Paper invoices are outdated. If you want to stay in the game and keep things efficient for your business, it’s time to make the switch to a paperless invoice system.

It’s a paperless invoice approval system that’s in.

And if you didn’t realize, you’re losing at least 40% of your productivity for your Accounts Payable team if you’re still stuck in the old habit of using manual and paper invoices.

In this blog, we will cover all you need to know about a paperless approval system. By the end of this resource, you’ll understand how this system can keep things smooth, fast, and efficient for your business.

What Is A Paperless Invoice Approval System?

A paperless invoice approval system is a digital solution that eliminates the need for your company to route physical paper invoices for approval and provide an automated way to get your invoices approved.

Through a paperless invoice approval system, your invoices are submitted electronically and routed through a defined workflow until it is approved online by authorized personnel.

What’s great about a paperless invoice approval system is that it streamlines your procurement and accounts payable process, making it faster, more efficient, and less prone to errors like duplicate payments.

How Does A Paperless Invoice Approval System Work?

For a paperless invoice approval system to work, it requires a few elements to push through.

Here are the key components needed in a paperless invoice approval system and how it works:

• Digital Capture: Your invoices are uploaded or received electronically through email, supplier portals, or scanning solutions. Through digital transformation, you no longer need to worry about handling paper invoices.
• Automatic Data Extraction: Optical Character Recognition (OCR) technology automatically extracts the key data from the invoice, such as amount, vendor, purchase order number, etc.
• Workflow Management: Without using paper-based invoices, it becomes easy to automatically route your invoice to approvers based on pre-defined rules such as cost center, purchase order, or spending limit.
• Online Approval: There’s no need to worry about manual invoice approvals. With the invoice approval automation from a paperless invoice system, your approvers receive notifications and can view and approve invoices online. Often with features like digital signatures and comments
• Integration: Lastly, a paperless invoice approval system can handle a single invoice or even multiple of them. The system offers seamless payment processing by integrating it with digital tools.

What Are The Benefits Of A Paperless Invoice Approval System

Companies implementing a paperless invoice system can achieve the following, positively affecting their bottom line.

Here are the three key benefits of using a paperless invoice approval system

90% Reduction In Paper Invoices

Without paper invoices, there’s no need to worry about payment delays and manual tasks. Payable automation through an automation solution will help you receive invoices easily through the mail.

While you might still have a few paper invoices for utilities, tax payments, etc, you can have most of your vendor invoices to an electronic process.

Reduced Errors In Data Entry

With a paperless invoicing process and digital invoices, you can eliminate the need to manually enter the data in multiple systems.

Aside from that, you can even avoid errors in having duplicate invoices. In the next sections, we will show you how AP automation using a supplier portal and electronic invoices can eliminate the need for data entry. It saves the accounts payable department time and reduces human error.

Better Cash Flow Planning

The biggest issue with cash flow planning is surprise invoices not being authorized before purchase and not having all the invoices in one place in the payable process.

With paperless invoicing, you can process invoices faster with electronic payments, and business owners can set up a pre-authorization process to reduce the surprise invoices and ensure timely payments.

These internal controls are helpful for compliance, preventing fraud, and boosting cash flow management.

How Do You Switch From Paper Invoices To Paperless Invoice Approval System?

If you are struggling with paper invoices, the first thing you need to do is stop receiving paper invoices. I know it is obvious!

The AP team eliminates the need to scan paper invoices by moving to electronic invoices.

That should give the AP team an efficiency boost of 15-20%.

Here are three strategies you can implement today to reduce paper documents and switch to paperless invoice approval.

Invoice Email To Capture Vendor Invoices

Changing from manual invoice processing to a paperless environment needs vendor behavior change.

Vendors send you paper invoices because you never told them how to send the invoices.

Some send paper invoices because that is their process.

So let’s change that.

You will need to set up an email and inform vendors only to send invoices to that email.

This will give you a central place to track all the incoming invoices. Here is how to set up a paperless invoice process.

Invoice Email setup

We need a dedicated email for receiving invoices. This is important for two reasons:

• A dedicated email is easy to remember and easy to communicate to vendors. You can have one inbox for all invoices and one for all other communications.
• You need an internal email so stakeholders can communicate with the AP team. It becomes easy to differentiate between internal and external communications.

