Invoicing errors are a waste of time for all parties. The customer not only has to contact you (the supplier) to resolve the error, but your employees need to investigate its cause. Then, ideally, an employee has to take action to make sure the problem doesn’t recur.
Invoicing errors happen for many reasons:
Incorrect pricing or unexpected charges
Wrong quantity relative to the purchase order
Incorrect timing for payments
Incorrect customer information (wrong department, name, address, etc.)
Wrong tax rate
Unclear terms and language
Errors like these can all lead to customer payment delays. If they happen repeatedly, your customers will stop trusting you. Companies that can resolve these errors quickly get payments faster and have more time to spend on value-added activities. They also leave customers confident that the company can quickly and accurately address their concerns.
"The cycle time to resolve an invoice error," APQC's benchmark, measures the number of days needed to reconcile invoice line items with purchase orders and any receiving documents. As with other cycle time measures, the cycle time to resolve an invoice error includes the time spent actually performing the process and any time spent waiting for the process to move forward.
For example, if an employee corrects an invoice in real-time during a customer call but does not follow up with the new invoice until two days later, the total time to resolve the invoice is three days.
APQC finds that bottom performers (75th percentile) spend twice as many days as the top (most efficient) performers (25th percentile) resolving invoice errors. If you want your team to be more productive and avoid frustrating customers, track this measure and uncover the root causes of any systematic delays in error resolution.
Companies that send paper invoices or that process invoices manually run the greatest risk of errors. Data entry or calculation mistakes are easy to make when an employee is manually writing or entering data into an invoice. But even organizations with fully digitized invoicing commit errors when their data or processes are not well-ordered. Below, we discuss three strategies of leading companies to mitigate the risk of invoicing errors.
Automate Customer Invoicing
Robotic process automation (RPA) uses software to carry out manual, repetitive, or high-volume processes or process steps. Automated invoicing solutions can enter the data, crunch the numbers, and invoice the customer. These solutions greatly reduce or even eliminate manual data-entry errors and over time have become more cost-effective and accessible.
Automation also helps connect disparate systems across an enterprise. Without these connections, data entered in one system may not carry over to another, or an employee will have to manually transfer the data, which also carries the risk of errors. Automation does take time and resources to implement effectively, but it’s worth it for those reasons.
Keep Data Clean
Even the best automation tools are only as good as the data. Missing, incorrect, or incomplete customer data means a heightened risk for invoicing errors that require time and energy to resolve. When agreeing to contract terms with a customer, make sure employees get the correct company billing name, the name of the person in the department that settles the bills, a contact number for that person, and any other information needed to invoice the customer. This data should have a single, indisputable source of truth that feeds into the company's processes and systems.
Make Documents Easy to Find
Common invoicing errors such as incorrect pricing should be easy to resolve through recourse to an original contract, purchase order, or sales order. Documents signed by both parties provide the agreement of record and supersede any conversations over the phone or by email. However, it will take longer for a team to resolve an invoice error if they can’t find these documents quickly and easily. A centralized document repository, consistent naming conventions, and governance over the content are all important.
When errors do occur, the above practices also allow a team to resolve them more quickly. With automated and integrated systems, clean customer data, and accessible documentation, the best companies can resolve invoicing errors in three days or less — and some can do so in real-time.
Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston.