Payment approval process: Workflows, examples, and tips

Approving payments should be simple—yet many businesses struggle with slow approvals, lost invoices, and unnecessary bottlenecks. Manual reviews take too long, unclear approval rules cause delays, and a lack of visibility makes tracking payments difficult.

This guide breaks down the payment approval process step by step, highlighting common challenges and strategies to help businesses keep payments moving without delays.

What is the payment approval process?

It prevents errors, fraud, and duplicate payments while keeping financial records accurate. Without a structured approval process, businesses risk cash flow disruptions and unauthorized spending.

The benefits of an optimized payment approval process

When approvals are inefficient, businesses deal with delayed payments, frustrated vendors, and financial inconsistencies. A streamlined approval process prevents those issues, improving:

• Fraud prevention: Approval workflows stop unauthorized payments.
• Cash flow management: Paying invoices on time (but not too early) keeps finances balanced.
• Operational efficiency: Automation speeds up approvals, reducing manual work.

A well-structured payment approval process keeps business finances under control while ensuring vendors get paid on time. The more seamless this process is, the fewer financial surprises a company faces.

How does the payment approval process work?

Not all invoices follow the same approval path—factors like invoice amount, vendor relationship, and accounts payable policies determine the steps involved. But the goal remains the same: to ensure every invoice is accurate, authorized, and paid on time.

Here’s a step-by-step breakdown of how the payment approval process works:

Step 1: Invoice receipt and verification

The approval process begins when an invoice is received—whether by email, mail, or directly into an AP system. Before it moves forward, the AP team verifies key details to prevent errors and duplicate payments.

This step involves verifying the invoice against a purchase order and receipt (if applicable), confirming the amount, vendor details, and due date, and checking for duplicates to prevent overpayments.

If everything aligns, the invoice moves to the next step. Any discrepancies—like pricing errors or missing documentation—are flagged for resolution before approval.

Step 2: Expense coding and initial review

Before an invoice moves forward, it must be categorized properly in the company’s accounting system. This process, known as expense coding, ensures payments are recorded under the correct accounts and appear accurately in financial reports.

At this stage, the AP team:

• Assigns a general ledger (GL) code based on the expense type
• Reviews whether the invoice complies with company payment policies and budget guidelines
• Confirms that the vendor’s payment terms align with cash flow strategies
• Determines if additional approvals are required before payment is scheduled

Accurate expense coding prevents misclassified expenses, supports financial reporting, and ensures payments stay within budget.

Step 3: Approval routing

Not every invoice is approved the same way. The approval process varies depending on company policies, invoice amount, and expense type. Some invoices may need just one sign-off, while others require multiple layers of approval.

A typical approval flow looks like this:

• Low-value invoices: Approved by a department manager.
• Mid-range invoices: Reviewed by finance or an AP supervisor.
• High-value invoices: Require executive or CFO approval before payment.

Approval workflows prevent unauthorized spending and ensure that the right people have visibility into company expenses. Many companies automate this step by using AP software that routes invoices to the correct approvers based on predefined rules.

Step 4: Final approval and payment scheduling

Once an invoice is fully approved, the AP team schedules the payment, considering factors like due dates to avoid late fees or secure early payment discounts. They also determine the best payment method—ACH, wire transfer, check, or virtual card—while ensuring that large payments are timed strategically to maintain cash flow stability.

This step helps keep vendor relationships strong and ensures payments align with the company’s financial planning strategies.

Step 5: Payment execution and recordkeeping

After approval, the invoice moves to payment processing. The AP team initiates the payment and updates records in the company’s accounting system to reflect the transaction.

This final step serves two important purposes:

1. Maintains an audit trail: Every payment is recorded, ensuring transparency and compliance.
2. Prevents duplicate or missed payments: Keeping payment records up to date helps businesses avoid errors.

By the time an invoice completes the process, it has gone through multiple layers of review, ensuring payments are accurate, authorized, and in line with company policies.

Common challenges in the payment approval process

Even with a structured approval system, businesses run into obstacles that slow down payments, increase compliance risks, and create inefficiencies. Here are the most common roadblocks:

• Manual processing delays: Without an automated system, approvals rely on paper invoices, email chains, or spreadsheets—all of which slow down processing. Payments can take days (or even weeks) to clear if invoices get lost or misplaced.
• Limited visibility and tracking: Without a centralized system, it’s difficult to monitor payment statuses, identify bottlenecks, and track outstanding invoices in real time
• Approval bottlenecks: Some invoices require multiple authorization levels, especially for large payments or new vendors. Without a clear approval structure, invoices may sit with a single approver for too long, delaying payments.
• Fraud risks and compliance gaps: Weak internal controls increase the risk of unauthorized payments, duplicate invoices, and non-compliance with audit and financial regulations
• Poor cross-department communication: Finance, procurement, and operations teams may lack a streamlined process for approvals, leading to delays and missed payment deadlines

3 strategies to improve your payment approval process

Improving the payment approval process comes down to eliminating inefficiencies, increasing transparency, and reducing risk. The most effective strategies focus on automation, structured workflows, and real-time visibility.

