Here's why payment approval workflows will make your small business more efficient
Many small businesses still rely on manual payment approval processes to pay their invoices. While it is understandable that business owners want to be closely involved with payments to keep an eye on expenses and cash flow, it can get complicated if the person or people making the purchase are not the same as those who review, approve and make the payment.
Manual payment processes are prone to error and can lead to time-sensitive bottlenecks and delays that not only create confusion and waste precious man-hours, but can also cause late payment penalties, or worse: irreparable damage to the relationship with your supplier and hinder the growth of your business.
As a small business owner, “payment approval workflows” may sound like buzzwords that big corporations use, but they can actually help you effectively manage your invoice payments by setting up automated processes that minimize inefficiencies, mistakes, and lost opportunities while still giving you the hands-on control to oversee the whole flow and decide who has permission to add and approve invoice payments and for what amounts.
Small Business Payments
Business payments are the agreed-upon amounts or compensation due to vendors, distributors, service providers, and other receivers who provide the materials, tools, and services you need to run your business. These can include:
They are paid against invoices that are issued for goods or services.
What are Payment Approval Workflows?
Payment approval workflows are basically a set of processes by which invoices are reviewed and approved before the payment is processed against them. In most AP tools, small business owners can set up rules to decide who has permission to participate in the payment approval workflow (eg. onsite staff or service providers like bookkeepers/accountants.), at what stage, and what amount they are allowed to approve.
Why are payment approval workflows critical for your small business?
A digitized payment approval workflow can help small businesses easily achieve transparency, maintain timely payment cycles, avoid disparities due to manual approval processes and keep control of the process. Without them, your business may be exposed to a number of issues such as:
Slowed or late payments: Delays in payments can ultimately affect your relationship with suppliers, incur late fees, affect your credit or status, and hurt your business.
Lack of transparency: An efficient payment approval workflow will provide you insights into what payments are coming up and allows you to assess the status of your cash flow.
Time wasted: A manual process means manual intervention and time wasted on emails, phone calls, checking, and double-checking paperwork, time that could be spent on doing more productive things for your business.
Potential for human error or fraud: The right payment approval workflow reduces human dependency and leads to fewer errors and minimizes the risk of tampering with invoicing and the payment process.
Example of a small business payment approval workflow:
Joe’s Tires is a small business.
An external accountant manages all invoice payments.
The office manager at Joe’s Tires has permission to place orders, make purchases, and approve invoices up to $2500.
Invoices over $2500 need the approval of Joe, the small business owner, before they can be paid.
Both the external accountant and Joe may request additional information before approving an invoice for payment.
What capabilities do you need for a small business payment approval workflow?
Defining your requirements is crucial before jumping into a solution. Many payment approval workflows are part of larger accounts payable platforms that are not necessarily designed for small businesses. You may find yourself paying for features that you don’t need and won’t use.
That being said, having an overview of the process and all your upcoming payments, coupled with the ability to assign payment roles and limit the amount that those involved can approve, might be enough to automate the process without the overkill of a complex accounts payable system.
Melio was tailored to answer the specific needs of small businesses,providing a straightforward payment approval workflow that allows small business owners to invite (or disinvite) people and set permissions within your business.
It is vital to define goals for your payment approval workflow so that you can find a solution that is best in line with your needs. Some key questions to ask yourself:
Who are the people that are currently part of my payment approval workflow? Do I need to add anyone else?
What amounts will I allow each person to approve?
What type of action will trigger the approval workflow - when an invoice is added or when it’s ready to be paid?
Does my business have more than one invoice type? Do I need different people to approve different invoices?
How do we validate invoices? Are there documents that need to be added to the payment request?
How easily can I set up the solution and adapt it to my needs? Will I need to bring in outside help?
As a small business owner, the ability to easily set up intuitive payment approval workflows can help your business run more smoothly. Melio makes it easy to implement payment approval workflows. It takes a few minutes and it is free. You can invite and disinvite people as needed and configure permissions according to your requirements. To learn more about how to set up a payment approval workflow with Melio, check out our FAQ.