How to get to 95% (or better) invoice processing accuracy

How often does an invoice error bog down your AP team?

Or worse, how often do you pay an erroneous or duplicate invoice?

As a finance leader, you already know that invoice processing accuracy is crucial — and that one mistake can snowball into a major problem like delayed payments, angry vendors, and even regulatory complications.

Help is on the way. In this article, we share strategies and insights you can use to improve invoice processing accuracy and achieve an invoice accuracy rate of 95% or higher. We explore how to measure and benchmark invoice accuracy, why invoice errors happen, and best practices to prevent mistakes. We end with a real-world case study showing how a business saved $10,000 per month using AP automation to improve invoice processing accuracy.

Let’s start with why invoice accuracy is so important.

The importance of invoice processing accuracy

Precision matters in finance and accounting. In 2023, Stampli and Probolsky Research surveyed 248 accounts payable leaders and professionals on their biggest AP challenges. The top answer, with over half (54%) of the vote, was reducing errors, missed payments, and double payments.

Undetected invoice errors lead to all kinds of downstream problems. Let’s look at some common impacts.

Damaged financial integrity

Accurate invoices and payments are vital to maintaining reliable financial records, ensuring accurate financial reporting, and making informed financial decisions. Invoice errors undermine financial integrity and can lead to financial losses, regulatory consequences, and reputational damage.

Ineffective cash flow management

Invoice errors create missed payments and over or underpayments, leading to vendor disputes and late payment fees and negatively impacting cash flow.

Inefficient AP processing

When errors occur, AP teams must investigate the cause and correct the error, which can include re-entering invoice data, asking vendors to resend an invoice, and stopping or modifying payments. This takes AP employees away from their regular tasks and slows AP processing.

Damaged vendor relationships

At best, a late, missed, or erroneous payment results in an uncomfortable conversation with a vendor. At worst, it can lead to a dispute, legal action, or a lost vendor.

Compliance and legal risk

Incorrectly processed invoices can cause erroneous financial statements and regulatory filings, which can lead to fines, audits, or legal action if not caught in time.

The first step to preventing these problems is assessing your current invoice processing accuracy. We do this by calculating the invoice accuracy rate.

How to calculate the invoice accuracy rate

The invoice accuracy rate is the main KPI for invoice processing accuracy. It measures the ratio of error-free invoices to total invoice volume.

Invoice accuracy rate formula

To calculate the invoice accuracy rate for a specific period, we divide the number of error-free invoices by the total number of invoices processed and multiply by 100.

For example, if an AP department processed 12,000 invoices in one year and 1,000 had errors, the invoice accuracy rate for the year would be 8.3%.

Invoice accuracy rate = 11,000 / 12,000 * 100 = 91.7%

To ensure the invoice accuracy rate is precise, it’s important to clearly define what makes an invoice error.

What does the invoice accuracy rate measure?

The invoice accuracy rate measures how often an AP department incorrectly enters or records the invoice data or incorrectly processes an invoice or payment. If one or more of these errors occur while an invoice is being processed, it counts as an erroneous invoice.

Note: the invoice accuracy rate only measures one error per invoice. It doesn’t measure multiple errors on a single invoice.

The 5 most common invoice processing errors

An invoice error occurs whenever an AP employee makes a mistake while entering, coding, or matching an invoice or paying a vendor. Here are the most common mistakes made by AP teams.

1. Invoice data entry errors

Invoice data errors occur when an employee enters the wrong information for one of the invoice data points. The invoice data points are the invoice details that describe the transaction between your company and a supplier and usually include:

• Invoice number: The unique number the vendor assigns to each invoice.
• Vendor information: The name, address, tax ID, and contact information for the vendor.
• Customer information: Your business name, address, and contact information.
• Invoice date: The date the vendor issued the invoice.
• Total amount due: The total amount, including taxes and fees, you must pay the supplier.
• Due date: The date by which you must pay the total amount due. Some invoices may state payment terms instead of a due date.
• Payment terms: Can include the invoice credit terms (Net 30, Net 60), payment instructions and methods, early payment discounts, or penalties for late payments.
• Line items: Descriptions, quantities, unit prices, and total amounts of the goods or services purchased.
• Tax information: Tax rate, codes, and any other tax-related details.

2. Mismatched purchase order and invoice

A discrepancy between what was ordered in the purchase order and what was billed in the invoice can lead to an overpayment or your company paying for something it didn’t order. Mismatches are a common problem with large orders or complex orders involving partial or multiple POs and invoices. For example, BTB Corp sends Acme Office Supply a purchase order for 100 laptops at $900 each, totaling $90,000. Acme ships 100 cases, but charges $1,050 each, totaling $105,000. BTB’s AP clerk misses the discrepancy and pays the invoice, resulting in BTB overpaying $15,000.

