Invoice Approvals vs Purchase Approvals: Why They’re Not The Same
At the very least, we would all agree that invoice approvals are approvals that are obtained after the fact. In other words, these approvals are sought from the relevant stakeholders after an invoice arrives — or to put it more bluntly, after the company already owes money to the vendor who issued the invoice.
To really understand how Invoice Approvals differ from Purchase Approvals, let’s first consider the various kinds of Invoice Approval processes that may be used by companies.
1) Invoice Approval as a Verification Process:
In this particular kind of process, the invoice approval action lets the Finance department (or the Budget Holder, or the Purchasing Manager, or the person who actually placed an order with the vendor) confirm that the items in the invoice were actually ordered by the company.
In summary, this type of invoice approval process is, at best, a verification process.
2) Invoice Approval as a Spend Control Process:
In this particular kind of process, an invoice, recently received by the Accounts Payable clerk, is first verified as a legitimate invoice. Subsequently, it is escalated to a higher-up in the Finance Department — the Controller, VP of Finance, or even the CFO depending on the size of the company — for their approval.
At some companies, the invoice needs to be over a certain dollar value to even necessitate this process. That’s largely because Finance Leaders want to be apprised of any major or high dollar value outflows taking place under their watch.
If you look at Point 2 more closely, you will realize that this sort of Invoice Approval process wouldn’t be very effective from a spend control standpoint. In other words, an invoice approval process stands little chance of letting your company control its spending if the approvals are taking place after the orders have been delivered by the vendor, and, ipso facto, money is already owed to him.
And it’s this very shortcoming of Invoice Approvals that Purchase Approvals fix, along with providing a range of direct and indirect benefits to boost Internal Controls and Spend Visibility.
Now, let’s consider Purchase Approvals, and how they help the Finance Department perform its functions much more effectively.
Purchase Approvals, in contrast to Invoice Approvals, actually take place before the fact — or before an order is actually placed with a vendor. Here’s how a Purchase Approval plays out: