Invoice Approval Process
The invoice approval process is a set of steps a company uses to review and approve invoices before payment is made. It is a crucial part of a company’s accounts payable procedure to ensure that bills are legitimate, accurate, and paid in a timely manner.
Here is a general example of an invoice approval process:
- Receipt of Invoice: The process begins when an invoice is received, either by mail, email, or through an electronic invoicing system.
- Review: The invoice is first reviewed for basic details such as the correct vendor name, invoice date, and invoice number. This initial review may also include checking for any obvious errors or discrepancies.
- Matching: If the company uses a purchase order system, the next step is usually to match the invoice to the corresponding purchase order and any related receiving documents. This matching process is designed to ensure that the company is being billed for the correct goods or services, in the correct quantities, and at the agreed-upon prices.
- Approval: After the matching process, the invoice is sent to the appropriate person or department for approval. This is often the manager who authorized the purchase or a department head. The approver reviews the invoice and, if everything is in order, approves it for payment.
- Payment: Once the invoice has been approved, it is sent to the accounts payable department for payment. The payment is processed according to the terms of the invoice and the company’s payment policies.
- Record Keeping: After payment is made, the invoice is recorded in the company’s accounting system for future reference and for financial reporting purposes. This may include recording the date of payment, the amount paid, and the method of payment.
Implementing a thorough and well-documented invoice approval process can help companies avoid errors, prevent fraud, and maintain good relationships with their vendors by ensuring that payments are made accurately and on time. With the rise of digital technologies, many companies are now using automated invoice processing systems to streamline this process and reduce the risk of human error.
Example of the Invoice Approval Process
Let’s take the example of a fictional company, Acme Corp, and walk through their invoice approval process:
- Receipt of Invoice: Acme Corp receives an invoice from one of their suppliers, XYZ Supplies, via email. The invoice is for office supplies that Acme Corp ordered last month.
- Review: The Accounts Payable (AP) department at Acme Corp checks the invoice for basic details – supplier name, invoice date, and invoice number. They verify that there are no obvious errors or discrepancies in the invoice.
- Matching: Acme Corp uses a purchase order system. The AP department retrieves the purchase order related to the office supplies and matches it against the invoice. They verify that the items listed, their quantities, and their prices all correspond to what was agreed upon in the purchase order.
- Approval: Once the matching process is complete and no discrepancies are found, the invoice is forwarded to the Office Manager for approval, as they are the ones who had requested these supplies. The Office Manager reviews the invoice and, finding everything to be in order, approves it for payment.
- Payment: The approved invoice is sent back to the AP department. They process the payment via a bank transfer to XYZ Supplies, adhering to the net-30 payment terms outlined on the invoice.
- Record Keeping: After the payment has been made, the AP department records the transaction in Acme Corp’s accounting system. The invoice number, date, payment date, amount paid, and method of payment are all documented.
This is just a simple example of an invoice approval process. The exact process can vary widely depending on the size and nature of the organization, the complexity of its operations, and the specific policies and procedures it has in place.