How to Build a Robust Approval Matrix for Finance Teams

Finance teams frequently face challenges with inefficiencies and delays in their approval routing processes. Manual approval methods can create bottlenecks, increasing errors and compliance risks. Establishing an effective approval process is crucial for overcoming these issues.

A robust approval matrix not only streamlines operations but also enhances compliance and reduces errors through automation. By automating the approval workflow, finance teams can minimise manual intervention, ensuring that transactions are routed swiftly to the appropriate decision-makers and enhancing spending controls. This article explores how to create a well-structured approval matrix tailored to your organisation's needs, focusing on leveraging automation to tackle common challenges faced by finance teams.

Understanding Approval Processes

What is an Approval Matrix?

An approval matrix is a systematic framework that defines the levels of authority required for approving financial transactions. It clarifies who is responsible for authorising specific actions, such as expense claims and invoice approvals, thereby facilitating smoother operations within finance teams.

Importance of a Well-Designed Matrix

A well-designed approval matrix is essential for several reasons. First, it reduces the likelihood of errors by ensuring that transactions are reviewed and approved by the appropriate personnel. Second, it improves efficiency by streamlining the approval process and minimising delays. Lastly, it enhances compliance with organisational policies and regulations, providing a clear audit trail for all approvals.

Applications of an Approval Matrix

The approval matrix can be applied to various financial processes, most notably in the expense claims process and invoice approvals. Organisations can strengthen their financial controls by clearly defining the steps and levels of authorisation required for these processes.

Key Components of a Robust Approval Matrix

Clear Approval Levels

Establishing clear approval levels and hierarchies is critical for an effective approval matrix. Each level should specify who authorises transactions, ensuring accountability and clarity throughout the process. Additionally, it’s important to set specific conditions that must be met when determining approvers, such as transaction amounts, cost categories, or project scopes. These conditions help ensure that the right individuals are involved in the decision-making process based on their expertise and the financial implications of the transactions, further enhancing the overall effectiveness of the approval matrix.

Customisable Approval Rules

Customisable approval rules are essential for an effective approval matrix, allowing finance teams to adapt the process to their organisation’s specific needs. This flexibility enables different approval paths for various types of expenses. For example, marketing costs might require different authorisation levels than operational expenses.

You can set rules where a senior manager must approve expenses over £500, while team leads can authorise smaller amounts. This ensures the approval process remains relevant and efficient, applying appropriate oversight based on the significance of each transaction. Organisations can streamline workflows, enhance accountability, and maintain control over financial processes by tailoring these rules.

Dynamic Workflows

Dynamic workflows offer significant advantages by adjusting to various scenarios and processes. These adaptable systems can respond to changes in transaction types or values, making the approval process more efficient and responsive. For instance, if a transaction exceeds a certain amount or falls into a specific category, the workflow can automatically route it to the appropriate approvers based on predefined criteria.

This flexibility not only speeds up the approval process but also ensures that each transaction is handled appropriately, reducing the risk of delays or errors. By implementing dynamic workflows, organisations can enhance their overall efficiency and maintain a streamlined approval process that adapts to their evolving needs.

Best Practices for Designing Your Approval Matrix

Define Approval Thresholds

Setting thresholds for different types of expenses and transactions is vital. Conditions-based thresholds should be implemented to approve or disapprove expense requests in accordance with the organisation’s policies. This ensures that only appropriate transactions receive approval.

Establish Role-Based Permissions

Ensure that roles and permissions within the approval matrix align with your organisation's structure and responsibilities. This alignment is essential for maintaining accountability and facilitating efficient decision-making.

Incorporate Compliance and Audit Trails

Implementing features that track approvals is critical for maintaining compliance with regulations. Approval notifications should be integrated into the system to alert relevant stakeholders of pending approvals, enhancing transparency and accountability.

The Approval Matrix Applied: An Example for Businesses and Finance Teams

To illustrate the practical application of an approval matrix, let’s consider a hypothetical example of invoice approvals for ABC Logistics Inc.:

1. Invoice Submission: The finance team, led by Sarah as the finance manager, receives an invoice from a vendor through their online portal, which is automatically scanned and entered into the financial system.
2. Initial Review: John, a finance analyst, checks the invoice details against the purchase order. The system flags any discrepancies for review.
3. Automated Routing: The invoice is routed to the Office Manager based on its category and amount.
4. Departmental Approval: The Office Manager reviews and approves the invoice, ensuring it fits within the department’s budget.
5. Secondary Review (if applicable): High-value invoices are sent to a senior manager for additional approval.
6. Final Approval: The invoice reaches Sarah for final sign-off, where she reviews all previous approvals.
7. Payment Processing: The approved invoice is sent to accounts payable for payment.
8. Record Keeping: The invoice and all approval records are securely archived, with all relevant data integrated into the accounting software. This ensures the timely generation of month-end reporting.
9. Reporting and Analytics: Monthly reports are generated to review the approval process and identify areas for improvement.

Outcome

By implementing this structured workflow, ABC Logistics Inc. has experienced significant benefits, including reduced processing times and increased compliance with financial regulations, along with streamlined reporting thanks to seamless integration with their accounting software.

Start Streamlining Finance Operations with a Strong Approval Matrix

Establishing a well-structured approval matrix is vital for finance teams to enhance efficiency, reduce errors, and ensure compliance. By defining clear approval levels, customising approval rules, and implementing dynamic workflows, organisations can significantly improve their approval processes. Automation plays a pivotal role in this transformation, allowing for quicker routing of approvals and minimising the need for manual intervention.

To optimise your approval processes, consider leveraging Summit's spend management software, which features an advanced approval workflow automation tool. Contact our team today to discover how you can implement approval workflow automation tailored to your company's needs.