RSS feedsThe presence of numerous exceptions during invoice processing can lead to substantially increased costs for both purchasers and suppliers. Of course, there are ways to limit and avoid these exceptions, but first let’s define what constitutes an ‘exception’.
An exception is any item that causes an invoice to be considered incomplete or inaccurate for matching purposes, and which therefore causes processing to be suspended. Examples might include invoices that do not have valid purchase order numbers, account numbers, delivery addresses or incorrect pricing information.
Most suppliers would agree that a large percentage of their outstanding payments are caused by the disputes and discrepancies that started out as errors or an omission on an invoice.
The old-fashioned way of dealing with exceptions human intervention is an expensive and cumbersome solution. Manually processing exceptions involves time-consuming research, communication with the supplier, requests for additional information and manual routing, not to mention the labour-intensive process of monitoring and reporting unpaid invoices.
This approach to invoice processing requires a lot of effort for most companies, causing a drain on internal resources and for the supplier involved. Simply put, the need to manage problem invoices offers no capital advantage to either purchaser or supplier. Personnel and resources used for invoice exceptions would be better re-deployed on activities that enhance the business and build value.
Modern companies know that automation is the key to efficiency and, in turn, profitability. For this reason, exceptions cause yet another problem: lack of process control. Invoices are often left floating around, with no one claiming direct responsibility for action or resolution. Delayed processing can also lead to duplicate invoice submission, which further compounds the resolution process for both the supplier and the purchaser.
There is a silver lining to the exceptions cloud, however. The rising popularity of electronic invoicing, also known as e-invoicing, can streamline the process of managing exceptions.
The improvement most often cited as the result of an e-invoicing implementation is in lowering the cost of processing payments, and the way in which exceptions are handled represents a step towards achieving this larger goal.
E-invoicing can be used to validate whether each invoice contains the information required by the purchaser and just as importantly by the tax authorities. It also validates other key data, such as purchase order numbers, VAT details and cost centres, and can also accept any data file format and translate it to the required format of the purchaser.
Suppliers are immediately notified of errors so that they can quickly correct them and re-submit them; minimising processing delays and disputes. With e-invoicing, neither purchasers nor suppliers are required to implement any special hardware or software. As a result, e-invoicing can reduce the cost of paper invoice processing by up to 60% and can deliver an ROI in less than a year.
Managing exceptions, however, isn’t just about catching mistakes. Companies are all different, and will therefore want different information to be included on their invoices.
With e-invoicing company-specific rules, requests and guidelines can all be put in place from the beginning, so that invalid invoices never even make it to the accounts payable system. As a result, the number of exceptions is minimal, and fewer invoices require human intervention at all. This streamlined model of invoicing offers companies greater productivity, reduces human error, and increases operational efficiency considerably.
Since orders can now be placed electronically within moments, it is no longer acceptable for companies to delay payments indefinitely when exceptions are discovered and investigated. Fortunately, there is a better way.
Make no exceptions
Exceptions management is becoming a key operational tool for companies looking to enhance productivity and manage operating risks. Not only are exceptions expensive (mainly because human intervention is nearly always required), but they can also lock up valuable working capital and reduce customer satisfaction.
Industry figures suggest that anywhere between 8% and 20% of invoice transactions regularly have errors in them, and that these errors can increase the cost of processing them by four to five times. The errors will always be there, which means that the exceptions will also be there, so the real question is: how are you going to deal with the problem?
Stefan Foryszewski is co-founder of OB10