Don’t use the current AP email. That should be limited to communication only.

Setup an email like invoices@companyname.com

Inform Your Vendors

Once you have the email address, the next step is to inform vendors that they need to send the invoice to this email.

There are a couple of ways to do it.

You can send a broadcast to all vendors informing them about the change.

Here is a sample email:

“Dear Vendor,

We are changing our invoicing process to make it more efficient for both parties.

As of {insert date}, you must send the invoices to invoices@companyname.com.

Please don’t mail the paper invoices because they will not be processed.

This change will save your mailing cost, but it will also help us process invoices faster and pay you on time.

If a purchase order(PO) is issued to you, please add the PO number to the invoice document.

Thanks,

AP team”

Feel free to change it to suit your communication style.

Sending a broadcast is insufficient; suppliers might forget or revert to their old processes.

That is why you need to remind them in every interaction.

There are two ways to do that:

• You can send a reminder email after a few days and do that 2-3 times. With the increased frequency of communication, you can get higher compliance rates.
• The second is to print the instructions on the purchase order: When you print the instructions on the purchase order, all supplier teams can see the invoicing instructions.

Here is an example of adding the instructions on the purchase order in ProcureDesk

Sometimes, it needs more than just informing vendors, especially when they are used to sending invoices to the stakeholders. We will discuss that next.

Internal Stakeholder Communication

To achieve maximum compliance, you would need to seek stakeholder support. You need to explain the need for digitized invoices and how it would help make the accounts payable department paperless.

If the supplier sends the invoice to the stakeholder, the stakeholder might forget about it, and the vendor might be chasing the AP team for payment.

Tracking paper invoices in the increased remote work environment is more difficult.

You can send a similar email to stakeholders and ask for their support.

There are two things you should mention:

First, they need to inform the vendors about the change.

You can forward them the email template so that they can forward it to the vendor contact.

If your contract template has a section for invoicing, you want to include these instructions on the template, too.

Second, They should forward all vendor invoices to invoices@companyname.com.

Some vendors might continue to send paper invoices to the stakeholders.

Or they might be emailing the invoices directly to them.

Your goal should be to centralize the invoice capture process. So, ask the stakeholders always to forward the invoices to the new email address.

Supplier Portal

What if you don’t have to worry about receiving the invoice from the supplier?

That is possible through supplier self-service.

Suppliers can submit the invoices against a specific purchase order or without a purchase order through supplier self-service.

Here is how a supplier portal can help simplify the process for you.

You need a supplier contact email to submit the invoices against the purchase order.

When you approve a purchase order, the system automatically sends a request to the supplier with instructions on submitting the invoice through the supplier portal.

The supplier clicks on the magic link to submit the invoice. There is no need for registration and managing a username and password.

The supplier selects the purchase order and clicks “Create Invoice.”

The system then converts the purchase order into an invoice. The supplier contact can adjust the pricing or quantity and attach the invoice document.

Once they click submit, the system sends the invoice matching and stakeholder approval.

Here is how simple it is:

 

We expect 40-50% of your supplier base to adopt this approach easily.

Some of the larger companies might have stringent processes. So, your mileage would vary based on your leverage with your vendors.

Electronic Invoice

The third option to achieve paperless invoicing is to implement electronic invoices.

An electronic invoice is sent from a vendor’s Accounts receivable system to the buyer’s AP system without manual intervention.

It leverages industry standards like cXML or EDI integration to implement system-to-system communication between a buyer and a supplier.

The biggest advantage is that there is no need for anyone to upload the invoice into the system.

The invoice is submitted and then matched with the purchase order and receipt.

Here is an example of an electronic invoice submitted automatically by the vendor.

 

We recommend this approval for high-volume vendors like Amazon.com or Staples.

It provides the best return for high-volume vendors.

The best approach is to sort your vendors by annual invoice count and then contact the top 10 vendors to check if they support electronic invoices.

How Do You Set Up A Paperless Accounts Payable Software?

In the above section, we talked about the AP automation process and capturing the invoice from the vendor.

This section will discuss automating the approval process after the invoice is received.

