An efficient digital invoice approval process is an indispensable component of modern financial workflows, significantly impacting productivity and transparency within organisations. This requires contemporary software that automates processes, reduces errors, and allows for the implementation of complex approval strategies.
Defining Digital Invoice Approval
Digital invoice approval refers to the electronic—and often partially automated—authorisation of incoming invoices. Whereas traditional paper-based workflows often required invoices to be physically moved between locations for all necessary approvals, digital invoice approval helps to reduce processing times, minimise errors, and lower costs.
This article begins with a general overview of the digital invoice processing workflow, before providing a detailed insight into the complex approval strategies available, and how these can be mapped using an approval matrix.
Overview of the Digital Invoice Approval Process
The overarching digital invoice processing workflow can be broken down into four key steps:
- Receipt or Import of the Invoice – e.g., as a PDF or e-invoice via email, or scanned paper invoices.
- Automatic Classification and Validation – the invoice is automatically categorised and validated against ERP master data.
- Customisable Workflow for Invoice Review and Approval – approval processes tailored to organisational needs.
- Optional Generation of a Booking Template – up to fully automated posting in the ERP system.
Different Rules for Invoice Approval
Depending on the structure of a company or organisation, invoice approval can be managed in a variety of ways.
- No individual approval rights: In some cases, invoices are only approved directly by the finance department or executive management, without any individual authorisations. This is often the case in smaller organisations.
- Team or cost centre responsibility: Approvals can also be allocated based on functional responsibility, such as team or cost centre accountability. For example, an employee may be authorised to approve all invoices related to a specific project they manage.
- Organisational hierarchy: Invoice approval is frequently governed by hierarchical rules. Typically, there are budget thresholds for different levels: a team leader may approve invoices up to £1,000, while a department head may approve up to £10,000, and so on.
- Detailed signature rules: A hybrid approach may be used, incorporating formal rules, delegation arrangements, a four-eyes principle, and detailed signing procedures.
Mapping Complex Approvals Using an Approval Matrix
Modern software should be able to reflect all these different approval approaches. For more complex rules, it often makes sense to use a matrix.
In this context, an approval matrix is a table that highlights relationships between invoices and the relevant approvers. Columns are defined by invoice attributes, which determine who should approve each invoice.
In the context of invoice approval, this can be understood as a table that illustrates specific relationships and dependencies. The columns of the matrix are defined by document attributes, which are then used to determine who is authorised to approve a given invoice.
The following diagram shows an example of an approval matrix as it could be implemented using d.velop invoices. In this example, a matrix row [A] assigns a specific user [B] an approval authorisation up to a defined limit [C] for a particular cost object [D]. A cost object represents a concrete value for the matrix’s decision criteria – in this case, the client and cost centre.
When an invoice reaches the approval stage, line item amounts are grouped and summed by cost object. This ensures that the approver is authorised to approve the full invoice amount and prevents circumvention of limits through item splitting.
The matrix identifies the most suitable approver, usually the individual whose approval limit exceeds the invoice total. A specificity score for each matrix row determines the best match between the approver and the invoice.
An Example of How the Approval Matrix Works
A company receives an invoice for £250. The client is 01, and the cost centre is 5520. The team leader, Bernd S., has the highest score and is assigned to approve the invoice because his criteria match exactly. Other approvers may also have approval rights but score lower due to less exact matches.
For an invoice of £2,000, Bernd S. would still be the most specific match, but his limit (£1,000) is insufficient. The system then escalates to the next candidate, Stefan B., who has broader cost centre authorisation.
Direct Approval Strategy
In this scenario, a “direct” approval strategy is used: the matrix is evaluated from the most specific to the least specific approver until someone is found with sufficient approval limits.
Bottom-to-Approver Strategy
d.velop invoices also offers a “Bottom to Approver” strategy, where specificity levels are evaluated sequentially to form a multi-stage approval chain. For a £90,000 invoice, Bernd S., Stefan B., and Volker Vertrieb may be involved, but only the approver whose limit covers the total can finalise approval.
User Perspective on Invoice Approval
Once set up, the approval process is straightforward for users. They receive an email notification, click a link, and approve the invoice. Time-consuming tasks, such as chasing approvals or correcting errors, are eliminated, freeing resources for other priorities.
Organisational Perspective on Invoice Approval
Invoice approval has traditionally been a critical, time-consuming, and error-prone process. Modern cloud solutions, however, can be set up quickly and automatically reflect various approval rules.
Company-specific rules are captured in a workshop and configured directly in the customer system, allowing key users to test workflows continuously. Depending on project size, a test system may be advisable.
A holistic view of procurement processes may suggest placing approvals at the start of the workflow. By only ordering items that are pre-approved, many downstream issues can be avoided altogether.
Digital invoice processing – tips and pitfalls in project planning
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