Approval Process: How to Create & Streamline Approval Workflows

Managing processes in an organization is a complex and ever-evolving task that takes time and effort to complete and document correctly. Without proper oversight, managing processes like tracking financials and reviewing employee requests can quickly become overwhelming. Even so, fewer than half of organizations formalize their business process management to streamline and administer these tasks. 

The unspoken truth behind that fact? Automating processes is a competitive advantage for companies that commit to it. It creates happier workers, lowers costs, and even allows smaller companies to compete with the leaders in their industry.

One of the easiest and most beneficial processes to formalize? Your approvals process. 

Today we’ll share the essential information and steps in creating better approval processes: 

• What an approval process is
• The elements that drive every approval process
• The basic steps for an apportioned process
• The types of approvals every business can improve
• The steps to building a new or better approval process
• The steps and importance of invoice approval
• How software puts invoice approval on autopilot

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Top elements of any approval process

In general, every approval process — whether for a petty cash purchase or an annual budget — requires some common approval elements.

Documentation: Documentation of your purchase or request provides a detailed history of the approval process, from initiation to completion. It also serves as evidence of due diligence and a record of compliance with internal policies and external regulations.

Documents may include purchase orders, invoices, contracts, payment authorizations, records of communication between stakeholders, and more. By properly documenting each step in the approval process, organizations gain greater control over their accounting processes and maintain the accuracy of their data.

Approvers: Approvers are essential to the approval process because they provide a necessary review and validation of every aspect of the purchase or budget request. Common approvers include the person’s direct manager, department head, finance personnel, legal personnel, and security personnel. For high-ticket or sensitive purchases, it may be necessary to involve executives from the C-suite who provide additional oversight and review.

Involving multiple approvers ensures that all aspects of a purchase have been properly vetted before being approved. Multi-step approval also reduces wasted spending and instances of fraud, as each request receives scrutiny from multiple layers of the organization. 

Permissions policy: The criteria for an effective approval process must also include a permissions policy that outlines roles and responsibilities. This ensures that only authorized personnel can approve invoices and helps reduce the risk of fraud or misuse. The permissions policy should determine who has access to the accounts payable system, as well as define the type of information each user can access and edit.

A permissions policy also allows for proper authentication when approving requests, ensuring that all requests have been adequately reviewed before payment. By having clear permission levels in place, companies protect their financial data while still maintaining an efficient approval process. 

Performance dates: Having due dates in an approval process keeps everyone on track and prevents delays in completion. Deadlines also help maintain efficient workflows, as each step of the approval process is anchored to a timeline. This ensures approval requests are processed promptly and reduces the risk of bottlenecks that slow down the entire process.

Performance dates are especially important when approvals are tied to larger project management milestones, RFP (request for proposal) deadlines, or other impactful circumstances. Setting deadlines helps prioritize internal tasks and imposes accountability for meeting them to further encourage efficiency.

Approval reporting: Approval reporting means tracking and recording all approvals during an approval process. Approvers provide visible feedback and insight into why certain decisions were made. This provides valuable transparency that stakeholders need for quality control purposes and, if necessary, to ensure compliance with regulations. Approval reporting during the process helps the original requestor keep track of their request and sets expectations about completion times. 

Additionally, approval reports reveal trends in decision-making processes over time, giving organizations a better idea of how to streamline their approval processes in the future.

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The Procurement Strategy Playbook for Modern Businesses

Download the ebook to learn how to modernize your procurement strategy and realize the benefits of tech-enabled procurement.

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Basic steps necessary for any approval process

Every approval process follows the same basic order: request, review, and approve. Depending on the type of approval process, the specifics of the workflow may vary. For instance, a purchase approval may need to go through multiple steps or approvals before completion, while a small-dollar invoice approval could be a single-step process. 

In some organizations, approvals are broken down further, with different approvers at each spend or request level signing off on the request before it moves to the next level. 

Some organizations set up automated workflows for approvals to include additional checks and balances, such as budget limits or time-based constraints. Regardless of the type of approval process, careful planning and clear communication are necessary to ensure that all stakeholders fully understand how their requests will be handled. 

