It is with great pleasure that Ardent Partners announces the publication of its latest state of accounts payable (AP) research report—“ePayables 2015: Higher Ground.” Like the annual reports that came before it, the 2015 ePayables report focuses on the state of the AP function as well as assessing how AP teams leverage ePayables solutions to improve business results and offering up Best-in-Class metrics that allow readers to benchmark their own operations against top performers. (The report is available for download here, here, here, and here.)
What Causes Invoice Exceptions?
Without putting too fine a point on it, exceptions are the bane of the modern AP department. On the whole, the invoice approval workflow is designed to function like a well-oiled machine. Invoices are received, information is checked against the purchase order (PO) and contract (or PO and goods receipt note), and then approved/scheduled for payment. All told, the process takes the average enterprise 11.4 days to complete—including getting the appropriate approvals and making final payment arrangements.
If an exception occurs, however, the entire process grinds to a halt. AP is then forced to address the exception, which delays the rest of the approval workflow and may result in the supplier receiving payment late (depending on how long it takes to address the exception). Essentially, exceptions drag out the time it takes for the invoice to be approved and payment finally scheduled. This means the invoice costs more staff time to process, which is time the AP team could use for strategic activities instead. The causes of invoice exceptions vary, but the most significant cause is a discrepancy between PO and invoice information (68%).
Discrepancies are far and away the most prevalent culprit for invoice exceptions, resulting in 86.5% more exceptions than the lack of a purchase order (37%), which is the next-highest cause of exceptions. The reason for this vast difference is because a discrepancy between a PO and an invoice can be something simple, such as a digit wrong in a zip code, or more complex like the wrong service/product pricing on the invoice. There is a wide variety of ways that an invoice and PO can disagree, which makes it easy to see why discrepancies in the two documents cause the most exceptions.
Other causes of invoice exceptions include:
- Bottleneck in the invoice approval process (31%): An invoice approval bottleneck is typically caused when the appropriate approver is out of the office. In manual, paper-based processes, AP staffers must shepherd the invoice through the approval workflow in a high-touch fashion. If an authorized approver is out in such a scenario, AP must manually either find another approver or wait for that approver to return.
- Incorrect purchase order (20%): This is a less common occurrence, but an incorrect purchase order submitted with an invoice can bring the approval process to a screeching halt. POs can be incorrect for various reasons, including being for the wrong supplier, being for an invoice that was already approved, or even being for an entirely different project.
More than 17% of the average enterprise’s invoices cause exceptions; this represents a significant chunk of time spent handling what are essentially mistakes in the invoice approval process. In a world already flooded with manual processes, exceptions can be a huge burden to a number of AP departments—as well as the internal and external stakeholders that depend on timely approval.
Final Thoughts
Every invoice that causes an exception represents time that the AP team could have spent on a task of more strategic value to the wider organization. All is not lost, however, because it is possible to cut down the number of invoice exceptions over time. Best-in-Class organizations in Ardent’s ePayables 2015 research have done this through a combination of standardized processes, AP automation, and adopting a culture with a more strategic focus. It is possible to cut down on the number of exceptions, but enterprises need to take the first step.
RELATED ARTICLES
ePayables 2015: The Three Most Common Accounts Payable Technologies
ePayables 2015: What is the Biggest ePayables Priority in 2015?
ePayables 2015: 3 Important Accounts Payable Goals for the Next Two Years
ePayables 2015: How Improved Exception Handling Can Drive AP Performance
ePayables 2015: Moving From the Tactical to the Strategic
ePayables 2015: AP’s Top 3 Priorities in 2015
