Invoice approval software: Setting up automated workflows

‍Levvel Research highlights the top three concerns for accounts payable (AP) teams in invoice processing:

• Missed discounts (44%)
• Late payments (39%)
• Duplicate payments (29%)

These issues can cost companies significantly, with U.S. small businesses losing $3 trillion in cash flow due to delays. Traditionally, invoice approval has been a manual, time-consuming process prone to these delays and errors. Manual invoice processing drains time and resources, hurts cash flow, and strains supplier relationships.

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However, automating AP workflows changes that mundane process by speeding up approvals, centralizing data, and reducing costs by up to 81% for SMBs. It’s clear that automating AP workflows with software has become a necessity. This guide covers setting up an automated workflow to make invoice approvals fast, accurate, and seamless.

What is invoice approval workflow? 

An invoice approval workflow is a structured process that organizations use to review, authorize, and approve invoices before making payments. This workflow ensures that all invoices comply with company policies, match the received goods or services, and have the proper documentation and the correct amount, terms, and conditions.

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Repetitive or automatable tasks steal over 21 days out of a year. In addition to manual efforts, 40% of productivity is consumed by other tasks like meetings, checking emails, organizing, and searching for files. With automation, you can take control of your tasks, saving you time and allowing you to focus on more strategic initiatives.

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The following key takeaways are from the survey currently available:

• 90% of office workers believe automation helps avoid errors and make quicker decisions.
• 75% of workers said automation improved productivity, collaboration, and job satisfaction.
• 80% of employees reported that automation bolstered customer relationships and allowed them to embark on complex projects.

These findings highlight the significant impact of automation on enhancing productivity and fostering a more efficient and collaborative work environment.

The AP invoice approval process: A step-by-step breakdown

Manual processes are often paper-based, making documentation and routing for validation drag out approvals, requiring multiple employees, and stretching timelines to days or even weeks. Here is a typical manual invoice approval flowchart:

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There are a good amount of steps during an AP invoice approval workflow process, but breaking it down helps to identify the importance of each step:

1. Receive invoices: The AP process starts when invoices arrive from vendors, either as PO invoices needing three-way matching or non-PO invoices needing review and two-way matching.
2. Capture invoice data: The AP team manually enters invoice data into the accounting system, with processes varying based on whether the invoice is paper, faxed, or digital. For physical invoices, this includes gathering POs and Goods Received Notes (GRNs), photocopying attachments, indexing digital images, sorting by cost center, and following up on missing information. 
3. Verify the invoice: After data extraction, verification begins with 2-way matching (invoice and PO), 3-way matching (invoice, PO, and GRN), or 4-way matching (invoice, PO, GRN, and inspection report). Non-PO invoices require 2-way matching with the GRN or inspection report.
4. Flag and correct discrepancies: If errors come up in verification, AP cross-checks details, contacts the vendor, and coordinates with procurement. These issues are common in manual workflows.
5. Approve the invoice: Approvers review invoices for policy and budget compliance, verify documentation, and request more info if needed. Once approved, the AP team prepares the invoices for payment.
6. Payment process: After approval, invoices enter payment processing, with payments made by check, EFT, or other methods based on company terms.
7. Payment reconciliation: Once paid, the AP or finance team reconciles the payment with the invoice to confirm accuracy and maintain precise financial records. Ramp automates this step to save time and reduce human errors.
8. ‍Archiving and record-keeping: The approved invoice and related documents undergo archiving for transparent, traceable record-keeping and audits.

Steps may vary by company size and policies—some workflows streamline the process, while others are more complex.

Invoice approval software vs manual invoicing

If a business is deciding between an invoice approval system and manual invoicing, a side-by-side comparison can help clarify differences in cost and efficiency.

Costs and errors

• Manual process: Manual invoice processing can be a significant cost burden, making up over 30% of accounts payable expenses due to labor, physical processing, and storage costs. Each invoice can cost between $15 and $40 and take up to 45 days, with hidden costs from data entry errors, lost discounts, and wasted time on admin tasks.‍
• Automated invoice approval software: High invoice processing costs are a significant challenge for AP teams. An automated procure-to-pay solution cuts out these inefficiencies, streamlining data collection and reducing costs. High-performing AP teams using automation save companies up to $7 per invoice, eliminating costly delays and manual errors.

