Payment Approval Process: Everything About Invoice Approvals

Small businesses should adopt a streamlined invoice approval process to maintain good relationships with suppliers and avoid being hit with late fees for past-due invoices. Your business needs a simple process to approve an invoice for payment, which preferably begins before you even receive an invoice from a vendor.

Seeking payment approval at the purchase order stage or waiving the need for approval entirely for small purchases can reduce the bottleneck of approvals and keep the accounts payable department running smoothly at your company.

Key Takeaways

• It’s important to provide the payment and invoice approval process details
• Creating your own invoice approval workflow is part of improving your cash flow and sustaining your business long-term
• Learn details of improving and optimizing your existing payment approval workflow to keep your business running smoothly  
• Read up on frequently asked questions about approval workflows, improving inefficient processes, and the invoice approval workflow in general

Here’s what we’ll cover:

What is the Payment Approval Process?

How to Approve Invoices For Payment

How to Improve Invoice Approvals

Benefits of Improving Accounts Payable

Conclusion

Frequently Asked Questions

What is the Payment Approval Process?

An approval process for payments is a common business practice employed to ensure all payments are vetted and approved by an additional, in-company party. This ensures payments aren’t sent out in error and prevents major issues like internal fraud. Payment approval also provides faster, more accurate payment on client invoices. 

Failure to create an efficient payment approval process could result in issues related to slow workflows or potentially land a company in financial or legal trouble. It is also important to remember to implement effective internal controls (such as separation of duties) to minimize the risk of theft or fraud.

While it would be ideal to have high-ranking company leaders, such as the CEO and CFO, sign off on every payment to ensure it’s approved, this is usually impractical. So it’s essential that you create efficient invoice approval workflows to ensure payments are sent timely and to the right place.

How to Approve Invoices For Payment

Your small business needs a clear approval process. Here’s a step-by-step guide for a simple bills payable or accounts payable system:

Check the Invoice for Accuracy

The invoice approval process begins by reviewing all the details of the invoice to make sure they’re accurate. Look over the products or services provided and ensure they align with the purchase order or contract agreement. Look at the amount you’re being charged and ensure it aligns with what you discussed with the supplier. 

If necessary, review other details, such as quantity discounts or other credits. Verify that the correct amount of sales tax was assessed, if applicable.

Cross-Reference Invoice Dates

Check the dates of all the goods and services listed on the invoice and cross-reference them with your past invoices to ensure there’s no overlap. If there is an overlap in the dates, follow up with the company to make sure you’re not being charged twice for the same purchase.

Confirm the Work with the Project Manager

If the invoice covers services that were overseen by someone else, check in with the project manager for the job to make sure the work was performed to their satisfaction and confirm all elements of the project you’re being billed for have been completed.

Check the Vendor Details

Next, review the vendor details to ensure they reflect what you have on file in your accounts payable system. Check that the business name and tax ID number haven’t changed. Revisit the vendor’s payment methods and note the method your company plans to use to pay the invoice.

Record the Invoice Due Date

Make a note of the invoice payment deadline. File the invoice in your records by the invoice due date. If the supplier offers any discounts for early payment, note them and confirm whether it’s possible to meet the early payment deadline to save money.

Schedule a Payment

Schedule a payment in your accounts payable system. Make sure the payment is scheduled at least a few days before the invoice due date to leave a buffer in case any issues arise when you go to make the payment.

How to Improve Invoice Approvals

Streamlining your invoice approval process can help you pay your bills faster and avoid late fees. While it’s essential to clear major purchases before they’re paid for, there are methods for speeding up the invoice approval process to free up time and avoid bottlenecks. Here are some easy-to-implement tips for improving invoice approvals:

Approve Purchase Orders 

Requiring approval of purchase orders and then requiring approval again when the invoice is received wastes time and energy. Consider requiring approval for purchase orders only so your accounts payable team can pay invoices faster.

Set a Threshold for Invoice Approval 

To make the approval process more efficient, consider setting a cost threshold for approvals and allowing invoices for small amounts of money to be paid without needing approvals.

Small, authorized purchases (such as office supplies or employee reimbursements) may also be made using a petty cash fund. While petty cash expenses still require recording in accounting books, they eliminate the need for writing checks or obtaining approvals every time a purchase is made.