What is approval automation?

Approval automation is a digital process that streamlines the workflow associated with invoices and other requests. By automating the steps of the approval process, businesses reduce paperwork, simplify communication, and keep track of progress in real time. Automation also reduces potential errors by ensuring all necessary steps are followed in order, thus ensuring an invoice is accurate before it's approved for payment. This automated system allows businesses to complete their invoice processes more quickly and efficiently, freeing up time for more important tasks.

Types of approval processes

Although approval often brings spending to mind, it’s not the only place where process and automation benefit an organization. Many processes within a company may be systematized and automated for better results.

Creative: For marketing managers and creative teams, the multi-step content approval process can be complex, requiring careful planning to ensure all stakeholders are on board with the proposed strategy and budget. Such steps are especially important for creative campaigns because they usually involve larger amounts of money and have a lasting impact on customer perception.

A typical workflow for this type of approval process involves creating a detailed proposal outlining the objectives, potential risks, timeline, budget, and other relevant information. This is reviewed by the appropriate stakeholders, who decide if it should move forward. Marketing managers and strategists then lay out briefs and milestones for creative teams (content writers, video teams, graphic designers, and others) to execute the work. 

Employee leave: Employee leave requests impact more than just the employee — they touch every aspect of the business, from production to finance. An approval process for employee leaves ensures that time off is properly documented. This helps to reduce disruption to workflow and helps managers establish contingency plans. A clear leave approval process also helps Finance plan budgets and compensation expenses. 

Purchases: Purchase approval processes are important to ensure that every expenditure falls within the budget and is necessary for the organization. They start with a request (usually generated by an end user) and proceed through a series of spending and interdepartmental approvals. The purchase approval process is vital to ensuring spending stays within budget and within policy. Purchasing approvals help curb maverick spend and keep the indirect spend category (usually the most expensive for a business) under control. 

Budgets: Annual budgeting is a company-wide planning and approval effort, requiring clear communication and expectations for all stakeholders. This process allocates budget pools and establishes budget limits and other constraints. The overall budget approval process is the first step in the purchasing approval process, as it sets up the parameters for spending and the policies under which funds may be expended. 

Invoicing: Invoice approval ensures the company’s spending is tracked and all invoices are properly authorized. This usually involves comparing the invoice to the original purchase request or purchase order (PO). Invoice approval helps to prevent fraudulent purchases or unapproved changes to previously approved requests. Finalized approvals for invoices typically trigger the back-end payment and AP processes.

What is an invoice approval process?

An invoice approval process is a set of steps to authorize an invoice for payment. This process can involve multiple stakeholders, such as department heads, accounts payable leaders, the procurement team, and the CFO. They all work together to ensure that invoices are accurate and valid before they are paid. 

The invoice approval process typically kicks off when the invoice arrives by mail or email, but the groundwork for successful approval starts as soon as a need is identified. Building an end-to-end process for invoice approval that captures data at initiation is vital to a streamlined and time-efficient accounting and procurement process.

Ebook

The Procurement Strategy Playbook for Modern Businesses

Download the ebook to learn how to modernize your procurement strategy and realize the benefits of tech-enabled procurement.

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How to create an approval process

Planning out the details of your approval steps before implementing it is important. Planning ensures all stakeholders have a clear understanding of how the process works and what their responsibilities are. Consider integrating automation technologies to facilitate workflow management, save time, reduce workforce costs, and eliminate errors.

Use the following steps for building your first or next approval process:

Develop a written approval policy

If you don’t document a policy, you can’t enforce it. The most successful companies carefully document all policies, including their approval processes. For purchase approvals, policies detail who can approve orders, what information needs to be provided, and what happens if there is a discrepancy between the order and receipt. This ensures that all invoices are verified quickly, without errors or delays.

Consider your approval hierarchy

Dynamic approvals bring just the right amount of control to the procurement process. When outlining your approval workflow, consider the following: 

• What users have access to purchasing privileges? 
• What spending thresholds should trigger extra review or sign-off?
• How do geographic locations play into the approval process and spending limits?
• Should certain product categories require more oversight, security review, etc.?
• Do department-specific guidelines make sense for the approval process?
• Should there be extra review for new vendors or product categories? 