Approval speed and efficiency

• Manual process: For small and medium businesses, manual invoice processing can take around 25 days and involve countless emails, follow-ups, and disputes. This slow process risks missed discounts, strained vendor relationships, and penalties.‍
• Automated invoice approval software: Automation, however, can reduce approval times to just 5 days, with built-in features like automated 3-way matching that boost both accuracy and speed.

Accuracy and reducing errors

• Manual process: According to a 2021 survey, 27.5% of companies need help with inaccuracies in manual data entry, leading to tax and accounting errors.‍
• Automated invoice approval software: With optical character recognition (OCR), automation software extracts data and matches it to purchase orders, receipts, and tolerance levels, flagging any discrepancies for review to ensure only accurate invoices are approved.

Centralized invoice receipt

• Manual process: Without a centralized receipt process, lost or missing invoices can be costly, with AP teams spending hours searching through emails and systems.‍
• Automated invoice approval software: Automated invoice approval systems centralize workflows, reducing errors and duplicates while providing real-time tracking for timely payments. It also enhances compliance, auditability, and visibility for stronger financial control.

Audit trail and compliance

• Manual process: Slow approvals lead to follow-up emails from suppliers, adding to AP’s workload and raising the risk of errors and fraud.‍
• Automated invoice approval software: AP automation enables real-time tracking by category—such as in-process, approved, or under review—and sorts invoices by due date, status, supplier, and more, making invoice management more manageable and accurate.

How to implement an efficient invoice approval workflow

Accounts payable best practices start with automation solutions. While manual improvements are possible, using a solution like Ramp removes data entry, automates tedious tasks, and enables custom approval workflows. Here are some of our best practices to follow:

Automate AP as much as possible 

AP automation solves many common challenges by reducing data entry errors and misplaced documents. Standardized templates automate document matching, lightening the AP team’s load and speeding up invoice approvals. A centralized data repository, integrated with ERP and vendor invoice management, provides complete visibility into procurement and expenses.

Choose the right components for an automated invoice approval process

Choose components that streamline an invoice approval process, such as:

• Invoice capture and data extraction: Technologies like optical character recognition (OCR) and intelligent data extraction algorithms digitize paper invoices to accurately capture relevant information and integrate it into the automated workflow.‍
• Workflow automation tools: Automation tools manage the approval process, defining steps and conditions for routing invoices through various approval levels. Stakeholders can systematically and traceably review and authorize invoices.‍
• Integration with accounting systems: Integrating automated invoice approval workflows with accounting systems ensures that approved invoices seamlessly update financial records in real-time, enhancing the accuracy and reliability of financial reporting.

Setup an automated workflow for invoice approval

Follow the guidelines below to create workflows that make invoice processing more efficient for the AP team.

1. Centralized access: Give all stakeholders central access to invoice intake, reducing follow-ups and errors.
2. Supplier invoice policies: Standardize vendor payment terms through automated workflows. Use a dedicated email (e.g., [email protected]) for invoices, require POs for invoice acceptance, and set conditions for check payments to streamline processing.
3. Smooth vendor onboarding: Automate onboarding to prevent AP disruptions, capture bank details, and track vendor spending. Ramp’s vendor management software centralizes SaaS vendor spending.
4. Implement electronic invoicing: Adopt an e-invoicing system to standardize invoices and integrate them directly into your AP system, including transactions, identification, payment options, taxes, and discounts.
5. Implement multi-level approvals: Set at least two approval levels, especially for larger invoices, to reinforce accountability and accuracy.
6. Separate invoice and payment approvals: To enhance security and reduce fraud risks, align with GAAP by keeping invoice and payment approvals separate.
7. Approvals matrix: Define approvers, timelines, and exceptions to streamline and clarify your approval workflow, reducing gaps and inefficiencies.‍
8. Integrate with accounting software: Connect AP workflows with software like QuickBooks, Sage, SAP, NetSuite, and many more to avoid duplicate data entry, speed up closing, and improve cash flow visibility and management.

How Ramp simplifies invoice approval processes with automation

Implementing automated invoice approval workflows with Ramp is straightforward. First, map out your P2P process and create corresponding approval tasks. Ramp's software, designed with robust features, ensures payments remain effortless and productivity optimal. With Ramp, you can streamline your invoice approval, reduce errors, and enhance efficiency across your accounts payable processes.

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Companies implementing Ramp can expect to save an average of 5%. This significant cost reduction, coupled with enhanced compliance, audibility, and visibility, ensures better financial control and efficiency.

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‍See how Ramp works.