Approval Matrix

An approval matrix is a document or system configuration that defines who can approve which types of financial transactions, at what value thresholds, and under what conditions. In accounts payable, the approval matrix determines which invoices go to which approvers, how many approvals are required at different spend levels, and what happens when the standard approver is unavailable.

An approval matrix is the operationalisation of the delegation of authority policy. Where the DoA policy states the principles, the approval matrix translates those principles into specific routing rules that can be configured in an AP workflow system or communicated as clear guidelines to the people involved in the approval process.

The variables in an approval matrix

A well-designed AP approval matrix uses some combination of the following variables to determine routing. Invoice value is the most common: different dollar thresholds trigger different approval requirements. Cost centre or department determines who needs to approve invoices charged to their budget. Supplier category determines whether a purchase is strategic, routine, or requires special scrutiny. Entity determines which approvers are relevant in a multi-entity business. Invoice type determines whether a PO-matched invoice takes a different path than a non-PO invoice.

A simple approval matrix might use only invoice value. An invoice below $1,000 is approved by the accounts payable manager. An invoice between $1,000 and $10,000 is approved by the relevant department head. An invoice above $10,000 requires both the department head and the financial controller. This is straightforward to implement and understand.

A more sophisticated matrix adds cost centre routing: a marketing invoice goes to the marketing manager regardless of amount, but also requires the financial controller if it exceeds $5,000. A capital expenditure invoice always requires board approval regardless of amount. These additional dimensions give the business more precise control over who is authorising spend in which areas.

Designing an approval matrix for a small business

For small Australian businesses with limited management layers, the approval matrix needs to be realistic about who is available to approve invoices without creating a bottleneck. A common design for a business with a working director, a financial controller, and department managers is: invoices under $2,000 approved by the financial controller alone, invoices between $2,000 and $20,000 approved by the relevant department manager, and invoices above $20,000 requiring the director.

The key design principle is that the approval thresholds should match the actual risk tolerance of the business. Setting thresholds too low means the director is approving routine stationery invoices. Setting them too high means high-value invoices are approved without adequate oversight.

The approval matrix as a living document

An approval matrix should be reviewed at least annually and updated when the business structure changes, when key personnel change, or when the business grows to the point where the existing thresholds are no longer appropriate. It should also be tested: periodically checking that the configured workflow rules actually match the documented matrix reveals discrepancies that may have been introduced during system updates or staff transitions.

For businesses that have grown through multiple stages without formally documenting their approval matrix, the process of creating one for the first time often reveals that the informal approval process has significant gaps: invoices being approved by people who do not have the authority to do so, high-value invoices going through without adequate oversight, and no documented escalation path for urgent approvals when the primary approver is unavailable.