By asking these questions, it’s possible to get a clearer picture of your process and how it will serve procurement within the company. 

Establish a list of approvers

Having designated approvers ensures each request is reviewed by the right people in the right order. These defined approval actions help prevent any unnecessary delays or bottlenecks in the workflow. They also provide visibility into who has completed departmental approvals, which allows you to quickly track down stoppages when they occur. 

For every approval process, determine which approvers should be involved in decisions, such as:

• Direct managers
• Department leaders
• Security
• Legal
• Finance
• Executives

The approval list and process may look different depending on the dollar value of the purchase or contract. For instance, a high-value contract may involve executive sign-off and potential security review. Small, routine purchases could be served through department-level approval to keep the process efficient and prevent higher-level approvers from becoming bogged down in every purchase. 

Build an approval workflow 

If requestors are asked to follow a policy, you need a path that leads them to success. Start by defining initial submission actions for each request. Build an intake form or use a purchasing platform that allows users to document their needs, outline possible solutions, and direct their requests through the proper channels. 

A purchasing platform helps automate these workflows by allowing users to select what they need from within a predesigned, curated list of vendors or items. It can establish and enforce spending limits, approval routing, and permissions rules to reduce time-consuming manual approval processes common in request management. 

Create a document retention system 

Your approval process should include a document retention system that allows easy retrieval and review of current and past invoices. Centralizing invoicing and the associated contracts enables many benefits, such as easier contract research, negotiation, vendor selection and onboarding, and procurement management. 

Steps in an effective purchase approval process

Invoice approvals are especially important for organizations since they impact the company's operational health and financial position. To maintain high confidence in your invoice approval process, you need proofs that verify the accuracy of the bill and goods received.

The purchase and invoicing process typically proceeds as follows: 

1. Purchase requisition: A purchase requisition is more than an order form, and it’s not the same as a purchase order. It’s the first piece of documentation in the invoice verification process.  A complete purchase order should include:

• The vendor’s name and legal address
• A description of the goods or services purchased
• An itemized list of costs and items
• The total price with fees and shipping

This information will be used to draft the rest of the documentation, including the purchase order, vendor documentation, invoice, and payment.

2. Approvals: After submittal, the request passes through internal approvals before it’s routed to the accounting department. This process helps ensure all appropriate checks have been completed and no fraudulent activities occur. Each purchase order follows the approval workflow and relevant reviewers assess any risks associated with the purchase before signing off.

3. Purchase order: Accounting uses the initial request and subsequent departmental approvals as the basis for the purchase order (PO). Once complete, accounting transmits the PO to the vendor, who reviews it before signing off and confirming the purchase for fulfillment. For net terms purchases, the vendor provides an invoice outlining the repayment period. Otherwise, the total amount due is payable on receipt.  

4. Fulfillment and receipt: The vendor then fulfills the order receipt manifest or other fulfillment documentation. Upon delivery, the receiving department confirms that the goods have been delivered to your organization and that they match the purchase requisition, PO, and invoice. This process is called three-way matching.

5. Payment: Once fulfillment and matching are complete, the invoice heads through final approval and gets scheduled for payment through the accounting department. 

Software can automate every aspect of the invoice process, as well as create documentation for later reporting, tracking, and performance management.

Effectively manage approval workflows with Order.co

Process improvement isn’t just a nice concept — it’s a competitive advantage for growing companies. Order.co offers robust features that empower buyers with choice and managers with visibility and control combined with a dynamic automated approval process. With an intuitive interface, it allows users to find vendors and items that suit their needs without worrying about spending limits, vendor selection, or chasing after requests.

• Automated approvals by GL code, user, vendor, location, order subtotal, or cost center
• Improved purchasing turnaround with one-click approvals and automatic purchase initiation after approval
• Edit purchase requests at the line level to avoid back-and-forth communication and purchasing delays
• Centralized requests with notifications and alerts to avoid logjams

To put the power of easier buying and effortless approvals into your procurement workflows, get to know Order.co in a free demo.