How to Identify Problem Invoices

June 15, 2017 Chris Doxey

Accounts payable organizations would love to focus only on the exceptions related within the process. Many, however, are faced with problem invoices. And as any accounts payable professional knows, problem invoices bog down the process and create several pain points. But these pain points can be levers for continuous improvement and automation initiatives if tracked and acted upon.

desktop with smartphone and laptop for tracking invoices

The first—and arguably most important—step is to define problems stemming from vendor invoices.

The 25 top reasons for problem invoices

Purchase Orders (POs)
1. PO Not Approved 4. Purchase Order Line Discrepancy
2. New PO Required 5. Invalid or Stale PO
3. Blanket PO Limited Exceeded  
The Approval Process
6. PO Approval Pending 8. Incorrect Approval Levels
7. Invoice Approval Pending  
Pricing and Quantity
9. Contract Pricing Discrepancy 10. Quantity Discrepancy
Invoice Process Discrepancies
11. Outstanding Credit Balance 14. Incorrect Freight Calculations
12. Invoice is Missing Information 15. Invoice Keyed with Incorrect Date
13. Invoice Already Paid 16. Invoice Coded Incorrectly
Tax Calculation Errors
17. VAT Error 19. Other Incorrect Tax Calculations
18. Sales and Use Tax Error  
Supplier and Shipment Issues
20. Invoice Sent for Unreceived Goods 22. Supplier Referenced Wrong PO
21. Short or Shipment Errors  
Supplier Master Issues
23. Duplicate Supplier in Master File 25. Fraudulent Supplier
24. Remit Address Doesn’t Match  

Addressing these problems

Today’s ERP systems have the capability to block or park an invoice and assign a custom reason code for the specific problem identified. A blocked invoice report can then be reviewed to understand the most common issue resulting in a bottleneck.

Next, use those “problem” categories suggested above to develop data analytics and tracking procedures for your biggest pain points. Identify other types of errors that are more specific to your company or industry and their potential solutions.

Many accounts payable teams have established common procure to pay (P2P) metrics with procurement to ensure a level of accountability for the accuracy and timeliness of contracts, purchase orders, pricing, and quantity discounts. Organizations refer to this team effort as the P2P transformation process.

Ultimately, a third-party audit or a self-audit tool is very valuable in your strategy for invoice processing. Companies use these results from their accounting system for finding and implementing process improvements—to which many organizations have found that a problem invoice often results in a duplicate or erroneous payment.

Finding solutions to vendor invoice problems may start with defining the issues, but it certainly should not end there. Working toward an automated process—from capturing documents to making payments—is a strong strategy for better managing your accounts payable workflow.

About the Author

Chris Doxey

Chris Doxey, CAPP, CCSA, CICA is an independent management consultant providing Internal Controls and Business Process Best Practice Solutions. She has extensive experience in procurement, accounts payable, internal auditing, internal controls, Sarbanes-Oxley compliance, payroll, logistics, financial systems strategy, and financial integration at Digital, Compaq, Hewlett Packard, MCI, APEX Analytix, and Business Strategy, Inc. She was recruited to assist MCI (formally WorldCom) recover from their internal control challenges. She has a bachelor's degree in English, a bachelor's in accounting, a master's in business administration, and a graduate certificate in project management. Chris has written numerous articles and published two handbooks: AP Leadership Skills and Implementing a Controls Self Assessment Program for Your Accounts Payable Department.

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