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Approving invoices is a key process for AP departments. All invoices received by an organization must be efficiently reviewed, and approvals should be granted from relevant authorities before payment is disbursed to vendors.
Invoice approval is the process that AP departments use to review and approve invoices sent by vendors. Once a vendor sends an invoice, either via post or by email, the invoice approval process begins. The invoice passes through a series of internal controls set by the business, often involving reviews of associated documentation such as purchase orders or requisition forms.
Information on the price is matched with associated documents before the invoice can be approved. If the invoice does not automatically match, it leads to an exception.
In manual AP departments, the invoice approval process is often long and protracted. It ends up consuming significant resources and work hours, often requiring AP staff to manually review each document or contact suppliers.
Paper-based invoices are tedious and lead to cost inefficiencies, which is why most companies are now automating the invoice approval process.
The invoice approval process often varies from company to company, including the number and strictness of internal controls in place before invoices are approved for payment. However, here’s how the process generally works.
The process formally kicks off when the invoice is received by the company. This could be either through an AP automation solution, or the supplier may send a paper-based invoice. The AP team reviews the invoice to ensure relevant information is added.
Once the invoice is reviewed for completeness, it is then matched. Three-way matching is often the best way to determine whether the invoice is accurate or not. Three-way matching involves comparing the invoice with other documentation including the Goods Received Note (GRN) and the purchase order (PO).
This confirms that the organization placed the order with a vendor and received the goods as well.
Once the invoice is matched, it is then sent for approval to the relevant authority. This could be a procurement manager or any one who is in charge of approving vendor payments.
Once the payment is made, a corresponding entry is made in the relevant journals, reducing accounts payable and cash simultaneously.
Companies can reduce inefficiencies by automating the invoice approval process. Advanced solutions, like SoftCo’s AP Automation software automatically route invoice approvals to relevant authorities quickly and efficiently.
More importantly, since the entire process is automated, it reduces inefficiencies and the potential for transcription errors. This improves visibility in the accounts payable process, and reduces the time it takes to approve invoices, ultimately resulting in better vendor relationships.