What Are Invoice Errors and Disputes? – 4 Ways to Avoid Them

What Are Invoice Errors and Disputes? – 4 Ways to Avoid Them

Disputes are a cause of concern for businesses all around the world. Companies have to handle various types of disputes routinely to ensure the smooth operation of their businesses. While administration disputes, delivery disputes, quality disputes are common, invoice disputes are the ones that affect businesses the most.

Dealing with accounts payable and invoices is already stressful for the finance department. But, if you have to handle recurring invoice disputes and errors, it adds yet another layer of complexity to the already complicated invoice workflow.

Errors and disputes in invoices not only impact accounts such as accounts receivables, inventory, and cash, but they also delay payments for different vendors. Many vendors and small businesses rely on cash flow generated from their invoices for day-to-day business operations.

Any delay in invoice payments not only disrupts business operations for both you and your vendors but also affect your relationship with them. In this article, we will explain what invoice errors and disputes are and outline four practices to minimize invoice disputes and errors.

What is an Invoice Dispute?

Invoice disputes occur when customers refuse to pay the listed amount in the invoice due to discrepancies. In most cases, these discrepancies are related to dates, time, quantity, pricing, and item descriptions, among others.

Types of Invoice Errors

Invoice errors are usually distributed into two categories: open invoice errors or paid invoice errors.

a) Open Invoice Errors

Open invoice errors are the ones detected before the payment is made by the customer. For open invoice errors, it’s best to issue a credit or corrected invoice. Although these errors require additional paperwork and time, they are relatively easier to process.

b) Paid Invoice Errors

A paid invoice error is the one where clients have already paid for the invoice. It’s frustrating for the customer to be informed about an invoice dispute after the payment. The standard response to an invoice dispute is correcting the invoice and issuing a credit for the balance.

After receiving the corrected invoice and credit, the customer knows the real price of the transaction. However, if a company overcharges clients, the best response is to contact the clients immediately, inform them about the error, explain how it happened, and reimburse them with a credit or check.

Why Do Invoice Disputes Occur?

Errors in Accounting

One of the most common sources of invoice dispute stems from simple accounting errors. When accountants are calculating accounts sheets manually, they will eventually make a typing or calculation error. If your accounting department doesn’t catch this mistake beforehand, it will come in front of you later in the form of a dispute.

Pricing Disagreements

Sometimes, clients claim that the rates charged on an invoice are not the same as the rates agreed upon earlier. This may happen when the client doesn’t remember the agreement clearly or feels like the final product doesn’t have the quality they had agreed to pay for. Either way, you can avoid such issues if you draft a thorough contract and specify rates and project scope in the very beginning.

Quality Issues

Similarly, some clients object to paying invoices when they believe that the final deliverable doesn’t meet their expectations. Ideally, clients would first lodge complaints about their reservations before requesting an invoice dispute, but that’s not how it happens in most cases.

4 Ways to Avoid Invoice Disputes and Errors

Invoice disputes can happen due to a variety of reasons, so it’s essential to keep calm and take the best course of action depending on the situation.

1-Transparent Record Keeping

The majority of these disputes can easily be resolved if you stay organized and maintain a clear record of transactions, email/phone correspondence, as well as information related to all billable costs.

A recordkeeping system provides you with relevant evidence and supporting documentation that outlines the costs associated with the disputed amount. Using a transparent system, you can always efficiently resolve disputes without escalating conflict. One way of gathering data from invoices efficiently is by using solutions with intelligent data capture features.

2-Clarifying Invoice Terms

A report published in 2016 estimated that clients delay about 45 to 60 percent of total invoice payments, so it’s common for clients to delay payments for one reason or the other. The majority of these disputes happen because there is a lack of clarity surrounding payment terms, which is why it’s essential to clearly define invoice terms while generating invoices.

For instance, using terms such as Net 30 on invoices conveys that the invoice is due in 30 days. It’s easier to avoid payment delays by setting reminders and alerts on invoices approaching their due dates.

3-Send Quotes, Estimates, and Proposals.

Another useful way of avoiding invoice disputes is adopting the habit of sending quotes, estimates, and proposals as soon as you discuss the purchase of products or services.

You should write down key details of your agreement, or better yet, draft a solid contract that solidifies your business relationship.

Aside from sending detailed quotes and estimates, you ask for a proposal that summarizes the costs of the order and outlines the quality benchmarks. As long as you sign the contract before ordering anything, this will minimize the risks of disputed invoices.

4-Failing to Meet Expectations

If a service or goods you have received are unsatisfactory, then you should notify the vendor as soon as you identify issues in quality. You must investigate whether the good is just unfit for purpose, or it just differs from what you had in mind.

In case the service doesn’t fit the purpose, you should provide evidence to support your claim so the vendor can resolve it immediately. However, if the goods don’t meet your expectations, then let the vendor review your contract.

It’s natural to be suspicious when you find that the vendor didn’t provide you the goods with the desired quality. In any case, you should remain calm, provide further information about their issues in quality, and resolve the problem based on your agreed contract.

Invoice errors and disputes are recurring problems for businesses all around the world. Delayed payments ruin relationships with vendors and create an unnecessary burden for the accounting team.

Minimizing invoice errors and disputes and efficiently resolving them improves your relationship with vendors and helps you lessen the burden on your AP team. The techniques discussed in this article can help you reduce invoice disputes and errors. That said, an Automated Accounts Payable solution is a far more efficient means of lowering invoice disputes and streamlining the invoice workflow.