Invoice Approval

Definition

Part of the invoice processing workflow, invoice approval is the process of obtaining verification that an invoice is a legitimate payment before accounts payable disburses the funds. In other words, invoice approval is a checklist that verifies the authenticity of an invoice. A checklist of tasks include matching the invoice to its corresponding purchase requisition and routing the invoice to an individual outside of accounts payable for payment approval.

Separation of duties is a standard internal to accounts payable. In other words, different individuals ensure that documents are processed—meaning they are submitted, approved, paid and reconciled—with visibility. It’s one of the reasons why approvals for invoice payment comes from departments or individuals outside of accounts payable—having separate people approving and issuing invoice payments can prevent issues like fraud from occurring.

Invoice approval is also connected to the business practice of three-way matching. Each payment should be verified with three documents—a purchase order, order receipt or packing slip, and an invoice. Ensuring that an invoice is approved with supporting documents will help business identify financial discrepancies sooner rather than later.

Best Practices

Invoice approvals are necessary for ensuring accuracy and visibility in payment disbursements, but the approvals should not hinder the workflow. Here’s what to keep in mind when setting up an invoice approval workflow in your invoice payment process:

  • Obtain invoice approvals early in the process. After an invoice arrives, make three-way matching the first task for invoice approval. The supporting documents—the purchase order and order receipt—should all reflect the same payment agreement with the payee or the seller.
  • Establish invoice approval rules when specific approvers are not available. For example, if an approver is on vacation, accounts payable can establish that the individual must have a temporary approver in place. The temporary approver depends on the role or the position, not the name of an employee.  Too many approvers can bottleneck the payment process.
  • Follow the separation of duties. Having different people submit, approve, and pay an invoice is a best practice for internal controls within accounts payable.
  • Implement tech solutions to eliminate manual tracking. Automation can handily identify missing approvals—from matching documents to authorized signatures—and assist in gathering the missing approvals, thus increasing the visibility of the invoice approval process.

Data Points

Source: Info to Image

BoldCFO is about transforming finance operations to grow your business ©