The Cost Of Poor Invoicing

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Author: Tim Cummins

There have been many highly publicized cases where invoicing went badly wrong, especially in the public sector. But the challenge of effectively checking and validating invoices is universal.

For example, a recent consultancy report suggests that Small-Medium Business in the UK loses £9bn a year due to invoice errors and fraud. In Australia, news broke in April this year of a multi-million dollar fraud scheme involving employees at one of the country’s biggest banks. The Better Business Bureau and Office of the Attorney-General in the US issue regular warnings about the prevalence of fake invoices.

However, the problem is not only related to deliberate fraud. With businesses increasingly purchasing services, rather than goods, the opportunities and likelihood of incorrect invoicing increase. Many charges today are based on hours worked, or the level and experience of staff deployed. There may be complicated algorithms for payment, related to performance levels or results achieved. These factors make errors more likely and checking more complicated.

In a recent IACCM survey, almost 60% of participants acknowledged that increasing complexity and difficulty in understanding contracts is translating to invoicing errors. In most cases, their invoice-checking capabilities remain rudimentary. Just 12.7% have advanced systems to validate accuracy, leading to an overall estimate that businesses are, on average, losing an amount equivalent to 4.3% of invoice value.

The scale of impact varies, with services agreements especially vulnerable and particular industries – such as construction – reporting higher frequency of errors.

Is this inevitable?

Ultimately, there will always be errors – both unintentional and malign – in invoicing. But that doesn’t mean that customers (or suppliers) are helpless. There is extensive publication of ‘best practise’ advice from governments and NGOs.

Increasingly, there are also advanced software packages that can assist. One of those comes from Zen Enterprise and I recently conducted a short interview with its CEO, Brett Petersen. The resulting podcast (and the recent IACCM survey) can be accessed at https://www.iaccm.com/resources/?id=10273

 

Read more from Tim Cummins on the Committment Matters website.

Tim Cummins is CEO of the International Association for Contract & Commercial Management (IACCM), a non-profit organization that he founded in 1999. Read more here.

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1 Comment

  1. A great talking point!
    Key will be the ‘good use’ of the appropriate buying channels / formats / purchase order types. At the same time the automation of PO / invoice exchange will be essential . Buyers should make use to of transaction networks, such as offered by Ariba and others, to align invoicing tightly to Purchase Orders.
    The challenge will be to develop transaction rules that allow uncertainties in demand in areas such as services or construction. But those are already out there!

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