The key to resolving invoice disputes is to identify the dispute very early in the collections process. Too often businesses send out invoices, and they wait until the invoice is far past due before they start calling to find out why they haven’t been paid. Here are a few interesting and helpful statistics about invoice disputes, what causes them, and what you can do to fix these problems if they exist in your organization.
Invalid or incorrect purchase order information leads to 49% of disputes
It seems silly that such a large portion of disputes are caused by a simple oversight, but according to an article on CFO.com, this happens more often than you’d think! The story mentions a study which reported 49% of financial executives cite ‘invalid or missing purchase order information’ as a reason for customers not paying their invoices.
How to avoid this:
You may be able to configure your accounting system to require a purchase order when entering an invoice for a particular customer; but many entry-level and midmarket accounting and ERP systems simply don’t have this type of functionality.
As an alternative, you could implement an accounts receivable management system to notify you when an invoice for a customer is missing a purchase order number. Simply define an action for a customer (or group of customers) that checks to see if the customer requires a purchase order number and then checks to see if the invoice has a purchase order on it. If the invoice does not have a purchase order, the system can create an alert notifying you that you will have a problem getting payment, and you can address the issue very early in the process before the invoice is past due.
11% of customers never got the invoice
According to the same CFO.com article, 11% of invoices are paid late because the customer never actually received the invoice. Again, this is another silly mistake that causes serious consequences for companies.
How to avoid this:
It makes sense to occasionally double check that your contacts are correct and up to date; reflecting any shifts that may have occurred in your customer’ s AP deparment.
Another tactic is to send an invoice via email, not just a hardcopy. Most accounting and ERP systems allow you to setup document transmittal to automatically email invoices to customers from the accounting system. The problem is that some systems only support a single contact, and the invoice may be sent to the wrong person if the primary customer contact is not the accounts payable contact at your customer; and you are out of luck if you need to send the invoice to both the person who authorized the purchase as well as the person with the authority and responsibility to process the payment. Further, you may want to send multiple copies of the invoice through different avenues for customers who frequently use the excuse that they didn’t receive the invoice.
You can remedy all of that though if you consider implementing software which allows you to send invoices automatically to customers via email. Further, you can setup customers with online access to a secure customer portal where they can get their invoices themselves. The system can even email them an encrypted hyperlink that takes them directly to their online account where they can review the invoice and make a payment online without having to log-in to the portal thus eliminating the inevitable excuse that they lost or forgot their user name and password.
27% of financial executives stated that customers didn’t pay on time because they either didn’t have the money or they were unable to contact the customer to resolve the issue.
The CFO.com article also indicated that 27% of financial executives stated that customers didn’t pay on time because they either didn’t have the money or they were unable to contact the customer to resolve the issue. The study didn’t breakout these two distinct reasons for non-payment but we suspect that far fewer customers had cash flow problems than those who simply were not able to be contacted.
How to avoid this:
Make sure your contact information is clearly and correctly stated on all invoices or communications with the customer; that way they cannot use this as an excuse.
As we mentioned, we are willing to bet that a majority of that 27% represented companies who were unable to pay their bills. One thing you will want to do is avoid selling on credit to financially unstable companies; use a credit application to help investigate whether or not they will be able to pay their bills.
- Feel free to download our credit application template and customize it for use in your business.
If you do find yourself in the position of dealing with a financially distressed customer, there are several ways that you can address this issue to improve the likelihood that you get paid. This white paper provides a detailed explanation of what you should do in these situations to make sure you get paid while also preserving the relationship.