How to solve the most common invoice processing errors
If you’ve spent any time managing, working in, or even working alongside an accounts payable (AP) team, you know there’s a ton more to the job than simply cutting checks.
There’s managing the vendor and supplier relationships that are certainly core to your business.
There’s taking charge of business expenses to make sure balance sheets are accurate, and department leads have the information and money they need to plan for — and pull off — another successful quarter.
And, of course, there’s invoice processing.
Invoice processing involves all the many steps AP pros must take to manage vendor or supplier invoices. It includes:
- Invoice capturing, coding, and matching
- Gathering invoice approvals
- Submitting invoices to be paid by finance teams
- Processing invoices to be paid
- Archiving invoices in a way that makes them traceable and auditable in the future
Understandably, this robust workflow leaves a lot of room for error.
Invoice processing errors occur when mistakes are made, or discrepancies occur during the complex workflow of handling an invoice. They can happen at any stage and can be caused by all sorts of things — erroneous manual data entry, mismatching, and other reasons we’ll explore in more depth shortly.
The commonality most invoice processing errors share? They can mostly be traced back to a lack of AP automation.
Let’s explore what your goals should be when it comes to invoice processing errors, how to figure out if you’re under or over the standard benchmark, and some of the most common reasons invoicing errors occur —as well as what you can do to fix them.
What’s reasonable for invoice processing errors?
A report from the Institute of Finance and Management aptly titled The True Costs of Paper-Based Invoice Processing and Disbursements tells us that most businesses (68%), see errors on over 1% of all of their invoices.
Similarly, the American Productivity & Quality Center (APQC) found that manually processing invoices makes for an annual invoice error rate of 2%. And the majority of organizations are conducting manual processing — an IDC report found that more than half of all the work AP does revolves around manual invoice data entry and classification.
Based on all of this data, we can assume that the average business over the course of a year will see processing errors on 1 to 2% of all invoices.
Want to figure out how you stack up?
How to calculate your invoice processing error rate
Luckily, this is an easy one.
Determine your yearly invoice processing error rate by simply dividing the number of invoices with errors by the total number of invoices processed in a year. Multiply the result by 100 to get a percentage.
Coming up with a higher-than-average invoice error rate of 1 to 2%? That may indicate room for improvement in your AP workflow.
On that note, follow along as we help youidentify the biggest causes behind many invoice errors and provide solutions to get your error rate down.
5 causes of common invoice processing errors & how to fix them
As you know, invoice processing errors are more than just minor annoyances — they have the potential to significantly impact your business’s financial health, operational efficiency, and even standing in your industry.
From manual data entry mistakes to inconsistent invoicing practices, in this section we’ll dive into the core errors that lead to costly delays, compliance issues, and strained vendor relationships as well as practical solutions to help you prevent and correct them.
Lacking SOD makes for overlooked mistakes
In accounts payable, segregation of duties (SOD) is a process of internal control that puts checks and balances in place to prevent fraud, ensure compliance, and catch costly clerical missteps that lead to invoice processing errors.
The solution here is obvious, if not necessarily easy —implement a system for the segregation of duties!
Here’s the “CliffsNotes” version of that process:
- Set up separate invoicing procedures. Map out your procure-to-pay cycle, and identify tasks that should be performed by different employees. For example, the person doing the purchasing should be different from the one doing confirmation of delivery. And the person signing checks probably shouldn’t be the same one who’s issuing payments. This ensures each step in the flow has multiple eyes on it, so any mistakes — or shady dealings — have a better chance of being caught.
- Build a segregation of duties matrix. Arrange each of the above invoicing tasks on a matrix alongside responsible employees to identify any potential SOD conflicts (see graphic).
- Assign tasks. Finally, it’s time to roll out tasks to employees according to the matrix you’ve set up. If there is anywhere that SOD isn’t feasible, implement compensating controls to manage risks.
- Monitor your system. Don’t forget to regularly review AP processes and accounting records to ensure SOD is working. As in many cases, AP automation can help streamline SOD flows to ensure your new process is foolproof.
For a full breakdown, don’t miss our guide, Implement Segregation of Duties for AP in Four Steps.
Tech debt leads to *actual* debt
Dinosaur-era software, lacking integration between systems, and outdated paper-based invoice processes cause technical debt — a pile-up that can create real, monetary debt for companies. Tech debt like this means invoice data loss, communication breakdowns, and overall slow processing that negates early payment discounts while possibly incurring late fees.
