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Invoice accuracy: problem or opportunity?

May 18, 2018

Organizations that institute greater controls over invoice payment achieve, on average, a benefit of around 4.3% of invoice value. That represents a lot of money – so it is worth reading on!

IACCM, in partnership with Zen Enterprise, recently undertook a survey to explore current levels of sophistication in billing and invoicing systems and procedures. 43% of those responding admitted that verification of invoice accuracy is somewhat ‘ad-hoc’ and lacks systems support. Only 13% are “utilising technology to automate and standardise the invoice verification process, including integration to provide independent verification”.

What causes inaccuracy?

The survey indicates that a variety of factors impact the scale of invoicing errors. Not surprisingly, overall business complexity is significant and manifests itself in a variety of ways:

  • Can people understand the contract? Almost 59% of respondents recognize that this is a problem. The structure and the wording often lead to confusion and possible misinterpretation and / or disagreement.
  • In situations where the contract is negotiated, 26% feel that disconnects between those who negotiate and those who implement and manage often creates downstream problems, especially when non-standard prices or charges are involved.
  • 29% say that there is often a lack of clarity over roles and responsibilities for contract management, leading to poor data flows and information exchange.
  • Just over 57% indicate that their organization lacks a sufficient number of people with the right skills to perform effective contract management.

The lack of integrated technology to support invoice generation and validation (just 12.5% have such software) obviously increases the reliance on human skills and accuracy. It would seem that buyers should be asking their suppliers to describe their invoicing methods, to gain understanding of the likely level of inaccuracy.

Points to consider

It is not surprising that the frequency of errors increases when services are involved, although product sales are not immune from error. Discount arrangements often result in mistakes, though any form of ‘custom pricing’ requires added vigilance. Market segmentation leads to extensive granularity in pricing and, unless the supplier has extremely sophisticated software, results in a high likelihood of incorrect billing.

Services inevitably involve variable factors such as use rates, billable hours and differentiated charging levels. These demand robust internal systems within the supplier to capture and record the relevant metrics; they create challenges for customers with regard to undertaking tests to validate invoices. This is the area where the greatest inaccuracies occur – on average, around 6% of invoice value, according to the research results.

Call to action

A significant percentage of respondents do not have consistent and defined operating procedures for billing and invoicing production or checking on complex contracts. Since this is an obvious area of exposure, it clearly merits immediate attention.

As highlighted above, organizational structure often results in poor information flows and unreliable data capture. This is another area for review and improvement, applicable to over 85% of those who responded.

Finally, given the growing complexity of business operations, investment in software support is an obvious step. Digital systems and robotic process automation (RPA) are already leading to rapid improvement in some organizations, but these are a small minority. For the majority of organizations there is a clear business case to invest in technology that will deliver significant productivity gains, eliminate cost leakage, and improve transparency to support informed decision making.

One Comment
  1. Tim,

    Couldn’t agree more with your assessment. Managing the inherent complexity of commercial relationships and the impact it can have on billing accuracy is a central focus at Pramata. In fact, we’re working with businesses that have found millions in lost revenue just from missed price increases. Thanks for highlighting this very important topic!

    David Munn

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