6 Types of Invoice Discrepancy (and How to Resolve Them)


Finance Insights for ProfessionalsThe latest thought leadership for Finance pros

Thursday, May 25, 2023

There will inevitably be times when you have disagreements with suppliers regarding invoices. Here are some of the most common reasons why such issues occur and some tips on how to resolve them.

Article 7 Minutes
6 Types of Invoice Discrepancy (and How to Resolve Them)

Countless businesses around the world rely on healthy and smooth-running relationships with their suppliers.

If you're able to build strong connections with vendors, you can feel more confident of acquiring the products and services you need - whether it's the raw materials required to manufacture goods or technical support for your marketing - with reliable assurances around quality and time of delivery.

However, there are no cast-iron guarantees in business, and there will be times when you have disputes with your suppliers. One of the most common sources of disagreement is the invoicing process, which can be particularly sensitive seeing as vendors always want to be fairly and promptly paid, while customers want to ensure they're getting value for money.

With this in mind, it's useful to be aware of the types of invoice discrepancies you're likely to encounter and to have a clear process for managing them.

1. Basic factual errors

When you receive an invoice from a vendor, one of the first and most important steps is to check it for basic accuracy. That means looking at elements like:

  • The invoice number - specifically making sure it's not the same as an invoice you've received and paid in the past
  • Your company name and address
  • The provider's company name and address
  • The date of the invoice
  • Deliverables received and if they're accurately listed and priced
  • The date the goods or services were supplied
  • Total amount payable

It's not unusual for mistakes to be made when suppliers submit these crucial pieces of information, especially if they rely on manual data entry. Some errors will be innocuous and easily rectified - a figure out of place in the invoice date, for example. However, other oversights - such as a miscalculation in the total amount payable - could have a more serious impact if they're not checked and queried.

When you spot a mistake, point it out to the supplier as soon as possible and make it clear that you won't be able to process the invoice until it's corrected.

Learn more: Understanding Accounts Payable: The CFO's Complete Guide

2. Dissatisfaction with deliverables

It goes without saying that you should expect the products and services you receive from suppliers to be of a certain quality. When the deliverables don't meet your standards, but the vendor still expects payment in full, you should be ready with a plan to manage what could prove to be a difficult situation.

One of the most important things to bear in mind is the importance of specificity. Be as clear and detailed in your feedback as you possibly can, so the supplier knows what you expect from them and what changes you would like to see before going ahead with payment.

This focus on exactitude is important if you want to maintain professional relations with your providers and resolve problems as quickly and efficiently as possible.

To reduce the risk of the same issue occurring again in the future, make sure every contract you enter into with a third party includes a clear service-level agreement, as well as a precise rundown of what you expect them to provide. This gives you something to refer back to should a dispute arise over deliverables at a later date.

3. Pricing disputes

Along with the quality of the product or service you receive, the price you pay for it is the most important aspect of any supplier relationship. You should feel confident that you're paying a fair amount for what you're getting, and if you don't, be prepared to talk to your vendor about it, with a focus on reaching a mutually agreeable solution.

There are many reasons why you might not feel happy with the overall amount you're expected to pay, such as unexpected changes in the provider's rates, hidden charges or an unplanned expansion in the scope of the service.

When the time comes to have a frank discussion about these issues, make sure you're ready to argue your case, with clear evidence and data to back it up. In many cases, a constructive conversation will be enough to reach an agreement that all parties are happy with, but it's important to have a more detailed dispute resolution procedure in place should it become necessary.

4. Timesheet discrepancies

Closely linked to price is the amount of time your vendor says they spent on delivering your service. You're likely to encounter situations where sellers claim the work took longer than expected due to unforeseen circumstances, and particularly unscrupulous suppliers might inflate their hours as much as possible to get more money out of you.

One way to mitigate this risk is to state at the beginning of any contract or new relationship that you expect vendors to keep itemized timesheets detailing the work and outcomes you're paying for. This will make it easier for you to judge the fairness and accuracy of their invoices, and to pinpoint certain processes or tasks you have questions about.

In many cases, smooth, hassle-free invoicing depends on being clear and specific in your expectations from the outset, so all parties understand the terms of the agreement and can work towards mutually beneficial results.

5. Late payments and payment constraints

Late payments are a significant type of invoice discrepancy that can pose challenges for finance professionals and impact customer relationships adversely. Essentially, when a customer fails to settle unpaid invoices within the specified period, it leads to financial discrepancies and disrupts the cash flow of a business. This can be particularly problematic for small business owners who rely on timely payments to sustain their operations and maintain a healthy cash flow.

A key aspect in resolving late payments is effective communication between finance professionals and their customers. By fostering strong customer relationships, finance professionals can open a dialogue to understand the underlying reasons for delayed payments and work together to find mutually beneficial solutions. This may include offering flexible payment terms, renegotiating contracts or providing incentives for early payments.

In addition to communication, implementing a robust accounts receivable management system can help finance professionals proactively identify and address late payments. Regular follow-ups, automated payment reminders and detailed invoice tracking can minimize invoice discrepancies and ensure timely payments. Moreover, establishing clear payment terms and conditions from the outset can set expectations and prevent misunderstandings that may lead to delays in payments.

Lastly, finance professionals can consider utilizing technology and third-party services to streamline their invoice management process. Tools such as invoice financing or factoring can provide businesses with immediate cash flow relief by converting unpaid invoices into cash, thereby mitigating the impact of late payments on the business's financial health.

Similarly, payment constraints often emerge as a type of invoice discrepancy. These discrepancies typically arise when disputed invoices or inconsistencies in invoice cost raise concerns over the legitimacy of the entire invoice. To effectively resolve such issues, finance professionals must adopt a proactive approach in identifying, documenting and addressing the underlying causes of payment constraints.

By thoroughly reviewing contractual agreements, implementing robust invoicing procedures, and fostering open communication with suppliers, they can mitigate the risks associated with invoice discrepancies, ultimately enhancing the overall efficiency of their financial operations.

6. Duplicate invoices

Duplicated invoices are one of the most common types of invoice discrepancies, and occur when two or more invoices are generated for a single item or service, leading to the risk of making duplicate payments. This issue not only affects the company's bottom line but also disrupts the overall financial management process, causing potential harm to the organization's reputation and relationship with its vendors.

There are several reasons why duplicated invoices may occur, such as human errors during data entry, system glitches, or intentional fraud. To resolve this issue, finance professionals must adopt a proactive approach in identifying and rectifying duplicate invoices. First and foremost, they should implement robust internal controls and processes to minimize the risk of such discrepancies. This can be achieved by regularly reviewing and updating accounts payable procedures, ensuring proper segregation of duties, and conducting periodic audits to identify any inconsistencies.

Additionally, finance teams can leverage technology to detect and prevent duplicate payments effectively. Automated invoice processing systems can help in matching invoices with purchase orders, flagging potential duplicates for review and ensuring that only valid invoices are paid. Moreover, data analytics tools can be employed to monitor patterns and trends in payment data, enabling the early identification of duplicate invoices and helping prevent potential fraud.

Finance Insights for Professionals

Insights for Professionals provide free access to the latest thought leadership from global brands. We deliver subscriber value by creating and gathering specialist content for senior professionals.


Join the conversation...