3. Tax calculation errors

Tax calculation errors occur if a vendor sends an invoice with the wrong tax rate or an employee enters the incorrect rate while processing the invoice. If the error goes undetected, the company could pay and report the incorrect tax due, leading to financial costs and potential tax liabilities or penalties.

For example, Acme Office Supply sends BTB Corp an invoice for 500 office chairs at $1000 each. Acme applied 10% sales tax to the order, making the total invoice amount $500,000 plus $50,000 in tax. However, Acme mistakenly applied the wrong tax rate for BTB’s jurisdiction. The actual tax rate should have been 15%. Unfortunately, BTB’s AP team missed the error and paid the invoice, resulting in BTB underpaying the tax by $25,000. Fortunately, BTB’s controller caught the error at month-end, and they were able to resolve the discrepancy with Acme.

4. Duplicate payments

Duplicate payments occur when an AP clerk accidentally processes and pays a duplicate invoice. This can happen in several scenarios, for example:

• Vendors send multiple copies of the same invoice.
• Vendors send copies of the same invoice to multiple recipients.
• The vendor sends an updated version of the invoice.
• The vendor sends a copy of the invoice with a different invoice number.

Fraudsters also use duplicate invoices in billing schemes, the second most common type of occupational fraud, according to the Association of Certified Fraud Examiners (ACFE). For example, a fraudster working for a vendor could create and send a fake duplicate of a real invoice. A second fraudster, working for the buyer, could then process and pay the fake duplicate invoice.

Inadvertently processing and paying duplicate (and fake invoices) potentially leads to overpayments, exposure to fraud, and financial losses.

5. Missing information and documentation

Missing invoice details like the PO number, line item descriptions, pricing terms, or contact information make data entry, coding, and verification difficult for AP teams, especially for large or complex invoices. Additionally, missing or incomplete vendor contact information, contracts, and other documents complicate AP processing and can cause further delays.

For example, BTB Corp sends a PO to Acme Office Suppliers for 200 desk chairs at $900 each, 140 desks at $120 each, and 100 meeting room chairs at $90 each, totaling $205,800. After shipping the products, Acme sends BTB an invoice with a single line item that reads “Office furniture: $209,400,” with no further information. Fortunately, BTB’s AP clerk notices the difference in the total amount due but can’t investigate the discrepancy because Acme hasn’t provided enough information in their invoice. They dispute the invoice and demand more detail from Acme. Had they missed the discrepancy, BTB may have overpaid for the order.

Let’s look at ways you can successfully address these errors by improving invoice processing accuracy. We’ll start by benchmarking your current invoice accuracy rate to industry standards.

How to benchmark invoice processing accuracy

The best way to gauge your invoice processing efficiency is to benchmark your AP department’s performance against other companies. You can identify and address bottlenecks by comparing performance metrics for different elements of your invoice processing workflow to those of other AP departments.

In their 2023 survey of AP departments, Stampli and Probolsky Research asked AP leaders to report on their current invoice processing performance metrics. The majority (80%) reported that their AP processes were mostly or fully automated. Almost three-quarters (68%) reported their invoice error rate was 5% or lower, with 25% reporting an invoice error rate of less than 1%. Most businesses reported faster invoice processing times, with 68% reporting an invoice lifecycle of less than 1 week.

Based on these results, an invoice error rate of 5% (or an invoice accuracy rate of 95%) is achievable for most businesses. The key is following a few best practices to improve invoice processing efficiency and accuracy.

Best practices to improve your invoice processing accuracy

By using the KPIs, insights, and benchmarks from this blog, you can make informed decisions on the best practices to reduce errors and improve invoice processing accuracy. Here are some best practices other companies have used to improve accuracy rates.

Standardize accounts payable processes

Start by making sure everyone knows their roles and responsibilities. Set clear procedures for invoice capture, invoice coding, two- and three-way matching, approvals, and payment processing. Having clear procedures saves time and ensures invoice processing consistency.

Implement a clear invoice approval policy and processes

An effective approval policy reduces errors by ensuring the right people review invoices before payment. Set up an approval process and policy by defining approver roles, responsibilities, and approval levels, setting approval timelines, and establishing approval routing.

Digitize invoices and centralize inboxes

Prevent lost or duplicate invoices and expedite invoice processing by having vendors email digital invoices to a central inbox. Replacing paper invoices reduces errors and speeds up invoice capture by eliminating error-prone manual data entry.

Use two- and three-way PO matching for invoice verification

Two- and three-way matching ensures invoice accuracy by confirming that your business received what it ordered. To quickly validate the invoice data, perform a two-way match between the invoice and PO. For greater accuracy, use a three-way match between the invoice, PO, and shipping receipt.