The approach to eliminating tech debt looks like:
- Simplifying and streamlining your invoice flow: First, do you really need to be doing all the various steps you’re doing to get invoices processed? Cutting out unnecessary people, processes, and, therefore, outdated tools can cancel out some of that technical debt and boost the speed and accuracy of invoicing.
- Modernizing your AP tech stack: Invest in an AP automation platform that drives efficiency by eliminating slow and manual processes.
- Establishing your ERP as your single source of truth: Work with a finance operations platform like Stampli that integrates with your native functionality to make your AP department more efficient and accurate — without needing to rework or change any existing processes.
Poor matching means inaccurate payments
Matching refers to the process of comparing various pieces of paperwork related to a purchase to ensure consistency and accuracy before approving payment. In a three-way match, the purchase order, shipping documents, and supplier invoice are all synced up before an invoice can be processed. It ensures accuracy, but it can be slow and resource intensive for AP workers — unless they have access to automation.
With three-way matching automation, a smart AP platform uses tools like artificial intelligence and machine learning to nearly instantly read, code, and store orders, invoices, and all related documentation. As they learn the rules of your system, they get better and better at flagging inconsistencies and alerting you before you can even think about processing an inaccurate payment.
Practically untraceable invoice disputes cost you
The How, the Why & the ROI of AP Automation survey from Stampli and Treasury Webinars found that one of the top reasons companies moved to AP automation was to eliminate paper reliance (35%). What’s wrong with paper in AP? Well, it relies on manual processes that directly create invoice processing errors.
When you’re still working with manual, paper-based invoices, any dispute can disappear into the ether in minutes.
The paper process includes AP staff maintaining a painstaking spreadsheet where they log and age each dispute. It has to be reviewed and followed up on regularly — at least weekly —if there is any hope of getting issues resolved.
What most often happens is that invoices are paid late, incurring fees and ill will. Sometimes, vendors may even issue a second invoice, thinking you simply needed a reminder, and unaware staff may pay it without question — costing you who knows how much in duplicate payouts.
Again, not just AP tech but automated AP tech is such a big help in this department. Many of these systems are well equipped to not just catch disputes but to track the progress on their resolution, generate aging reports, and even send regular reminders on your behalf. Smart invoice tracking can help take a load off of busy AP personnel, create more accurate reporting on AP efficiency, and of course, clear up invoice processing errors that lead to late and duplicate payments.
Inconsistent invoices threaten compliance
Inconsistent, unclear, and incomplete vendor invoices aren’t only confusing and slow for accounts payable teams to process. They have the potential to fall outside of compliance guidelines and put your business at risk of violating regulations, failing audits, and incurring sanctions and fees.
Clearly, consistency in invoicing is critical. You can help ensure this and prevent invoice processing errors by providing invoicers with a standardized template.
Help the people who invoice you stay compliant — and keep you above board —by building out a complete invoice template that they can use when working with your business. Ensure it includes all the details you need according to your own location and industry guidelines and other essential details, such as your company contact information, product/service descriptions, quantities, tax calculations, and payment terms.
Use a checklist within your AP department to make sure each invoice meets all of the above requirements so you can process payments not just accurately and quickly but also with an eye on compliance.
Reduce these invoice processing errors with Stampli AP automation
In a study done in conjunction with Probolsky Research, we found that reducing errors is one of the top benefits organizations see when switching from manual to automation when it comes to accounts payable.
In today’s world, with a preponderance of smart AP technology on the market, there’s no reason not to adopt automation to reduce invoice processing errors that cause delays, excess costs, inaccurate business planning, and a bad business reputation.
However, it’s hard to even know where to start when choosing a solution.
Stampli is unique as the one and only financial automation platform fully focused on accounts payable (and we’re always growing with payments, credit cards, and vendor management!).
Not only that, but it’s thoroughly embedded with AI (meet Billy the Bot) that enables it to learn and improve your processes, so you don’t have to take months rebuilding from the ground up. In fact, you can deploy Stampli, get your staff trained on it, and integrate with all your other business and financial systems in weeks —not months.
Remember that average 2% invoice error rate the APQC reported? Well, they also found that, with help from automation in the invoicing flow, that rate could be more than halved to just 0.8% per year.
Cut down your invoice processing error rate and see why we’re a Leader in the G2 Grid® for AP Automation as well as number one in relationship and usability among customers. Just sign up for a free demo today.
