Invoice Approval Workflows

Intelligent Invoice Approval Workflows

If you are reading this article because you suspect that the way your company handles invoices, approvals and spend management is not optimal – then you are most likely right and you are exactly right here.

You probably work in the accounting department of your company, or maybe you are an employee with personnel and budget responsibility and are annoyed month after month by slow and error-prone invoicing processes for almost all purchases, purchase of services, invoicing of freelancers & Co. These delay monthly, quarterly and annual financial statements and make them unnecessarily a mammoth task.

The (un)calming news: This state of affairs has unfortunately become so habitual that everyone involved accepts it tersely – because it has always been done that way. Internal financial processes are annoying and cumbersome – but they have to be done to keep the business running. You are willing to work overtime for this and you feel heavenly relieved when the last missing invoice is finally entered and the last spent euro is allocated in the budget.

Now let’s play a thought game: Wouldn’t it be nice if everything ran a little more smoothly?

Smart workflows for invoice approval – what do you need to consider?

In this article, we deliberately refrain from chasing you, the reader, through the painful grievances in financial processes once again. If you don’t want to miss out on this unpleasant trip, please also read our article on the 10 biggest time wasters for finance employees.

However, it is still true that every incoming invoice in companies is subject to approval and verification processes before the invoice can be paid and posted. However, this could be somewhat different if you were working with purchase orders  – a process that will save you numerous steps in traditional invoice verification.

As long as this is not the case, invoice verification or invoice approval follows an often opaque procedure in several steps, which, however, must cover the following points in any case before the accounting department can execute the payment and post the amount. Different people are also responsible for these verification steps.

Manager/Purchaser: Checking whether the invoice is factually correct – i.e. whether the invoice receipt corresponds to the actual scope of delivery. Are the delivered goods flawless or does a service provided meet the specified requirements?
Manager/Purchaser: Checking whether the invoice amount is correct and whether it includes any negotiated rebates (discounts) or similar.
Accounting: Assignment of the invoice to a cost center/cost unit, if this is not otherwise noted or has already been communicated.
Accounting: If not already done: Submit invoice to a responsible manager for approval.
Accounting: Check whether the invoice is formally correct and all necessary data are listed

In the final step, a strategic aspect comes into play that is often ignored but can be of enormous importance:

Cash flow check: Checking whether payment deadlines can be deliberately used to better meet budget targets and positively influence cash flow. Here it is particularly practical if transfers can be scheduled in advance and then automatically triggered on the corresponding date. It is even more practical if the costs can also be made immediately visible in the budget plan as “allocated” or “assigned”. Full transparency!

Unfortunately, very few companies have a defined process, a.k.a. a workflow, for the aforementioned points, to which all persons involved can adhere. The individual test steps happen in isolation and communication about them is not recorded in a uniform or transparent manner. Who is supposed to keep the overview when some things are “managed” by mail, others by phone and enormously important ones even via Post-Its? You guessed it, or you know it painfully from your own everyday work: no one.

Why and when do invoice approvals make sense?

In small companies, more complex structures for approval processes are rarely necessary. Here, the invoice is checked by the person responsible and then paid – done. But what happens if, for example, the person who buys or orders does not pay themselves because their employer does not give them the means to do so? Here, the process of invoice processing becomes more complex, because several people are involved.

In any case, it is important that the person who takes care of the finances knows that an invoice is correct according to all checkpoints (see above), so that the posting can be made. Conversely, this means that the longer the check takes, the longer the accounting department is blocked. This can sometimes also lead to legal problems if payments are not made on time.

The following scenarios are conceivable, among others:

An order has been placed, but the invoice has not yet been paid.

An employee has placed a more expensive order on behalf of the company or his/her department, e.g. for a new printer. The invoice for this arrives in the accounting department via the central invoice receipt. Depending on the structure of the company, this would now have to be determined, in addition to checking whether the goods were delivered properly and the invoice is formally correct:

  1. Whether a corresponding release already exists or existed for the order.
  2. Who ordered and who released the order
  3. Which cost center or cost unit the invoice must be assigned to
  4. Which payment periods are available and whether discounts are associated with them.

