Different Approaches to Reduce Errors in Vendor Bill Processing

Do you ever feel like errors in processing vendor bills are causing a headache for your business? Well, you are not alone! In fact, companies lose billions of dollars every year due to inaccuracies in their billing processes. Luckily, there are many different approaches that can help reduce these costly mistakes and streamline your operations. Some of the approaches include automation, improved communication with vendors, relying on accounts payable services, etc. You can either apply all the approaches or choose the ones that best fit your business requirements. By implementing the right approach at right time you can transform your billing process into a more efficient and hassle-free experience! So, let us explore more about accounts payable, vendor bills processing, common causes of errors, and how you can reduce the errors in bill processing.

What Is the Vendor Billing Process?

The vendor billing process represents receiving and processing invoices from vendors for goods or services provided. This process involves several steps, such as verifying the accuracy of the invoice, checking if the goods or services were received as per the purchase order, ensuring that the prices charged are correct, and ensuring that the payment terms are met. The process also involves recording the invoice in the accounting system and initiating payment to the vendor according to the agreed payment terms.

The vendor billing process is an important component of accounts payable. Effective management of this process ensures that suppliers are paid on time, which helps maintain good relationships with them. It also helps prevent overpayment and discrepancies, leading to unnecessary costs and inefficiencies. A well-managed vendor billing process can help to streamline operations and improve the overall efficiency of an organization’s accounts payable function. Businesses can also hire an invoice processing services provider to ensure all the vendor invoices are properly managed.

Common Sources of Errors in Vendor Bills Processing

There are many potential sources of errors when it comes to processing vendor bills.

• One common source of error is incorrect data entry. It can happen if the wrong bill amount is entered or if the wrong invoice number is entered.

• Another common source of error is failing to match invoices to purchase orders. This issue can arise if the purchase order number is not entered correctly or if the invoice amount does not match the amount on the purchase order.
• Another potential source of error is failing to verify that the correct items were received. This can occur if an item was ordered but not received or if an extra item was received that was not ordered.
• Additionally, mistakes can be made in calculating discounts or tax amounts. Errors can occur when payments are made late or not at all.

To avoid these errors, it is important to have a system in place that double-checks data entry and matches invoices to purchase orders. It is also important to verify that items were received as expected and to calculate discounts and taxes correctly. Prompt payment of invoices will help avoid any late payment fees or interest charges.

Whether you have a team of in-house experts or use an accounts payable services company, there are many approaches that you can follow to ensure accuracy in the billing process and enhance the efficiency of the entire process. So, let us know in detail some methods or approaches to reduce the errors in vendor bill processing.

Approaches to Reduce Errors in Vendor Bills Processing

Accurately processing vendor bills is very important to ensure the accuracy of financial information, correct and timely payment of vendor bills, and maintaining good vendor relations. There are some simple checks every business should adopt for accurate invoice processing, including

• Standardizing data entry fields: While processing vendor bills into the accounting system, it is required to identify the fields that need to be entered, document them, and communicate them to the billing processor. As a result, complete information will be captured into the system, preventing incomplete data from being processed and leading to fewer processing errors. It will also allow for the creation of accurate financial reports, which will assist in business decision-making.
• Automating bill processing process: Implementing technology that helps self-capture data from the vendor bills into the accounting system can help reduce the errors and discrepancies in the billing process. Optical Character Reader (OCR) & Machine Learning technology are used to extract data from the vendor bills. It helps identify and capture data from the bills, i.e., vendor name, invoice date, invoice number, invoice amount, payment terms, due date, account code category, etc. Implementing these technologies in our bill processing system helps in the correct and faster processing of vendor bills into the system. This system can be implemented with the help of an expert invoice processing services provider to make it easier, as they usually have experience handling automated invoicing systems.
• Adopting invoice matching process: Invoice matching is the process of comparing the invoice received from a vendor with the purchase order and the goods or services received to ensure that all the details match. This process is necessary to verify that the vendor has billed the correct amount for the goods or services provided and that the organization only pays for what was ordered and received. Necessarily, there are three types of invoice matching that businesses can follow, and it includes:
  • 2-way matching process- 2-way matching is an accounting process through which vendor bills are matched to the purchase order while processing the bill. It ensures that the bill received from the vendor matches the details of the purchase order issued by the business, i.e., bill rate, bill quantity, bill amount, period validity, etc.
  • 3-way matching- 3-way matching is the next step to the 2-way matching process. It is the process through which the bills of the vendor are matched to the purchase order and receipt of goods.
  • 4-way invoice matching- This method is the same as the 3-way matching process with the addition of one more component to match. The 4-way matching process requires the invoice to be matched with the purchase order, receipt of goods, and the acceptance or inspection document.
• Setup approval workflow: Prior approval of bills is necessary before they are paid to the vendor. Your business’s accounts payable process should be designed to ensure that all invoices are approved before being processed and paid to the vendor. It helps prevent unauthorized payment of vendor bills and helps in preventing fraud. Though various bill approval processes can be created depending on the business needs, adopting the right accounting system/application is crucial. A good bill approval process should support approval workflow through various individuals in the organization before it is processed and paid.
• Automating payments: Besides automating invoice processing, businesses can also automate the invoice payment process. You can connect accounts payable applications or accounting software directly to the banking service provider. It helps initiate payments to vendors directly through the accounting software or the accounts payable applications. It results in faster processing of vendor payments, helps avoid payment processing errors, and aids in automated reconciliation. Using automation tools with the help of accounts payable outsourcing services is more beneficial and cost-effective as the service providers usually have access to top automation solutions and have proficient experts to handle them.
• Vendor balance confirmation: Periodic confirmation from the vendors regarding their outstanding balance towards the business helps identify any bills that might have been missed while recording them in the accounting system. It also helps ensure the payment made to the vendors are received by them and develops confidence about the accuracy of outstanding vendor balances. All this further helps in audit and inspection.
• Review of accounts payable reports: Doing a frequent review of the accounts payable reports, like an aging report or detailed vendor balance outstanding reports, is also crucial. It helps confirm all the vendor balances are reflecting correctly and that no overpayments or credit notes are yet to be applied to the vendor invoice. This review process helps establish control over the accounts payable process and further helps identify any errors in the system.
• Payment reconciliation: After payment has been issued to the vendor, you need to mark the bill as paid in the accounting software. It helps keep the books of accounts up-to-date, ease the reconciliation process, and helps in preventing over or underpayments.
• Training: Training accounts payable personnel on how to process vendor bills into the system is another important aspect that needs to be followed. Providing training on recording the bills, in what fields the billing voucher need to be filled, selecting the cost centers, the approval process of the bills, how to apply for vendor payment, and how to do reconciliation is important. It helps ensure the invoices are processed correctly in the accounting system, thus helping generate accurate financial reports.

Useful read: Invoice Processing 101

The checks mentioned above are some of the vendor bill processing methods which help in reducing bill processing errors to a great extent. It also aids in faster processing and payment of vendor bills into the system, generating accurate financial reports, and having good control over the accounts payable process, making it error-proof and robust.

Conclusion

Reducing errors in vendor bill processing is essential for a business to ensure invoices are correctly processed and paid on time. We have discussed some creative approaches that can help reduce errors in vendor bill processing. Keeping up with best practices will also be key for businesses as technology advances and processes become more complex. By implementing effective strategies and staying abreast of the latest trends, businesses can minimize errors and maximize efficiency when managing their accounts payables.