27% of the invoices contractors receive have errors.
Billing errors are far too common in construction. One small typo by a vendor and suddenly a $120 invoice becomes a $12,000 invoice. Or one delay in communication means an order change isn’t reflected on the bill. Recent data collected by Kojo Technologies, Inc. shows that 27% of the invoices received by contractors have errors.
When you’re processing tens, hundreds, or even thousands of invoices a week, it’s really easy for these mistakes to sneak by. And when they do, they can quickly add up to tens of thousands of dollars lost on jobs. That’s why every trade contractor should embed invoice reconciliation into their procurement and accounting processes.
Here are the top 3 things invoice reconciliation can do for you.
- Catch billing errors
Typos and miscommunications happen, and catching the resulting errors is the bread and butter of invoice reconciliation. Mistakes can take the form of incorrect info on the invoice itself, for example if the price or quantity on the invoice don’t match what’s shown on the PO. Or, perhaps more commonly, the invoice may bill you for materials that have not arrived, or arrived damaged. You need to catch these errors so that they can be corrected before you pay for them. By simply comparing the invoice to the purchase order and proof of delivery, you can identify any discrepancies and seek resolution from the vendor.
- Eliminate fraud
Purchasing fraud does happen - if it hasn’t happened to you, it has probably happened to someone you know. You never want to pay for materials that were purchased for someone’s unscrupulous personal gain. Invoice reconciliation can help eliminate fraud by ensuring all invoices are legitimate, with a corresponding purchase order and proof of delivery to the site.
- Save time in the field and office
Without a clear and efficient invoice reconciliation process, accounting is likely to find themselves chasing down answers and information before they release payment. This distracts them from their work, but also disrupts the purchasing and field teams who need to scramble to find documents and look up answers. By implementing a dialed-in reconciliation process, you ultimately save your teams time and enable them to stay focused on their work.
As a contractor, you want to verify you’re paying the right amount for what actually got delivered before you pay it. You need to do this in the least disruptive way possible. And you need to avoid field foremen spending time searching for delivery receipts and accounting teams spending hours going through printed out invoices and POs manually.
How to get started doing invoice reconciliation
For many contractors, the first step is to try a manual invoice reconciliation process. This means asking someone on the team, usually in purchasing or accounting, to gather up all of the paper and PDF documents and visually scan and compare each one.
This can work on a smaller scale, but unfortunately this process can’t scale very far. When things are handled on paper and email, delivery tickets must still be chased down from the field, and often go missing. Manually combing every invoice line-by-line is tedious and leaves room for error. And overall, a manual process requires a huge time investment. A recent survey of trade contractors across the U.S. found that they are spending 20 or more hours each week on manual invoice reconciliation.
As companies grow, they find that the manual invoice reconciliation process gets out of control and mistakes multiply. It takes too long and is too error prone. There’s too little standardization across different projects and how rigorously invoices are being inspected. It’s also frustrating and tedious for your team members who have to do it. As a result, many companies abandon the process and assume a certain level of invoice mistakes as a cost of doing business.
With technology, there is a better way
Fortunately, you don’t have to give up on the idea of effective invoice matching while scaling your business. All you need to do is find a technology to help automate the process.
An effective automated invoice matching solution should have the following features:
- Delivery tracking from the field, so delivery receipts never go missing again.
- PO, delivery receipt, and invoice all in one place, ideally with little to no data entry required.
- Integrated with your accounting system for a smooth handoff between purchasing and accounting.
Technologies that can deliver the above features will save your teams’ time and ensure you never pay for another billing mistake.
Einheit Electric has implemented automated invoice matching for their business, and their President John Mraz has seen the benefits. “Being able to see in real time what we should be being charged for, what the price should be, what was backordered, means we’re able to catch mistakes a lot quicker than what we used to do.”
Want to learn more about how automated invoice matching technology can help your business? Schedule a demo with Kojo.