cloud.

Nanonets for automated invoice approval

The AI-based Nanonets OCR engine can help you automate invoice processing and make it a hassle-free process. It supports a variety of file types and handles both structured and unstructured invoices. The invoice OCR API of Nanonets can help minimize the manual tasks of data entry into your accounting software.

Data can be automatically uploaded, annotated, and model trained for predicting without a single line of code, worrying about GPUs or finding the right architectures for your deep learning models. You can also acquire the JSON responses of each prediction to integrate it with your own systems and build machine learning-powered apps built on state of the art algorithms and a strong infrastructure for invoice management and approval.

The Nanonets technology supports integrations with other systems such as integration to a Mysql database, QuickBooks, or Salesforce and is platform agnostic. Nanonets is accurate and scalable, saves time and money for your AP department and supercharge your invoice approval process thereby strengthening vendor relationships.

Join the league of over 20,000 businesses in 4 continents in using Nanonets for your invoice management operations.

Looking to automate the Invoice Approval process? Give Nanonets™ a spin for higher accuracy, greater flexibility, post-processing, and a broad set of integrations with other Accounting, ERP systems & more!

Conclusion

The advantages of digitization of the financial aspects of a company’s operations are increasingly being recognized by businesses. This has necessitated the adoption of automation in workflow structures. Automation of the invoice approval workflow can help companies spend less time on mundane activities such as manual invoice management and instead focus on their core competencies to improve bottom line and stay competitive.