Billing errors are a waste of time for all parties. Not only must the customer contact you (the supplier) to resolve the error, but your employees must investigate the cause. Then, ideally, an employee should take action to make sure the problem doesn’t happen again.
Billing errors occur for several reasons:
Incorrect pricing or unexpected charges
Incorrect quantity compared to the purchase order
Incorrect payment term
Incorrect customer information (bad service, name, address, etc.)
Bad tax rate
Unclear terms and language
Such errors can all lead to late payment from customers. If they happen again, your customers will stop trusting you. Companies that can resolve these errors quickly get payments faster and have more time to spend on value-added activities. They also leave customers confident that the company can respond quickly and accurately to their concerns.
“Cycle time to resolve an invoice error,” APQC’s benchmark, measures the number of days it takes to reconcile invoice lines with purchase orders and all receiving documents. As with other cycle time metrics, cycle time to resolve an invoice error includes the time spent actually running the process and any time spent waiting for the process to move forward.
For example, if an employee corrects an invoice in real time during a customer call but does not respond to the new invoice until two days later, the total time to resolve the invoice is three days.
APQC finds that bottom performers (75th percentile) spend twice as many days as top (most efficient) performers (25th percentile) resolving billing errors. If you want your team to be more productive and avoid frustrating customers, track this metric and learn the root causes of any systematic delays in resolving errors.
Companies that send paper invoices or process invoices manually run the greatest risk of errors. Data entry or calculation errors are easy to make when an employee manually writes or enters data into an invoice. But even organizations with fully digitized invoicing make mistakes when their data or processes are not well ordered. Below, we discuss three strategies from leading companies to mitigate the risk of billing errors.
Automate customer billing
Robotic process automation (RPA) uses software to perform manual, repetitive, or high-volume processes or process steps. Automated billing solutions can capture the data, calculate the numbers, and bill the customer. These solutions greatly reduce, if not eliminate, manual data entry errors and, over time, have become more cost effective and accessible.
Automation also connects disparate systems within a business. Without these connections, data entered into one system may not transfer to another, or an employee will have to manually transfer the data, which also carries the risk of errors. Automation takes time and resources to implement effectively, but it’s worth it for these reasons.
Keep data clean
Even the best automation tools are only as good as the data. Missing, incorrect or incomplete customer data means an increased risk of billing errors that take time and energy to resolve. When agreeing to contract terms with a customer, make sure employees get the correct billing name from the company, the name of the person in the department paying the bills, a contact number for that person, and any other information. necessary to invoice the customer. This data must have a single, indisputable source of truth that feeds into business processes and systems.
Make documents easy to find
Common invoicing errors, such as incorrect prices, should be easily resolved using an original contract, purchase order, or sales order. The documents signed by both parties constitute the Registration Agreement and supersede any telephone or email conversation. However, it will take a team longer to resolve an invoice error if they cannot find these documents quickly and easily. A centralized document repository, consistent naming conventions, and content governance are all important.
When errors do occur, the above practices also allow a team to resolve them faster. With automated, integrated systems, clean customer data, and accessible documentation, the best companies can resolve billing errors in three days or less — and some can do it in real time.
Perry D. Wiggins, CPA, is chief financial officer, secretary, and treasurer of APQC, a Houston-based nonprofit benchmarking and best practices research organization.