Accounts Payable

Want to Improve Your AP? Start With The Approval Process

May 27, 2022

AP approval workflow

Estimated Reading Time: 4 minutes

Did you know that 20% of the AP process is similar to herding cats?

Ok, not really.  But close.

We surveyed over 200 accounts payable professionals and found that they spend 20% of their time managing approvals. Chasing colleagues for sign-off is not only an inefficient use of resources, it can be frustrating and cause issues between departments.

Why is this the case? AP approval channels are either poorly defined or lack the technology to be managed effectively. This leaves organizations more vulnerable to fraud and abuse.

In July of 2021, the SEC charged executives at FTE Networks with a multi-year accounting fraud scheme. Together, the CEO and the CFO inflated their company’s revenue and misappropriated millions of dollars for personal use.

Implementing an approval matrix can help these types of internal fraud. Practices such as having the same person approve invoices and payments ensure oversight and transparency in the process. Here are some recommendations to help you construct a solid and secure AP approval channel.

AP invoice approval

Approval channel best practices

Approval channels are rules designating invoices, purchase orders, expenses and payments to managers or team leaders for approval. After an invoice has been coded and matched to a purchase order, it will be directed to the designated approver for the next step (which is typically a payment).

After setting up approval channels for thousands of AP professionals, we recommend the following best practices:

  • Create multi-level approvals: As an added layer of security, set up at least two levels of approvals. A dollar threshold can be set, for example, invoices above $1,000 will have to be reviewed by two different people. Some systems allow you to modify this flow so that an invoice can only proceed for payments after both approvers have given the green light.
  • Separate approvals: the manager approving invoices should be different than the team leader approving payments. This will enhance your risk prevention strategy of company funds getting fraudulently routed.
  • Formalize your approvals matrix: document and follow a formal organizational structure of your approval channels. The structure should clearly define the approver, the timeline, and a secondary approver in case of absence.
  • Segregate duties: GAAP (Generally Accepted Accounting Principles) recommends segregation of duties for accounting best practices — this prohibits the acquisition of financial decisions by one individual.
  • Build a purchase order approval workflow: set up internal rules for making a purchase before placing an order. You can start by creating a requisition for internal approval that gets authorized by a manager or finance department, and is then sent to the supplier. Various workflow management systems allow setting up trigger-based actions to manage purchase orders.

AP approval history

Automation of approval channels

Adopting an AP automation solution is a vital step in increasing security. The software offers customizable approval channels based on the requirements of the company. It’s a great way to move from herding cats to streamlining an important process. For example, Beanworks is one of the few AP software solutions offering a highly customizable organizational structure with separate approval workflows for all accounting processes – purchase orders, invoices, and payments.

Here are the three core benefits:

  • Restricts unauthorized access: only authorized approvers can check status, history, previous reports, and approve an invoice or payment.
  • Customized routing: invoices can be routed based on location, department, project, vendor, etc. For example, an employee in Vancouver can code an invoice to the company’s New York location’s marketing head. That marketing head can collaborate on the document by entering any comments or questions online, without having to go through a paper or email trail. This creates an electronic audit trail of all approval steps completed for every document.
  • Approval sub-sets: CFOs can create subsets or criteria for certain types of invoices. For example, an invoice could be marked approved after one of the two approvers has signed off on it. Companies can modify this flow further so that an invoice is only approved when all approvers have reviewed and accepted it.

Many organizations talk about continual assessment and improvement in their operating process, yet they continue to simply “make-do” with antiquated systems. Often, they address the symptoms of poor performance, without looking closely at the underlying cause – an inadequate internal infrastructure that prevents them from operating at peak efficiency.

At a time when the financial arm of a business is more important than ever, we recommend investing in approval process management. It can help you reduce costs by eliminating time-intensive practices, keep your team focused on more strategic work, and safeguard the spend of your organization.

To learn more about how automation can help take your accounts payable team to the next level, check out this Beanworks white paper.


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