April 15, 2013 Increased Control with Accounts Payables Workflow
Automated Invoice Workflow is one of the main keys of payables automation.
If an accounts payable department is trying to become more efficient, it can be a task figuring out where to improve first. You can’t have electronic invoices coming in if you don’t have a way to approve them, and implementing AP workflow by itself is hard to cost-justify without the electronic invoice savings. So it makes sense to implement both electronic invoicing and payables workflow at the same time.
At times when these decisions are being discussed, there might be the suggestion (usually from the purchasing group) to require a purchase order for every invoice instead of implementing invoice workflow. Bad idea. For anyone that’s had to deal with an all-PO organization, the inefficiencies are obvious. Services are requested, provided, invoiced, and then people start scrambling to create a purchase order after the fact. It’s much more work than simply approving an invoice per payment controls and can cause some real riffs between you and your suppliers. As is the case with a number of initiatives that come from purchasing, it’s a “we think we can do accounts payable’s job better than accounts payable” mentality and it’s not healthy. We work a lot with both payables and purchasing departments and a well-run organization understands the different roles both play.
When automating payables, you need to accommodate the matching of PO invoices (the topic for another blog) as well as the routing of non-PO invoices. But selecting and setting up an automated invoice workflow system for users outside your payables department can be a daunting task. For that reason, I give my thoughts on what to look for.
The good invoice workflow systems are going to offer the following functionality:
- Entry points based on invoice information. Invoices need to first be routed to the person in your organization who requested the service. Any workflow system that sends invoices to accounts payable is a waste of money. The whole point of automating your payables workflow is to eliminate effort in payables, not just change from one effort to another.
- Non-AP Coding with memory and defaulting. Believe it or not, the original requestors either know enough to code their own invoice, or they can be taught the few values they would ever use to code their own invoices. When the AP workflow system remembers their most commonly used values, it makes it all the easier to transfer coding efforts to requestors.
- Routing based on hierarchy. After the initial entry point approver (requestor usually) has approved/coded the invoice, the invoice workflow system should route based on hierarchy and approval limits. So if Mary has an approval limit of $5,000 and reports to Jeff, an invoice for $7,500 should automatically route to Jeff after Mary approves it. Hierarchy is important in enforcing payment controls. If a system simply asks the approver if they want to forward the invoice for any more approvals, it is not enforcing the payment controls and the payables department is going to have to enforce the payment controls manually.
- Routing based on business rules. Hierarchy should cover a good portion of payment controls, but there are often exceptions or special rules that need to be accommodated. The best AP workflow systems will offer routing based on anything on the invoice, as well as special approval limits. For example, Jeff oversees Project 67, so while he normally has an approval limit of $15,000, for Project 67 he has an approval limit of $25,000. Meanwhile, the controller is concerned about marketing expenses for Project 67, so a special rule is created requiring her approval for any invoices over $5,000 that are coded to Project 67 and the marketing account.
- Smooth running features. Add vacation re-routing when certain approvers are gone as well as automated escalations when approvers haven’t approved invoices within the allotted time and you have an accounts payables workflow system that is going to be extremely efficient and is going to get you some kudos.
Tags: accounts payable, Accounts Payable Department, AccountsPayable Workflow, AP Worflow, Automated Invoice Workflow, Electronic invoice, Electronic Invoices, Invoice Workflow System, Non PO Invoices, Payables Automation, PO Invoices