1. Automate invoice approvals

Manual approval workflows slow down processing, increase the risk of errors, and create unnecessary bottlenecks. AP automation eliminates these issues by streamlining invoice approvals, reducing manual intervention, and improving processing speed.

Automation tools allow businesses to:

• Route invoices automatically based on predefined approval hierarchies, ensuring the right people review each transaction.
• Extract key invoice details using AI-driven optical character recognition (OCR), reducing manual data entry errors.
• Trigger real-time alerts for pending approvals, keeping payments on track and avoiding delays.

With automation, businesses can reduce approval time from days to hours, prevent overlooked invoices, and maintain better control over outgoing payments.

2. Define structured approval workflows

A disorganized approval system leads to delays, inconsistencies, and confusion over who approves what. Establishing structured approval workflows ensures payments move efficiently while maintaining necessary oversight.

To create an effective workflow:

• Set clear approval limits: Define which payment amounts require single vs. multi-level approvals to avoid unnecessary slowdowns.
• Standardize the process across departments: Ensure finance, procurement, and operations follow the same approval rules.
• Use conditional approvals: Automate approvals for low-risk, low-value invoices while flagging high-value or non-PO invoices for additional review.

A well-structured approval process prevents unnecessary bottlenecks while keeping financial controls intact.

3. Enhance visibility with real-time tracking

Without real-time visibility into approvals and payment statuses, businesses risk delayed payments, cash flow disruptions, and compliance issues. A centralized tracking system ensures that every invoice can be monitored at each stage of the approval process.

Key benefits of real-time tracking include:

• Instant status updates: Finance teams can see which invoices are pending, approved, or overdue at any moment.
• Faster issue resolution: Missing approvals or discrepancies can be identified and addressed immediately.
• Improved financial planning: Businesses gain better control over cash flow by knowing exactly when payments are scheduled.

By integrating payment approvals with ERP or AP automation software, businesses can eliminate guesswork and maintain full transparency over their financial processes.

How business size affects the payment approval process

While the core steps of payment approvals remain the same, the way businesses implement them varies based on company size, structure, and financial complexity. Small businesses prioritize speed, mid-sized companies balance efficiency and control, and large enterprises focus on automation and compliance.

Small businesses: Fast but prone to oversight issues

Small businesses typically approve invoices quickly because they have fewer vendors and simpler financial processes. However, without defined approval structures, errors, missed payments, and fraud risks increase.

Key differences include:

• Approvals are often informal, handled by a single person or a small finance team.
• Manual tracking is common—spreadsheets, emails, or basic accounting software.
• Payments are processed as invoices come in, without strict budgeting controls.

Here’s what you might face and how to address them effectively:

• Lack of oversight: Implement basic approval rules like requiring a second review for invoices above a set threshold
• Manual tracking delays: Use entry-level AP automation to streamline invoice organization
• Missed payments: Set up reminders and payment scheduling tools in accounting software

Mid-sized companies: Balancing speed and control

As companies grow, invoice volume increases, requiring a structured approval workflow. Mid-sized businesses need to prevent bottlenecks while ensuring financial accountability.

Key differences include:

• Approvals follow a tiered structure—small invoices move quickly, while larger ones require finance or executive review.
• AP automation is introduced to handle invoice routing and reduce manual workload.
• Departmental budgets matter—teams must get approvals based on predefined spending limits.

Here’s what you might face and how to address them effectively:

• Approval delays: Define clear thresholds for automatic approvals vs. manual reviews.
• Lack of visibility: Integrate AP software with ERP systems for real-time tracking.
• Data silos across departments: Standardize invoice processing in a single, centralized system.

Large enterprises: Complex, compliance-driven workflows

Enterprises manage thousands of invoices across multiple locations and departments. This requires strict approval controls, automation, and compliance measures.

Key differences include:

• Approvals involve multiple stakeholders—procurement, finance, legal, and C-suite executives
• ERP-integrated systems ensure invoices follow regulatory requirements and budget controls
• Advanced AP automation uses AI for fraud detection, duplicate invoice flagging, and compliance enforcement

Here’s what you might face and how to address them effectively:

• Slow approval times: Optimize workflows with automated routing and parallel approvals
• Regulatory compliance risks: Enforce audit trails and multi-level sign-offs for high-value transactions
• Global vendor complexities: Use multi-currency, tax-compliant payment processing tools

Simplify your payment approval process with Ramp

Without a structured workflow, businesses risk delays, errors, and unnecessary financial exposure—but with the right tools, approvals can move seamlessly while keeping financial controls intact.

Ramp simplifies accounts payable and payment approvals by automating invoice processing, enforcing structured approval workflows, and providing real-time visibility into outstanding payments.

With Ramp, you can:

• Automate invoice approvals to eliminate manual bottlenecks and speed up payment cycles
• Set custom approval workflows based on transaction size, department, or vendor policies
• Gain real-time tracking and insights to prevent delays, duplicate payments, and compliance risks

Investing in a flexible, high-performing accounts payable tool means faster approvals and fewer errors. Get full control with Ramp Bill Pay.