Reducing billing inaccuracies in major construction projects: Monthly Key Performance Indicator
Invoice Woes: Busting the Dispute Cycle in Business Partnerships
Strategic ties are essential for businesses to advance, but disagreements over invoice milestones can hinder progress for accounting managers. For ages, invoice chaos and squabbles over account balances have nagged businesses, with the time it takes to resolve these issues being a critical metric to monitor.
Despite stability in dealing with invoice discrepancies over time, recent years have seen a shift in their source, thanks to an increase in strategic business transformations. Alongside human errors and traditional pitfalls, contract disputes - known for lengthy resolutions - have become frequent stumbling blocks.
Damaging Impact of Errors on Business
Whatever the cause, invoice errors are a drain on organizations and their customers. They lead to discussions over the errors and their causes, adding unnecessary hours to the calendar. Reasons for errors can range from data-entry mistakes and contract-related disputes to incorrect pricing, misaligned quantities, erroneous customer info, or improper tax rates.
Inevitably, errors result in payment delays. Persistent mistakes can also corrode trust, pushing organizations to settle disputes swiftly, expedite payments, and maintain customer faith.
In recent times, automation solutions like robotic process automation (RPA) and enterprise resource planning (ERP) have significantly reduced data-entry errors and cycle times in invoice processing, particularly in large organizations with the resources to implement and integrate such systems. However, contractual issues — such as payment timing related to capital expenditures — can still cause significant lag times, regardless of technological maturity or capacity.
Measuring Invovice Resolution Time
The time taken to resolve an invoice error is known as the invoice resolution cycle time. This number includes the time spent correcting errors and any elapsed time before complete resolution. For instance, if an employee rectifies an invoice in real-time during a customer call but doesn't follow up with the new invoice until two days later, the total resolution time is three days.
APQC reveals that bottom performers (those in the 75th percentile) spend twice as many days as top performers resolving invoice errors. To enhance productivity and quell customer frustrations, finance and accounting heads should track this measure and work tirelessly to uncover the root causes of systemic errors.
Businesses that rely on paper invoices or manual invoice processing are at the highest risk of errors. Human error easily sneaks in when manual data entry is involved.
Capital projects involving contractors are usually structured in phases, with contracts outlining the terms of payment. Invoices are typically issued at specific intervals or milestones following the delivery of specified deliverables.
Delayed invoice processing occurs when accounting teams don't grasp the terms of the agreement, which can be vastly different from standard customer contracts. This miscommunication wastes both parties' time and negatively impacts contractor cash flow, potentially damaging the relationship.
Financial leaders can minimize the risk of errors and delays by educating employees that contracts for large-scale infrastructure projects often harbor unique stipulations. The appropriate financial managers should always consult 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 chat with customers about what constitutes completion of deliverables for invoicing early in the engagement. Crafting crystal-clear expectations in the contract may not guarantee a dispute-free project, but it does decrease the likelihood of experiencing problems down the line.
Strategies for Reducing Resolution Time
To enhance invoice resolution cycle times, automation is always a solid choice. RPA software automates repetitive, manual, or high-volume tasks, drastically decreasing the chance of data entry errors. As these solutions have become more affordable, they are increasingly accessible for organizations. Integrating RPA with ERP systems further diminishes the need for human data transfer, from one system to another.
Before automating invoice processing, companies must consolidate customer data into a single source of truth, addressing underlying issues that lead to missing, erroneous, or incomplete data.
Finally, establish a centralized document repository to house purchase orders and signed agreements. By using consistent naming conventions and strict governance, documents stay current and reliable.
Although no organization is immune to errors, how leaders respond to them makes a difference. While system integration and automation reduce risk, regarding errors as learning opportunities increases the chances of discovering the root causes and preventing recurrence.
Sources:
- American Productivity & Quality Center (APQC)
- O'Donnell, K. (2020). APQC Perspectives: Beyond the Numbers: Managing Accounts Payable Chemical Industry Assessment Findings 2019. APQC.
- Baddiley, C. (2021). How to tackle accounts payable errors and improve efficiency. TechTarget.
- Creighton, R. (2021). 5 ways AI can help mitigate the impact of data entry errors. IT Pro Portal.
- Anand, R. (2021). How to optimize accounts payable processes to reduce invoice processing errors. ZDNet.
- Amidst strategic business partnerships, disputes over invoice milestones can pose significant challenges for accounting managers, hindering progress and prolonging resolution times.
- Invoice errors, caused by various factors such as human errors, data-entry mistakes, or contractual issues, can lead to payment delays, damaging trust, and pushing organizations towards quick resolutions.
- Automation solutions like Robotic Process Automation (RPA) and enterprise resource planning (ERP) have considerably decreased data-entry errors and cycle times in invoice processing, but contractual issues persist as potential roadblocks.
- The invoice resolution cycle time indicates the total time spent correcting errors and any additional elapsed time before complete resolution, with bottom performers taking twice as many days as top performers to resolve invoice errors.
- Businesses relying on paper invoices or manual invoice processing are particularly susceptible to errors due to human intervention in data entry.
- Capital projects involving contractors often involve contracts with unique stipulations related to payment terms, and delays can occur when these terms aren't clearly understood, resulting in wasted time and disrupted contractor cash flow.
- Financial leaders can minimize the risk of errors and delays by educating employees, consulting with legal and functional leaders, and establishing a clear understanding of contractual payment terms at the outset of major strategic projects.
- To improve invoice resolution cycle times, organizations can adopt automation strategies using RPA software, consolidate customer data, and establish a centralized document repository for purchase orders and signed agreements, treating errors as learning opportunities to prevent recurrence.
