Organizations rely on business partnerships to help them take big, strategic steps forward, but confusion and disagreements over milestone invoicing can set accounting managers back.
For as long as businesses have been sending invoices, there have been invoicing errors and disagreements about account balances. How long it takes to resolve these issues is an important data point to include on dashboards that measure the accuracy and efficiency of accounting functions.
Although these cycle times have remained relatively constant over time, according to cross-industry benchmarking data collected by the American Productivity & Quality Center (APQC), the prevalence of strategic business transformations in recent years has caused the source of the errors to shift. Now, in addition to human error and other traditional root causes, contract disputes, which usually take much longer to resolve, have become a common culprit.
Harmful effects of invoice errors
Whatever the cause, invoicing errors are a waste of time for organizations and their customers. Employees and customers must spend time discussing the errors and finding out what caused them. Beyond data-entry issues and contract-related disagreements, reasons for errors can include incorrect pricing or unexpected charges, wrong quantity relative to the purchase order, incorrect customer information (wrong department, name, etc.) and using the wrong tax rate.
Inevitably, errors lead to payment delays, but if they happen repeatedly, they can also erode trust. Organizations that resolve errors quickly will save time and receive payments faster while maintaining customer confidence.
In recent years, robotic process automation and enterprise resource planning solutions have significantly reduced data-entry errors and cycle times in invoice processing, especially in large organizations with the resources to properly implement and integrate these systems. But contractual issues, such as payment timing, related to capital expenditures can result in long lag times for resolution, regardless of an organization’s technological maturity or capacity.
Measuring cycle time
The cycle time to resolve an invoice error measures the number of days needed to reconcile line items on an invoice 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 correcting the error as well as any time that elapses before complete resolution. 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 (i.e., those in the 75th percentile) spend twice as many days as top performers resolving invoice errors. To increase team productivity and reduce customer frustration, finance and accounting leads should track this measure and make every effort to uncover the root causes of any systemic errors.
Companies that continue to send paper invoices or process invoices manually run the greatest risk of invoicing errors. Human error easily creeps in when data entry is done manually.
Capital projects involving contractors are usually structured in phases, with contracts outlining the terms of payment. Invoicing generally occurs at certain intervals or milestones, often following receipt of specified deliverables.
Slowdowns in invoice processing happen when accounting teams don’t understand the terms of the agreement, which can differ considerably from the standard customer contracts to which they are accustomed. This situation wastes staff time on both sides and negatively affects cash flow for the contractor, which risks harming the relationship.
Finance leaders can mitigate the risk of errors and delays by making sure employees understand that contracts for large-scale infrastructure projects often carry unique stipulations. The appropriate financial managers should always confer with legal and functional leaders at the outset of major strategic projects to discuss and define contractual payment terms.
The contractor in this scenario should also talk with customers about what constitutes the completion of deliverables for invoicing during the early stages of the engagement. Crafting crystal-clear expectations in the contract does not guarantee a dispute-free project, but it does reduce the risk of experiencing problems down the line.
Reducing cycle time to resolution
To improve cycle times to resolve other types of errors, automation is always a strong bet. RPA software automates manual, repetitive or high-volume tasks or processes, greatly reducing errors in data entry. These solutions have become more cost-effective and accessible over time. Integrating RPA with ERP systems further reduces risk, removing the need for humans to manually transfer data from one system to another.
Before automating invoice processing, companies must establish a single source of truth for customer data, making sure to rectify issues that result in missing, incorrect, or incomplete data.
Finally, create a centralized document repository to house purchase orders and signed agreements. Using consistent naming conventions and well-defined governance keeps documents current and reliable.
No organization is immune to errors, but how leaders interpret them makes a difference. While system integration and automation reduce risk, treating errors as an opportunity to learn and improve increases the chances of finding the root causes and preventing recurrence