These steps must be gone through at least before a decision can be made whether and when the invoice must be paid or, in the worst case, the delivered goods must be returned. Of course, many companies have internal agreement processes, communicate approvals via e-mail or Excel spreadsheets in order to avoid such worst cases – however, the scenario described is not flawless in the accounting sense. You can read more about how things could be better below. First, another possible case. Does an invoice release still make sense here?

An order has been placed and the invoice has already been paid

Whether online or offline – often there is no option to purchase on account and the liability must be settled immediately. Once the money is spent, does anyone need to approve the invoice or is it too late for that? After all, the transaction has already taken place. Nevertheless, the accounting department also needs to know whether the purchase has been approved and can be assigned to an account, along with the other formal check points. Of course, it is especially time-consuming if it is only now that it is discovered that the purchase was not agreed upon, for example, and the business transaction must be reversed.

Unknown, false invoices appear

Unfortunately, it often happens that false invoices are sent to companies with criminal intentions. With the claim that one has registered for a service (e.g. an online tool), one receives an invoice for sometimes high amounts – often immediately with the threat of consequences in case of non-payment. If such an invoice is paid carelessly, there is quickly a hole in the budget. That is why it is so important to work through every point of the invoice verification. At the latest when it is clear: No, no one has registered for the invoiced service or similar, the accounting department can put a stop to it.

Invoices are paid twice unintentionally

Unfortunately, it still often happens that companies pay invoices twice. For example, when several people work in accounting and process invoices. If an invoice comes in on two channels, it can happen that it is completely processed by two people in parallel and paid in the end. The effort to reclaim the amount can drag on for weeks, in rare cases the money is even completely gone. This brings a huge chaos into the business books – all due to lack of communication and carelessness.

Intelligent workflows for invoice approval – what could that look like?

These four scenarios, while possibly exaggerated, play out every day in companies. And even if approvals are communicated in principle, the processing of a single invoice takes around 18 hours on average – or even weeks in the worst case. In addition, communication and documentation often take place via different media, which means that important information can get lost and the time required increases yet again. The solution:

Reduce the number of tools you need for invoice processing.

Time expenditure and susceptibility to errors increase the more interfaces and media breaks are involved in a process. Data has to be transferred back and forth, and related communication takes place elsewhere, possibly even only verbally. However, there are now good solutions for integrated, clear financial processes, such as the enormously important invoice processing. A software for spend management can map the entire process from invoice receipt to preparatory accounting and export to DATEV Unternehmen Online and clearly document every step.

Use purchase requests to approve purchases before ordering and payment.

A holistic invoice processing tool also offers the ability to have planned purchases approved first (and also compare offers) and have the necessary funds (e.g., a virtual credit card) made available to you. This has lots of benefits. In detail, we explain them in this article. In short:

  • Erroneous orders are a thing of the past.
  • The requested expense can be immediately considered in the department’s budget planning (finway also maps this, for example).
  • The purchase request is later matched with the invoice and the debit of your account or the credit card used.
  • The tool reminds you to upload the corresponding invoice.

This way everything is secured in one place and no information is lost. And if, as in the third scenario described above, an unknown invoice pops up, you can find out immediately: There is no purchase request for this – something is wrong!

Set spending limits and approvers to further automate your invoicing processes.

Do you and all your colleagues always know who to ask when you need to make a purchase? This often depends on the amount of the purchase, and this is exactly what you can pre-define in a software like finway. For example, you can set it up so that colleague Mr. Meyers doesn’t need to get any further approval for purchases up to amount X (for example, 100€), but for purchases over 100€, he first needs the approval of his department head Mrs. Miller, and for an amount over 10,000€, the upper management has to give their OK.

Retire your corporate credit card and rely on individual virtual or physical debit cards instead

A lot of time and effort also comes from companies using a single card or account to handle their expenses, which makes matching invoices and receipts a complicated affair. Spend management software allows you to process individual expenses or subscriptions (e.g. software subscriptions) through a specially issued card that is linked to your account or so-called “wallet”. With this process, there really are no questions left unanswered. Please also read our article on virtual credit cards, where we explain all the advantages in detail.