Yooz AP Automation Blog

Smart Moves: The Importance of an Accounts Payable Approval Matrix

Written by Yooz | Oct 4, 2022 8:13:45 PM

Contrary to the proverb, timing is not everything. Companies that want to pay their invoices on time, every time, need to have a system in place to make sure that incoming invoices are processed not only to meet specific deadlines but also done without errors and potentially costly mistakes. That requires a workflow built around an approval matrix that defines in detail who reviews and approves invoices according to several variables, with everything easily defined and finetuned when internal circumstances change or new vendors come onboard. 

 

Accounts Payable automation is the easiest and most reliable way to achieve this goal, able to relieve any number of an organization's accounting pain points before they can obstruct smooth operations in the finance department. It’s all about intelligent digitization and automation that does away with paper as much as possible while clearly lays out the cascade of decisions specific team members have to make to approve an invoice and set it up for payment. 

 

Accounts Payable (AP) Workflow for Invoice Approval: Key Questions to Ask 

 

Think about this way: You have an invoice in the system that’s coming due. Two key questions need to be answered immediately:

 

  • Did the right individual (or individuals) approve that vital bill close to its deadline in order to lock in early-pay discounts and avoid late fees? 
  • Second, did the workflow steps to get to that point follow strong internal controls to make sure that mistakes and errors such as duplicates or fraud attempts are ruled out?

 

An accounts payable approval matrix is the superior way to handle approvals compared to the simple accounts payable approval workflow that most organizations have in place. That’s because a matrix sets up the unambiguous steps for the AP team to adhere to. Commonly, an approval matrix is value-based, but it can also consider criteria such as deadline (or criticality) of an invoice or focus on individual vendors and defined geographies. 

 

The secret to making sure each invoice is routed to the right people in the right order is a well-crafted set of rules. An AP automation platform that does away with shuffling papers and sending them around in envelopes or folders ensures that those rules are kept regardless of invoice volume or looming deadlines. 

 

 

How an Approval Matrix Streamlines Invoice Processing 

 

Having a strong accounts payable approval matrix in place also offers the most flexibility to adjust the rules and the matrix built around them as soon as circumstances change. For instance, if a key staff member is not available to approve or when a new, important vendor joins your master list whose goods or services are critical for your purchasing and production. 

 

Not paying those suppliers on time could have repercussions that are even more acutely felt in times of rising inflation and unstable supply chains. Cost control matters in times of uncertainty. That’s why intelligent cash management by way of invoice processing is so critical.

 

To truly understand its importance, let’s take a closer look at the nuts and bolts of a value-based AP approval matrix starting with permissions. Organizations usually set the authority to approve invoices based on their amount. The higher an invoice is, the higher-ranking the approver, all the way up to C-level executives or even board members for really large ticket items. An AP approval matrix must reflect that logic, listing your decision-makers in order of their rank, with a second axis that defines various approval conditions.  

 

Rules Rule: The Nuts and Bolts of Invoice Approval Software

 

This is where rules come into play. For small amounts, one person could suffice to give the green light. So far, so good. But as the invoice amount goes up, you could define that two or more staff members are required to sign off (either at least one of them or all of them). You might also stipulate that any one of two or more AP staff or senior managers either can or must give their OK, meaning approval rules can be set to be optional or mandatory. Only when those exact conditions are met, will an invoice be moved along to the payment stage. 

 

There’s more. Besides the amount in question, an AP approval matrix can also take location into consideration. If a vendor is in a specific geography, for example, their invoices might need to be approved by a specific person in your organization or a small group of people. That type of rule might not apply to a small business with regional customers, but organizations that have a broad geographic footprint across several states or an international presence need this framework to maintain control over their invoice approval process

 

Furthermore, location and value can often be tied together, making the approval cascade for low-value invoices quick but requiring more steps for far-flung and high-value invoices. And finally, an invoice from a particular vendor, for instance a big supplier, could trigger approval requirements from specific team members, regardless of the vendor’s location. 

 

 

Volume and Velocity Won’t Slow Down an Intelligent Workflow 

 

If that sounds confusing, it can be. Particularly when in the thick of daily AP work with hundreds of invoices streaming through your system every day or week. A paper-based process is quickly overburdened and can’t really keep track, making it difficult to even know the invoice status within the process. Shuffling documents and spreadsheets lacks the proper checks and balances and, even more importantly, doesn’t offer the visibility and reliability to make sure nothing slips through when things get busy. 

 

An automated system, on the other hand, is built exactly for this kind of rules-based approach. An approval matrix, in fact, is only one part of the automation answer to invoice overload and risk management. A true intelligent workflow that minimizes delays and errors starts much earlier. It covers the entire process - purchase to payment- because only then do you gain and maintain full visibility and control over your AP function.

 

Automation means all invoices are quickly and reliably captured as soon as they come in. If some arrive on paper or fax, that’s fine. They will be scanned and run through optical character recognition before machine-learning algorithms extract all important data points. Without human intervention, all the documentation from various transactions - paper invoices, email attachments and even a smartphone photo of an expense report - will enter the same system and go through a validation process to ensure that the information is correct.

 

Catch and Release: How an AP Approval Matrix Gives You Peace of Mind 

 

The pool of information from the captured invoices, parsed and read by AI-powered software in the cloud, creates your organization’s AP data lake. Admittedly, that’s a lot of info sloshing around, but an accounts payable approval matrix will serve as a set of smart locks, turning this torrent of invoices into a well-controlled stream that’s released downward and moved along according to your rules and goals, for instance to hold on to cash as long as possible to increase working capital, or to pay as quickly as possible to lock in discounts and rebates.

 

A traditional AP approval workflow is no match for this more stringent way of working because it has too many loopholes and too many manual touch points. Those breaks in the flow are exactly the weak spots where mistakes tend to happen and bad actors are waiting to insert themselves. They may slip in inflated invoices close to deadline, resend invoices with slightly different details, or count on one single person who’s stressed out or fresh and inexperienced and therefore more prone to wave an invoice through to keep things moving. 

 

Automation, by contrast, always sticks to the rules and will not allow anyone to take a shortcut. If the approval workflow doesn’t check the necessary boxes, nothing will happen except a red flag going up so a human can take a closer look. That might sound inflexible, but it’s exactly the opposite. 

 

Maximum Flexibility: Fine-Tuning the Rules for Invoice Approval Software 

 

An automated invoice approval process offers the maximum amount of flexibility to create and adjust the approval matrix, adapting rules as soon as circumstances change. The management team can fine-tune the settings and keep going without missing a beat including:

 

  • when a staff member needs to take time off (planned or unexpected), 
  • when an important vendor is added to the master list, 
  • when a new executive starts their job or 
  • when a crucial big project requires quick approval.

 

As a result, smart checks and balances embedded in AP automation translate into a fluid workflow where an organization can more easily change designated personnel quickly and without confusion and without holding up invoice processing. 

 

What’s more, it establishes best practices for strong and foolproof internal controls to avoid mistakes and errors and cuts down on cyber risk and fraud attempts without sacrificing approval speed. Not to mention the immediate effect on the bottom line. A well thought-out accounts payable approval matrix as part of an end-to-end AP automation workflow strengthens your cash flow management and generates insights that support better cost analysis, which allows improved financial forecasting and scenario planning.