Improve vendor management

Vendors are a valuable ally when it comes to reducing invoice errors. Collaborate with vendors on identifying ways to improve invoice processing accuracy, such as switching to digital invoicing, ensuring invoice details are complete, and optimizing invoices to be machine-readable.

Regularly review vendor documentation, information, and performance to identify and resolve any invoice-related problems quickly. For example, make a policy of frequently checking and updating vendor contact information to ensure this crucial information is up to date.

Establish internal controls

Set internal controls to prevent errors and fraud and ensure compliance with accounting standards. For example, implementing separation of duties reduces the chance of errors by ensuring multiple employees see an invoice before it’s paid.

Perform regular AP audits

Internal audits are a highly effective way to detect invoice errors and fraud. The ACFE reports that after whistleblowing, internal audits are the most common way organizations detect occurrences of fraud. By following the other best practices in this article, you can help create a complete audit trail to make it easier for auditors to detect discrepancies.

Use an automated invoice processing system

Implementing invoice processing software is one of the most effective ways to prevent invoice errors. AP automation platforms eliminate error-prone manual tasks, centralized invoice processing, and provide visibility and control over AP transactions. Leading financial automation platforms like Stampli go even further by using AI and machine learning technologies to make tasks like invoice capture, GL coding, three-way matching, and approval routing faster and more accurate.

Let’s look at how Superior Masonry used best practices and AP automation to improve their invoice processing accuracy and save $10,000 per month by reducing invoice errors.

Case study: How Superior Masonry achieved rock-solid invoice accuracy

Superior Masonry is a construction company specializing in masonry work across the southeastern US. Their operations have been growing quickly, as were their accounts payable headaches. The construction industry is well-known for its reliance on paper-based processes and Superior was no exception. As their operations grew, so did the volume of supplier invoices, overwhelming their accounts payable. Superior’s Project Coordinator Bethany Thomas recalls the sight that welcomed her on her first day on the job: “On my first day, I walked into a huge stack that they had so kindly saved up for me — months and months of invoices.”

The impact of Superior’s reliance on error-prone manual AP processes was causing a ripple effect across their business. Without a central inbox for invoices, vendors were sending invoices through a myriad of channels, leading to lost documents and delays. Overwhelmed by the backlog of paper invoices, Superior’s finance team couldn’t control operational costs or provide timely financial data to support business decisions. And most importantly, their inability to validate every invoice to detect errors impaired their ability to calculate job costs and ensure profitability.

After a long search for a solution, Superior chose Stampli as their solution. The impact on their business was felt almost immediately after implementation. Stampli easily integrated with Superior’s ERP, Sage Intacct Construction, and supported all the fields they use, such as retainage, job estimates, change orders, and cost codes.

Billy the Bot, Stampli’s AI copilot, automated many of Superior’s manual invoice processing tasks to reduce invoice processing time by 75%. Billy’s machine learning capabilities also dramatically improved Superior’s invoice processing accuracy. Within a week of implementation, Billy could automatically and accurately recognize invoice details like vendor names and information, invoice amounts, due dates, and more. The increased accuracy soon paid off — with Billy’s help, Superior identified and corrected errors like vendor overcharges and items not received, saving over $10,000 per month.

Today, having greater visibility and control over their supplier costs lets Superior accurately calculate their job costs and maximize business growth. Superior Masonry’s CFO Matt Andersen summarizes the impact of implementing Stampli: “We’ve never been able to stay ahead of job costs until now, and Stampli is one of the big drivers behind that because we can process invoices so fast.”

Eliminate invoice processing errors with Stampli

Stampli is the best solution to eliminate invoice processing errors. We’re the leading financial automation platform centered on AP and the only one designed for how accounts payable actually works. Stampli brings deep AP expertise, a solid track record of helping companies optimize AP workflows, and an exceptional reputation for customer satisfaction.

“A game changer with stellar support”

In a recent review, one customer described how Stampli has transformed their invoice processing efficiency and accuracy: “What I love about Stampli is its transformative efficiency in invoice processing. Since integrating, our workflow has soared with faster processing, reduced errors, and enhanced transparency for approvers. Our Customer Success Manager and the entire Stampli support team have been outstanding — prompt, collaborative, and attentive, even across time zones. The AI integration aka “Billy the Bot,” adds an innovative edge. Stampli isn’t just an AP invoice solution; it’s a game-changer with stellar support.

“Stampli has revolutionized our AP team by addressing multiple challenges head-on. Its streamlined invoice processing has notably reduced our processing times, while Billy the Bot optimizes tasks and boosts accuracy of data entered. The user-friendly platform enhances transparency and efficiency for approvers, simplifying the approval process, which is a critical part of our invoice processing.”

Through implementation and beyond, Stampli’s AP experts work alongside your team to help you improve processing efficiency and exceed your invoice accuracy targets. Contact Stampli today to learn more.