When the purchase invoices reach the buyer company, it is almost never a one-step process to get them ready for payment. Often, invoice approval is seen as a complex series of actions that could happen over days, weeks, or even months.
An invoice approval workflow refers to a series of steps that an organisation follows for clearing the vendor invoice. An invoice approval workflow acts as a checklist to ensure that there are no inconsistencies or mismatches, and that the invoices are paid on time.
An invoice approval workflow includes the review and approval of invoices before the payment for the same is processed. Typically, the invoice approval workflow starts when an organisation receives a vendor invoice, it is then checked and reviewed by the purchasing department. After verifying the details of the vendor invoice, it is then sent to the accounting department for further processing and consequent payment.
While the invoice approval workflow could differ from company to company, it generally includes the below-listed steps:
Step 1. Capturing the invoice details – Before an invoice can be processed, all the relevant details mentioned in the invoice must be captured in the organisation’s enterprise resource planning (ERP) or accounting system. An automated solution like Clear Capture can help digitise the invoices in a custom format as required by the organisation and ensure that only 100% correct & compliant invoices are posted.
Step 2. Validating the invoice – The next step is to validate the invoice. This process involves identifying and linking the related purchase documents such as purchase orders, purchase requisitions, order receipts, and more. This also includes validating the invoice fields with the government GST data.
Step 3. Defining exceptions – When an invoice fails the validation stage due to missing information or any discrepancy, they are forwarded to a specific team to follow up with the vendor and fix errors and again reroute it for approval.
Step 4. Routing invoice for approval – Once an invoice is validated and matched to the related purchase documents, it is routed to the specific approvers for approval and subsequent payment process. The approval hierarchy differs from organisation to organisation and from department to department. Some follow a linear chain of approvals, while others follow direct approvals from concerned departments based on the type of document.
Step 5. Process payment – Once the invoice is approved, it is forwarded to the finance team for processing the payment. Once the invoice is processed and paid, the invoice is closed.
An invoice approval workflow process could become time-consuming and cumbersome. As the number of invoices increases, it gets difficult for an organisation to keep up and process every invoice on time.
Here are some of the challenges faced by an organisation in the invoice approval process:
Manual errors – No matter how reliable an organisation’s personnel are, human errors could never be avoided totally. Such manual errors could lead to overpayment, underpayment, and several other problems which could cause financial and legal troubles for an organisation in the long run.
Vulnerability to fraud – Fraudulent billing is among the key challenges faced by an organisation’s accounting department. From invoices that don’t match the expenses to manually tampered invoices, fraud is the biggest problem when an organisation follows a manual invoice approval process.
Slow approval process – Manual invoice approval processes are time-consuming and could lead to payment delays that, in turn, affect the relationships with the vendors. After all, when a supplier provides timely products or services, it could be frustrating to go through long payment delays.
For a business, irrespective of its industry, the invoice approval process is a challenging yet crucial part of doing business. However, the good news is that the invoice approval doesn’t need to be time-consuming, complex or costly. With a proper invoice approval tool, organisations could organise and process invoices in a timely and accurate manner.
Digital invoice approval workflows could handle invoice management extremely well. These tools could classify and identify invoices, extract key details (GSTIN, invoice number, PO number, invoice amount, taxation related details etc.), validate such information, automatically route invoices to the correct approver, and allow seamless exchange of data with software like ERP systems, accounting solutions, and more.These invoice approval solutions offer data capture with integration capabilities (Clear Capture), contract management and automatic routing in a single platform. With such an automated system, organisations eliminate paperwork, minimise manual errors in collecting and retrieving data, accelerate invoice approval cycle, and reduce payment process delays.