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What are payment approval workflows and how to use them

Gilad Idisis
Published at | Updated:

As a small business owner, you’re knee-deep in work to make your business succeed. There are a million things on your mind at any given time, and when it comes to managing your expenses and paying your bills, you need to find a way to balance keeping it simple, and maintaining control over your payments. 

By implementing payment approval workflows for your accounts payable, you gain control and clarity over your expenses in all the chaos and commotion of running your business. If done right, setting approval workflows makes your business much more efficient, sets the groundwork for growth, and take little effort and time to implement.

What are payment approval workflows? 

Payment approval workflows are a financial practice that requires a payment to be approved by someone else in the company, other than the person making the payment. 

In other words, it’s a set of predetermined rules for every time your business needs to pay an invoice, determining who in the company needs to go over it and greenlight it. 

Let’s say there’s a small business called Merry’s Marmalade. It’s run by Merry and employs a small staff and an outsourced bookkeeper (let’s call him Sam) who handles invoice payments. 

Merry and Sam can set a rule that every invoice payment has to be approved by Merry before  Sam makes it, no matter how big or small. 

Now let’s say that after a while, Merry’s business grows, and her transaction volume increases. Just before the holiday rush, Merry realizes she can’t go over every single payment, nor does she need to – she’s learned she can trust Sam’s judgment on day-to-day bills. But she still wants to have control over large expenses. Merry can set an approval workflow that only requires her approval for invoices over $500. Anything below that can be paid by Sam without involving her. 

Alternatively, Merry can decide that payments below $500 will be reviewed and approved by her office manager, and anything above that requires her approval. Or she split the approval workflows and assign approval authority to different people in her business: Any expense over $500 categorized as utilities must be approved by her office manager, and any payment to suppliers will be approved by Merry herself. 

This is a simplified example of a payment approval workflow. Workflows can be constructed any way you, as a business owner, see fit, to achieve the best balance between efficiency and oversight. 

Why do we need payment approval workflows? 

As a small business owner, you might be thinking, “I handle all the payments myself. I know what I need to pay and when. Why all this red tape? Why can’t I just wing it?” or, “My brother-in-law does my business’s accounting and handles all my payments. I trust them with my life. Why do I need to double-check what they’re doing?”. 

The answer lies in three simple words: People make mistakes.

Setting up clear payment approval workflows for your accounts payable function enables your business to:

  • Have better transparency, oversight, and control over your payments.
  • Promote accountability by whoever is involved in the payment process.
  • Recognize errors in invoices and minimize inaccurate payments.
  • Removing the (hopefully remote) chance of fraud and embezzlement.

How to decide on the payment approval workflows in your business

When deciding on your payment approval workflow, first you need to answer these three questions: 

  • Who? Decide on who should be involved in the process – it can be your office manager, the person in charge of purchasing, your in-house bookkeeper, or an external accountant. 
  • How much? Amounts – what amounts will I allow each person to approve?
  • When? What type of action will trigger the approval workflow – when an invoice is added or when it’s ready to be paid?

Not all payments have to go through the same process. You can decide, for example, that certain purchases (like supplies) will go through your warehouse manager, and office purchases will go through your office manager. 

How to implement payment approval workflows efficiently

Do you remember those scenes in “The Office” where Pam or Oscar would try to get Michael to sign off on checks? Well, that’s the old-fashioned (yet hilarious) way of approving payments. Hopefully, you’re running your business more smoothly and you’re paying most or all of your bills with an online service through ACH transfers

Here’s when it’s important to choose your service provider wisely: many bill pay services have payment approval features (and even some bank services have it), but you need to find the sweet spot between flexibility, modularity, and ease of use. 

Some services are great for larger organizations with CFOs and entire bookkeeping departments. They offer a multilevel approval process but are very complex to use and cost quite a bit. 

If you’re running a coffee shop or a clothing store, that’s really not for you, and you may need something much simpler. There’s no escape from doing some research and comparison between service providers. 

If you’re still relying on paper checks for some of your vendors, you can find a service provider that allows you to still pay online and send a check without you having to write or send it. That way, you get the best of all worlds – you save time with online approval workflows and can still send paper checks.

Now that we’ve laid the essential groundwork for how payment approval workflows work, you can start implementing them in your business. Do your research, pick an online service provider, and begin setting approval workflows that will help streamline your bill pay operation.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.