Approve contractor invoices with confidence
Route invoices to approvers, link to milestones, record payments, and keep a clean audit trail for close.
Routing
A clear routing workflow ensures invoices get approved quickly and nothing falls through the cracks.
Typical approval flow
- Contractor submits invoice: Via email, portal, or accounting system
- Project owner reviews: Verifies work completed and invoice matches agreement
- Finance reviews: Checks budget, coding, and payment terms
- Approver signs off: Manager or budget owner approves payment
- Payment scheduled: Finance queues payment according to terms (e.g., Net 30)
Set approval thresholds to streamline the process. For example, invoices under $1,000 might only need project owner approval, while larger invoices require additional sign-off.
Approval threshold example
- Under $1,000: Project owner approval only
- $1,000 - $5,000: Project owner + finance review
- $5,000 - $25,000: Project owner + finance + department head
- Over $25,000: Project owner + finance + department head + CFO
Ties to milestones
Linking invoices to milestones makes approval faster and more accurate. Reviewers can quickly verify that work was completed as agreed.
Milestone-based approval
When a contractor submits an invoice, they reference the milestone or deliverable:
- Invoice line item: "Milestone 2: Homepage design - $2,500"
- Reviewer checks: Was Milestone 2 marked complete? Did we approve the deliverable?
- If yes: Approve payment
- If no: Request clarification or reject invoice
This approach prevents paying for incomplete work and reduces disputes. Both parties know exactly what's being invoiced and why.
Proof & confirmation
After approval, attach proof of payment and get confirmation from the contractor. This creates a complete audit trail.
Payment documentation workflow
- Invoice approved: Finance schedules payment
- Payment sent: Via bank transfer, Wise, PayPal, etc.
- Attach proof: Screenshot or PDF of payment confirmation from provider
- Notify contractor: Email with payment details and reference number
- Contractor confirms: Replies confirming receipt of funds
- Close invoice: Mark as paid and file all documentation
Keep all documentation in one place: original invoice, approval emails, payment proof, and contractor confirmation. This makes audits and month-end close much easier.
Exports
At month-end or for audits, you'll need to export invoice and payment data. Here's what to include.
Export fields for finance
- Invoice number: Unique identifier
- Contractor name: Legal name for 1099 reporting
- Invoice date: When invoice was submitted
- Amount: Total invoice amount
- Approval date: When invoice was approved
- Payment date: When funds were sent
- Payment method: Bank transfer, Wise, PayPal, etc.
- Reference number: Transaction ID from payment provider
- Milestone/project: What the payment was for
- GL code: Accounting code for categorization
Export to CSV or integrate directly with your accounting system (QuickBooks, Xero, NetSuite, etc.) to avoid manual data entry.
Frequently asked questions
What if an invoice doesn't match the agreed amount?
Reject the invoice and request clarification from the contractor. Reference the original agreement or milestone amount. If there was a change order, verify it was approved in writing before paying the higher amount.
How long should invoice approval take?
Aim for 3-5 business days from invoice submission to approval. Faster is better for contractor relationships. Set clear SLAs and notify contractors if there are delays.
Can I automate invoice approval?
Yes, for milestone-based payments. If a milestone is marked complete and approved, the system can auto-approve the corresponding invoice. Always require human review for invoices that don't match milestones or exceed thresholds.
What if a contractor doesn't confirm receipt of payment?
Follow up after 3-5 business days. If they still don't respond, keep your payment proof on file. Most contractors will confirm, but your proof of payment is sufficient for audit purposes even without their confirmation.
Should I pay invoices early for a discount?
If a contractor offers early payment terms (e.g., 2% discount for payment within 10 days), evaluate whether the discount is worth the cash flow impact. For large invoices, the savings can be significant.