Invoice Approval Process Best Practices to Modernise Your Accounts Payable

AP approval channels are either poorly defined or lack the technology to be managed effectively. This leaves organisations more vulnerable to fraud and abuse. For example, an Oregon employee embezzled USD$4.5 M out of a company over the course of 15 years by approving fraudulent invoice payments into her personal account. Practices such as having the same person approve invoices and payments can make it easier for any business to fall victim to fraud. Since approvers play a critical role in controlling the flow of finances, it is important to pay attention to their efficacy. 

Approval channel best practices

Approval channels are rules used to designate invoices, purchase orders, expenses, and payments to managers or team leaders for approval. But when an AP workflow is manual, these sometimes break down and lead to manual errors. Even more dangerously, these workflows can be tampered with or falsified, leading to an increase in fraud. 

Organisations can use Quadient AP to set up the following approval channel best practices: 

• Create multi-level approvals: set up at least two levels of approval. You could also categorise this by setting up a dollar threshold, for example invoices above £1,000 go to two different approvers. Some systems allow you to modify this flow so that an invoice can only proceed for payments after both approvers have approved.
• Separate approvals for invoices and payments: the person who approves invoices should not be the same person who approves payments. This double verification will help prevent risk, flag fraudulent activities, and protect company funds. 
• Formalise your approvals matrix: document a formal organisational structure of your approval channels and follow that. They should clearly define the approver, the timeline for approval, the back-up approver, and the second-level approver (as applicable) for every workflow.
• Segregate duties: GAAP (Generally Accepted Accounting Principles) recommends segregation of duties for accounting best practices. Separating duties prohibits acquisition of financial decisions by one person.
• Build a PO (purchase order) approval workflow: set up internal rules for making a purchase before placing an order. You can start by creating a requisition for internal approval that gets authorised by a manager or finance department, and is then sent to the supplier. Various workflow management systems allow setting up trigger-based actions to manage purchase orders.

Approval channel automation

• Restricts unauthorised access: only authorised approvers can check status, history, previous reports, and approve an invoice or payment.
• Customised routing: invoice can be routed based on location, department, project, vendor etc. You can create an electronic audit trail of all approval steps completed for every document.
• Approval sub-sets: CFOs can create sub-sets or a criteria for certain types of invoices. Companies can modify this flow further so that an invoice is only approved when all approvers have reviewed and accepted.

We often hear about constantly updating processes to keep our business competent, yet continue to “make-do” with antiquated systems. Sometimes even a minor change can lead to a larger impact. General Electric mentioned that a 1 percent improvement in oil recovery was worth 80 billion additional barrels per year – an equivalent of billions of dollars in additional revenue. At a time when the financial arm of a business is more important than ever, we recommend investing in approval process management. It can help you reduce costs by eliminating inefficiencies, keep your team focused on more strategic work, and safeguard the spend of your organisation. Additionally, obtaining an end-to-end AP automation solution and integrating it with your existing ERP systems such as Sage, QuickBooks, Netsuite, Xero, or Microsoft Dynamics can further streamline processes and provide a holistic view of your financial operations.