How Important is Checking Invoices?
Almost certainly you have paid or authorized invoices that were plain WRONG. We have found that approximately 1 in 10 invoices have errors, and half of the errors ones get paid anyway. Do you give your invoices a cursory glance and approve them for payment, or do you purposefully challenge each one?
And if you, or someone in your team, were checking invoices for an additional hour every day, how many mistakes would they find and correct, and how much would that add to your net profit?
Assume all invoices are wrong
Assume every invoice is wrong until proven correct. Challenge every invoice regardless of value and importance. Pay particular attention to:
- Long-standing suppliers who have added multiple annual increases and variations (i.e. waste management firms)
- Suppliers who are list-picking their prices from a catalog (i.e. office supply companies). You may have agreed to prices on core products which were quoted as artificial loss leaders – only to be obscenely overcharged on the non-core off list items.
- Professional suppliers (i.e. accountants, lawyers) who bill by the hour. It is your right to see their timesheets, remember to ask politely. They won’t like it, but at least you can see you were charged $50 for a phone call, or $30 for file retrieval.
- Invoices with a suspicious lack of detail. No mention of date work completed, frequency, proof of delivery.
- Less sophisticated suppliers who are less computerized. They might have a large invoice run, and may have rushed through the detail, or put in an item and hoped for the best. It happens a lot.
Don’t let the little things pass
You might agree with the main item on the invoice, but what about the small items that are put in there? Is the supplier thinking they can get away with it because it is such a small amount? Look out for additional fees or charges for shipping and handling fees that look exorbitant that were never agreed. These little things will be a fraction of your cost but will contribute disproportionately to your supplier’s margin.
Track invoices back to your original agreements, emails, etc
It will not be practical to do this for all invoices, every time, but with a long-standing supplier, it is important to regularly reconcile the invoice to the original agreement. Establish the originally agreed price, establish signed or agreed paperwork for any price variations, and challenge each item accordingly. We find that companies can easily be guilty of agreeing to a price for a specific service and invoicing you a completely different price. Would you think to challenge it? You should.
Use a Purchase Order System
Are you using a Purchase Order (PO) system, and is it working well for you? They are normally available as an extension of your accounting platform. If done well, they are excellent. If done badly, you can tie yourself in knots with unnecessary paperwork. They are particularly important for multi-site businesses where there are several purchasers. They can be used for single use purchases or recurring blanket purchase orders for recurring purchases. With a PO system, an invoice can only be approved if it matches the original PO, which you will have generated in advance.
Invoices that under-charge your company
Yes, they exist, too. What you do with these is, of course, a value judgment for you. If you bring it to your vendor’s attention – you will pay more. The upside is you win the respect of your vendor, and your relationship is deepened. If you don’t, you win a small savings break but for how long. Your vendor might later discover the undercharge, and send you a backdated corrected invoice that could be problematic on your cash flow.
And lastly, are you double-checking your own sales invoices?
How about your own invoicing procedures? How accurate is your invoice run? Is anyone double checking your invoices and reconciling each line to original agreements or Purchase Orders? Incorrect invoices damage your integrity and reputation. Invest the time to make sure they are accurate, every time!
Published by Marc Freedman
Marc currently serves as our Chief Cost Evaluator, expertly advising our client management team on how to help you successfully achieve your business and financial growth goals. A respected mentor to all he consults with, he is an avid collaborator and contributor to the spend consultant community, guiding thought leaders to formulate, design, and install the best operational solutions available to their clients.