Tracking down and correcting invoice mistakes in major construction projects: Monthly Key Performance Indicator
Business Partnership Hurdles: Navigating Invoicing Woes
Business interactions rely on strategic partnerships to propel growth, yet a thorny issue has been bugging accounting teams: invoicing disagreements and confusion.
For ages, invoicing snags have existed, from invoicing snafus to discrepancies in account balances. Tracking how long it takes to put these issues to rest is a crucial data point for dashboards gauging the precision and speed of accounting operations.
Even though average resolution times have remained steady over the years, as per cross-industry benchmarking data collected by the American Productivity & Quality Center (APQC), recent market changes have caused the grounds for these errors to shift. Now, contract disputes, a habitual trait that takes more time to untangle, have become a frequent headache, alongside traditional bottlenecks such as human error and miscommunication.
How Invoicing Gaffes Impact Business
Whatever the cause, invoice flubs can drain time and resources from organizations and their customers alike. Workers and clients are compelled to discuss the flubs and unravel what sparked them. Beyond data-entry blunders and contract squabbles, potential reasons for blunders range from incorrect pricing to misappropriated fees, invalid quantities compared to purchase orders, and incorrect client data (e.g., misidentified departments, names).
Incessant blunders inherently lead to delayed payments, but if they recur frequently, they can also chip away at customer trust. Firms ensuring swift resolution will reap time savings and receive payments quicker while bolstering customer confidence.
In recent years, robotic process automation and enterprise resource planning solutions have significantly diminished data-entry errors and cycle times in invoice processing, particularly in larger organizations with ample resources to properly implement and integrate these systems. However, contractual frictions, like payment gaps, related to capital investments can lead to lengthy delay resolution, regardless of a company's technological maturity or capacity.
Quantifying Cycle Time
The cycle time to resolve an invoice blunder measures how many days are needed to align line items on an invoice with purchase orders and any receiving documents. Similar to other cycle time measures, the cycle time to resolve an invoice blunder includes the time spent correcting the blunder as well as any elapsed time before resolution is complete. For example, if an employee fixes an invoice in real-time during a customer call but doesn't resend the revised invoice until two days later, the total time to resolve the invoice is three days.
APQC's research indicates that bottom performers (i.e., those in the 75th percentile) take twice as many days as top performers to resolve invoice blunders. By monitoring this metric and digging deep into the underlying causes of systemic blunders, finance and accounting leaders can boost team productivity and minimize customer frustration.
Companies still relying on paper invoices or manual processing are most vulnerable to invoicing blunders. Human blunders often seep into data input when tasks are performed manually.
Capital projects involving contractors typically unfold in stages, with contracts specifying the terms of payment. Invoicing usually takes place at specific intervals or milestones, often following the receipt of specified deliverables.
Delayed invoice processing occurs when accounting teams fail to grasp the terms of the agreement, which may differ significantly from the standard client contracts they're used to. This can result in wasted effort on both sides and jeopardize the contractor's cash flow, potentially harming the relationship.
Financial leaders can minimize the risk of errors and hold-ups by educating staff about the unique stipulations often found in contracts for large-scale infrastructure projects. The appropriate financial managers should always confer with legal and functional experts at the onset of significant strategic endeavors to discuss and define contractual payment terms.
The contractor in this situation should also converse with customers about what constitutes package completion for invoicing during the project's early stages. Clarity in expectations, though not a foolproof guarantee against disputes, can reduce the likelihood of experiencing difficulties down the line.
Strategies to Slash Resolution Time
To boost resolution times for other sorts of errors, automation remains a wise choice. Robotic process automation (RPA) software automates repetitive or high-volume tasks, substantially reducing data-entry blunders and improving accuracy. Considerably more affordable than in the past, RPA solutions are increasingly accessible. Integrating RPA with ERP systems further reduces the danger, sparing humans from needing to manually transfer data from one system to another.
Before automating invoice processing, companies must ensure a single source of trustworthy customer data, squaring away any issues causing missing, faulty, or incomplete data.
Lastly, establish a centralized digital vault to store purchase orders and signed agreements. Using consistent naming practices and solid governance ensures documents remain current and reliable.
No company is beyond the reach of errors, but how leaders perceive and learn from them makes a difference. While technological integration and automation decrease the likelihood of errors, treating mistakes as opportunities for growth increases the chance of discovering the underlying causes and preventing repetition.
Tip: Streamline your accounting process by automating invoice management. This reduces manual errors and frees up your team to focus on critical tasks.
Related Reading: 5 Strategies for Streamlining Invoice Processing
[1] A. Productivity & Quality Center (APQC). (n.d.). Accounts Payable Best Practices.
[2] I. Public Accounting Report. (2020). Modernizing Accounts Receivable and Inventory Management.
[3] C. P. McCue. (2021). Invoice errors: Causes, consequences, and corrective actions.
[4] E. Erlandson. (2020). Reducing Accounts Receivable Cycle Time at Companies Large and Small. CFO magazine.
[5] V. R. Shanmugam, M. M. Al-Mashari, & A. W. Piercy. (2000). A framework for benchmarking and best practice organization in accounting, finance, procurement, supply chain, and logistics.
Enrichment Data:
- Cause Analysis: Invoice errors can stem from factors like manual data entry mistakes, intricate pricing models, currency conversion issues, inconsistent paperwork standards, and incomplete or inaccurate information.
- Defining Cycle Time: Cycle time to resolve an invoice error measures the days needed to align invoice line items with purchase orders and receiving documents, including the time spent resolving the error and any subsequent delay periods.
- Financial and Relationship Consequences: Invoicing errors can result in financial losses due to underpayments and delayed accounts receivable reconciliation, incur additional penalties for delays and chargebacks, and erode trust between business partners, potentially harming relationships.
- Mitigation Strategies: To reduce the incidence and impact of invoicing errors, companies can implement an array of strategies, such as automating invoice processing, adopting standard invoice formats, providing extensive training, conducting regular audits, and maintaining clear lines of communication with business partners.
- Prevention and Continuous Improvement: Treating errors as opportunities to learn and improve tackles the root causes and decreases the likelihood of repeat occurrences.
- To reduce the risk of invoice errors that can lead to delays and disputes in business partnerships, finance leaders can invest in automation tools like robotic process automation (RPA) software.
- RPA software can automate repetitive tasks, thereby reducing data-entry errors and improving accuracy, which is crucial for invoice management.
- In addition to automation, implementing a centralized digital vault for storing purchase orders and signed agreements can prevent missing, faulty, or incomplete data, thereby reducing the chances of invoice errors.
- Financial and accounting leaders can also minimize the risk of errors by educating staff about unique stipulations found in contracts for large-scale infrastructure projects and conferring with legal and functional experts at the onset of significant strategic endeavors.
- Companies should aim to treat invoice errors as learning opportunities because technological integration and automation may decrease the likelihood of errors, but perceiving and learning from errors increases the chance of discovering the underlying causes and preventing repetition.