Automating The Three-Way Matching Process

Once the invoice is received, you need controls to ensure an invoice is approved for payment.

If there is an issue, you must hold the invoice for further invoicing unless that issue gets resolved.

Most AP teams rely on manual AP processes for matching the invoice with the purchase order and receipts. That process is called the 3-way matching process.

Since the manual 3-way matching process takes a lot of time, the first step is to automate the 3-way matching process.

A tool like ProcureDesk can help you with automating the 3-way matching process.

Here Is How To Automate The 3-Way Matching

Once the invoice is submitted, the system automatically matches the invoice with the purchase order and receipt.

The system automatically raises an exception if a receipt is missing or the quantity and price don’t match between all three documents.

There are generally three types of exceptions in a 3-way matching process.

• Missing receipt: the product is not received or received but a receipt is not created in the purchasing system.
• Unit price: The unit price on the invoice is more than on the purchase order.
• Quantity: The quantity on the invoice is more than what is ordered and received.

Here is an example of a missing receipt exception:

The invoice is received, but there is no receipt in the system.

Here is an example of a pricing mismatch exception:

In this case, the vendor has invoiced more than what is on the purchase order.

The next step is determining what should happen if there is an exception. That is the topic of the next section.

Invoice Approval Software

Once the system identifies an exception in the 3-way matching process, we need to automate the invoice approval process so that the exceptions can be routed to the appropriate person.

With a manual approach, you would email different stakeholders or walk to someone’s desk. AP clerk might send the review email to the wrong person. This causes avoidable approval delays.

That approach is not scalable in this remote work environment.

Here is how invoice approval software automates the invoice approval workflow.

Configuration Of workflow

A paperless invoice approval system should be able to route the invoice for review and approval automatically. In most cases, you can reconfigure the current workflow in the tool.

You don’t want the AP team to figure out who needs to approve a particular invoice or review an exception.

We recommend that you define the workflow upfront and let the system route the request for approval. It will drastically reduce the invoice approval time.

Here are a couple of scenarios that you need to configure for invoice review:

Missing Receipts

As we mentioned, the system can’t proceed with a 3-way match process if a receipt is missing.

There are two ways to resolve this issue.

• Send the request to order contact to create the receipt
• Send to a group/person that is responsible for receiving.

You can route the request to the warehouse clerk if you have a central warehouse. Otherwise, the request can go to the person who created the purchase order.

Price Mismatch

In case of a pricing mismatch, you want to route the request to someone who can resolve the pricing exception.

If you have a purchasing team or an assigned buyer, we recommend sending the invoice to them.

If you don’t have a purchasing team, you want to send the request back to the order contact.

Here is how to create a workflow for resolving price mismatch issues:

After the matching issues are resolved, the system sends the invoice for payment.

Quantity Mismatch

If the quantity invoiced is more than what was received, you need someone to confirm if they received the additional items.

It is also possible that the supplier made a mistake while submitting the invoice.

Ideally, you should route such requests to the purchasing team so that they can work with the vendor.

If you don’t have a purchasing team, the request goes to the order contact for invoice verification.

In some companies, we see the AP team directly working with suppliers to resolve such issues.

Here is how to create a workflow for resolving quantity mismatch issues.

Tolerance Matching

When implementing a 3-way matching process, the biggest issue is a pricing mismatch between the invoice and the purchase order.

By implementing a tolerance process, you can allow the system to auto-approve the exceptions if the excess amount is within the limit of the tolerance level.

There are three cases where the invoice amount exceeds the purchase order amount.

Shipping And Taxes

If the vendor charges for shipping, those charges get added to the invoice.

If you don’t add taxes to the purchase order, the vendor will add the taxes to the invoice document.

When the vendor adds the taxes and shipping to the invoice, the invoice amount is more than the purchase order amount. An electronic invoice approval system can automatically resolve these exceptions.

Pricing Changes

Price changes often cause the invoice amount to go over the purchase order amount.

For example, You ordered a $10 unit product, but the vendor charged you $10.10.

You can avoid these price changes if you have a negotiated contract with the vendor and your pricing remains fixed for a certain time.

Quantity Changes

Quantity change is another reason the invoice amount is higher than the purchase order amount.

Quantity change is caused by the difference in how you order and the vendor sells the product.

