Approvals are an essential part of the accounts payable cycle, both internal ones and – perhaps even more so – those in practices that process outsourced accounts payable and make payments on behalf of their clients. It’s vital that only properly authorised invoices get paid, and this requires an approval process that’s functioning flawlessly. Of course, with numerous remote budget holders and decision makers involved, setting up and managing such a process is no easy task. Yet a well-established approval workflow that enables clear financial controls, accurate financial reporting and overall efficiency is key to a good relationship with clients.
Common challenges related to the approval process
Heaps of paper and manual work
Some organisations still do their approvals on paper, which obviously relies on the responsible people being physically present to provide their signature as well as having organised desks to find relevant documents in time. Dealing with paper also means that invoices can easily get lost or overlooked, and keeping track of where they are is pretty inconvenient. As processing an outsourced accounts payable process in a paper-based manner is hardly possible at all, emails come into play there. This has some benefits, of course, but emails also need to go back and forth and someone still needs to orchestrate them, keep an eye on the approval process and remind approvers when they’re running late. On the whole, the odds of missing invoices in a busy inbox are just as high as losing a physical copy.
Such cumbersome processes inevitably lead to late payments. When bills are not paid on time, the vendor is likely to send follow-up invoices, so you end up with duplicates. The relationship with the vendor suffers, financial reporting becomes unreliable and budget forecasting is almost impossible.
Sharing responsibility with the client
Outsourced accounts payable administration often becomes a pain for both the client and the practice. Clients get swamped with emailed approval requests, and the practice spends a lot of time chasing approvers. When payments are due but the invoices are still not approved, the practice employees face a tough decision: delay the payments and bear the negative impact this will cause, or pay and risk harming the relationship with their client.
If an organisation gets audited by external auditors or has strict internal requirements, it is crucial to keep track of who approved what and when. Paper-based approvals mean loads of papers to be filed for audit purposes, making audits really time-consuming. And it’s not much faster if authorisations are done using emails because it usually takes several days to compile the relevant records for retracing the approval flow.
Poor data quality
With a paper- or email-based system it’s impossible to obtain high-quality accounting data – data that contains the correct business context and accounting coding. Business context simply gets lost when finance approvals are made weeks or months after the payment has left the bank. Business approvers, those who actually know the business context, do their reviews too late to remember the details of particular transactions and instead generalise the spending description.
Types of businesses that usually struggle with approval workflows:
- Multi-entity businesses in need of centralised spend management
- Not-for-profits with external audits and strict budgets
- Investor-driven start-ups looking for accurate financial reporting
- Any business that has a significant number of bills to be paid every month
Solving the problems with approval automation
Is there a magic wand that will put an end to all these struggles? Well, actually there is; although it’s technology, not magic. With a system that handles approval routing, automates notifications and enables timely reviews and coding you can eliminate the need for manual intervention, always pay on time, and improve data quality. Automating the approval process comes with considerable benefits:
- Stronger and more streamlined financial controls
- Spending time on high-value services instead of calsohasing approvers
- Shared responsibility with the client: on-time payments, made with confidence
- Fully traceable authorisations with an automatically generated audit trail
- Properly coded data for accurate reporting and forecasting
ApprovalMax is the leading approval automation tool for Xero and makes setting up approval workflows of any complexity easy. There’s no more chasing approvers as they’ll get automated reminders and can approve very conveniently on the go from their phone.