Try In-Person Approvals 

You may want to set up a system where your accounts payable team simply goes to the approver in person to discuss any invoice details and get it approved quickly on the spot. Or, schedule weekly approval meetings where invoices are discussed and approved in bulk.

Consider Negative Approvals 

Sometimes, requests for approvals get buried in people’s inboxes, which bogs down the payment process. You can try implementing a policy of negative approvals, where accounts payable sends an invoice to the approver, and if they don’t hear back in a certain amount of time, usually a couple of business days, they can consider the invoice approved.

Automate Approvals 

There are accounts payable systems that allow you to automate the approval process in the cloud, so invoices are processed more efficiently, and payments are made quickly. You can also automate your invoice by using recurring bill payments for any vendors that regularly invoice you a set amount.

If you’re looking for a cloud-based accounts payable system that helps simplify your workflow and simplify the approval process, FreshBooks cloud-based accounting software might be just what you need. Our accounting platform is secure, efficient, and easy to learn, ensuring you don’t spend unneeded time on inefficient processes.

Click here to sign up for a free trial with FreshBooks. 

Benefits of Improving Accounts Payable

By streamlining your business’s accounts payable approval system, you can make your team more efficient and save money. Here are some benefits of improving your invoice approval process:

Streamline Decision-Making

When you simplify the approval process for invoices, you streamline decision-making for accounts payable. Eliminating the need for approvals on small purchases or removing some of the layers of invoice approvals needed means the financial accounting team will spend less time chasing approvals. It also means the managers tasked with approvals can spend less time reviewing invoices, freeing up time for more critical work.

Save Money

It might sound counterintuitive, but if you’re committed to paying your invoices on time or settling them early, you can save money in the long run. When you always pay bills on time, you avoid being hit by late fees, which can add up over time. And many suppliers offer discounts and rewards to companies that pay their invoices early, which saves your business money. You can improve cash flow by setting up automatic invoice bill payments when possible. You’ll always know when and how much money will be leaving your business account each month, so you can plan to cover those foreseeable expenses.

Maintain Good Vendor Relationships

Businesses love customers that consistently pay their bills on time. Not only is there a greater chance your suppliers will offer you discounts and rewards when you improve your invoice approval process, but they may also prioritize your work if they know you’re a reliable client. This can mean your orders are filled faster or your projects are completed sooner. It can also mean that if you ever have an issue or complaint, your vendor may act faster to solve it to keep your business.

Conclusion

In business, time is money. That’s why it’s always a good idea to look for ways to streamline your payment approval workflows, ensuring you’re spending as little time on menial administrative work as possible. 

It can take some time to set up an entire approval process from the ground up, but it’s a one-time investment that will more than pay for itself down the line. Whether you’re dealing with approvals for purchasing requests, supplier invoices, or any other payment approvals, you must take the time today to save yourself time and money tomorrow. 

FAQs on the Payment Approval Process

More questions on developing your organization’s invoice approval loop for invoices and payments that works for you? Here are answers to some of the most frequently asked questions. 

Who approves invoices in a company?

The person responsible for invoice approval in a company can vary depending on the business structure and the nature of the invoice. This could be a procurement officer or someone familiar with the company’s usual invoicing routines.

Why do invoices need to be approved?

Invoice approval is vital for several reasons, particularly in the case of internal fraud. Payment approvals are there as an oversight for payments being sent from the company, ensuring that an employee isn’t simply sending the company’s money to their bank account or business. 

What is an invoice verification process?

An invoice verification process is a step-by-step procedure used to ensure the accuracy of invoices the company receives from vendors and suppliers. This is a review process of each invoice’s details, pricing, and calculations to ensure they are correct, accurate, and complete. It’s also important to match each invoice to purchase orders and/or receipts.

What is an invoice approval form?

An invoice approval form is an internally-used company document that explains the business’ unique process for approvals of payments. It is a major step in the approval process that the accounting department must perform before any payments are allowed to be sent by the company. 

What are the documents required to verify an invoice?

You’ll need a few essential documents to approve invoices properly. These include a valid trade license number (this should be displayed on the invoice), an issued purchase order, a quoted estimate for the product/service listed on the invoice, a signed delivery note, and a payment receipt for all claimed reimbursable expenses.

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