For example, you ordered each product, and the vendor only sells in dozens. So even though you ordered one unit, you will receive a dozen units.

No matter the reason for the amount mismatch, it becomes a nuisance if you always have to approve the invoicing mismatch issues.

You can let the system do it by automating the tolerance process.

Here is an example of the total amount of tolerance:

In this example, we instruct the system to automatically accept the invoice if the invoice amount exceeds the purchase order amount by up to 10% or $100 – whichever is less.

You select the amount and % because it allows you to set up an upper threshold.

A 10% of $100 order is $10, while a 10% of $100,000 order is $10,000.

A $10 deviation might be ok in the above case, but a $10,000 deviation should trigger an additional review.

By adding an amount, you are setting up an amount threshold.

Invoice Approval Process

So far, we have talked about a 3-way matching process.

But what if you are purchasing a service and there is no receipt?

It could be the case of an invoice that doesn’t have a purchase order number associated with it.

That is where you need to set up an additional invoice approval process so the system knows how to route these exceptions.

Non PO Invoices

For non-PO invoices, we recommend that the invoice follow an approval process similar to the purchase order approval process.

The reason for that is an invoice without a purchase order means that the Spend is not authorized, so it needs to be authorized by the appropriate stakeholder.

Here is an example of how to set up a workflow for non-PO invoices

In this example, the invoice is routed to an employee and then to the manager.

You can then track pending approvals through a centralized dashboard

Service Invoices

When you are not receiving a tangible product, the AP team still needs confirmation that the service is delivered.

You can achieve this by sending the invoice for review before marking it approved for payment.

The idea here is to have a sign-off for the invoice.

If the invoice exceeds the purchase order amount, you might need to send this for additional approval based on your approval hierarchy.

Here is an example of a workflow for a service invoice:

In the screenshot above, the system sends the invoice to the order contact for review.

Once the invoice is approved, the system automatically sends the invoice to the accounting software.

FAQs

Who Approves Invoices For Payment?

The approver for invoice payments depends on several factors, including the organization’s size, structure, and amount of the invoices.

For smaller companies, the owner or a single designated person, such as an accountant or a bookkeeper, might handle the invoice approvals.

For larger companies on the other hand, there are department heads, procurement managers, and leaders in the finance department who might be involved in the invoice approval.

Manual Vs. Automated Invoice Processing

Manual and automated invoice processing have critical distinctions.

Here are key descriptions for manual invoice processing:

• Invoices are received and handled physically (paper or scanned).
• Data is manually entered into the accounting system.
• Invoices are manually routed for approval through email, paper forms, or internal systems.
• Approvers provide physical or digital signatures.
• Payments are initiated manually.

On the other hand, here are the key descriptions for automated invoice processing:

• Invoices are received electronically through email, supplier portals, or EDI (Electronic Data Interchange).
• Data is automatically extracted using Optical Character Recognition (OCR) technology.
• Invoices are automatically routed for approval based on pre-defined workflows.
• Approvers review and approve invoices online.
• Payments are automatically initiated once approved.

Why Does Manual Invoice Processing Hurt Your Business?

Manual invoice processing can be very slow, laborious, and even prone to errors. It hurts your business as it:

• Wastes a lot of time with manual data entry, verification, and approvals.
• Risks your business to a high error rate
• Drags down the invoice approval and payment times because of manual processes

The Bottomline

If you want to implement a paperless invoice approval system, here are the two things you would need:

• A process to electronically capture the invoices so that the AP team doesn’t have to key in every invoice.
• A matching and workflow engine to match the invoices with the purchase order that automatically routes invoices for review and approval.

So, how do you get started?

Here is the approach that our clients follow.

• Take an inventory of invoices and identify the top vendors that you could move to electronic invoices.
• Document your purchasing policy and the approval matrix.
• Implement an invoice approval system that automates invoice capture, matching, and approval.
• Reduce the time spent on processing invoices by 40%.

We hope this blog has helped you understand that it’s possible to speed things up for your business and skip the problems of late payments, slow invoice management process, and even the hassle of manual processing.

All you need to do is take a chance and explore what a paperless invoice approval system has to offer! Please save your precious time with AP Automation.