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Administrative Cost Savings

through Invoice Verification


The cost of doing business.
The average company spends between three to 15 dollars processing a single invoice. An overwhelming
factor contributing to this recurring corporate cost is the paper invoice, which continues to account for 95
percent of all business-to-business invoicing practices in Europe and the United States.1 To add insult
to injury, approximately 13 percent of all invoices encounter some kind of processing road block: invalid
supplier, missing purchase order (P.O.) number, lack of purchase authorization, inappropriate or inaccurate
product details, etc.2 These roadblocks create inefficiencies within transaction processing leading to a
significant increase in costs, most of which is allocated in man-hours.

By incorporating an electronic invoice processing system with strategic invoice verification processes, an
organization can significantly reduce the cost to process transactions and eliminate man hours currently
dedicated to invoice dispute and resolution.

The tiered approach.


Depending upon the complexity of an organization’s procurement process(es), the level of verification
needed to ensure accuracy varies. For the purposes of this paper, we have classified all forms of verification
into three basic categories.
Invoice compliance. The data captured during a transaction is merchant-dependent. However,
the detail of transaction information required to facilitate payment is reliant upon corporate accounts
payable procedures. This first level of invoice verification ensures that invoices submitted for
payment are compliant with corporate policies.
Complete. The most basic form of invoice compliance is ensuring that the invoice submitted
is complete. This means that all of the data fields required to process a transaction have been
provided. For example, it is likely that every invoice should include the following pieces of
information in order to be processed:

• Merchant identifier
• Date of transaction
• Transaction amount

Additionally, your company may require more detailed information be itemized prior to
releasing payment. Some of these data points may include:

• Customer number or account number


• Product code(s)
• Product price(s)
• Purchase quantities
• Sales tax
• Customer-specified data points, etc.

Invoices that do not meet the customer’s basic data requirements should be rejected prior
to invoice submission. By automating this process, the administrative costs associated with
manual exception management is significantly decreased.

Valid. Once it is confirmed that all required data fields have been completed, the next level of
invoice verification requires that information provided be valid. For example:

• A P.O. number should adhere to the buyer’s formatting standards.


• A transaction date should adhere to universal date formatting and represent
an accurate historical date.
• A merchant or customer identifier must match an existing record within the
accounting database.

Accurate. If valid data has been submitted for all of the required invoice fields, the system
should then check for accuracy. Some examples of standard formulas that must be approved
are:

• price x quantity = subtotal
• percentage sales tax x subtotal = sales tax charged
• subtotal + sales tax = total

1
http://www.unece.org/press/pr2007/07trade_p02e.htm
Administrative Cost Savings through Invoice Verification 1
2
Gartner industry estimate. 2003. http://www.gartner.com/press_releases/pr24june2003e.html

2010 www.msprivatelabel.com
Bill duplicate filters. Various industry estimates suggest that the vast majority of costs
associated with processing a transaction are accrued in labor. Filtering processes reduce the
number of duplicate invoices submitted to an accounts payable department, thus minimizing
the administrative workload of employees in an accounts payable department. In one study,
87 percent of organizations noted increased efficiency in posting and reconciliation processes
through electronic payment and accounting systems. Likewise, 76 percent indicated cost
savings and administrative staff reductions as a key benefit to adopting an electronic payment
system with their accounting system.3

Invoice filtering cross-references various pieces of invoice data with previously submitted
invoices. Comparing transaction values to detect similarities in this way helps identify invoices
that are likely to have been previously processed. Data analyzed within bill duplicate filters
include, for example:

• Delivery location
• Delivery date
• Total amount
• Merchant number

Each filter includes a combination of select data points. Additional filters are then layered
in to maximize effectiveness. For example, one filter may include delivery location, delivery
date and total amount. A second filter may include delivery date, merchant identifier and card
number. By layering these filters, the number of false positive duplicates is reduced while the
likelihood of identifying true duplicates is improved.

Administrative Cost Savings through Invoice Verification 2


3
Association for Financial Professionals. Electronic Payments Survey. 2008. pg 3, 12.

2010 www.msprivatelabel.com
Product-price verifications. The processes to determine that the price charged for a
product is appropriate for the product purchased are numerous, and it is at this point in rule
development that verification procedures can become extremely complex. We break product-
price verification processes into three categories:

• Contract price verification. If an existing contract for the specified product


exists between the customer and the merchant, the system identifies the transaction as
a contracted purchase and ensures that only approved products are purchased against
the existing contract. For example, a pallet of candy bars may not be purchased against
an existing contract for produce. The billing and payment system then verifies that the
price charged for three dozen oranges matches the fee specified in the contract.

• Product-price tolerances. If your organization is likely to purchase a specific set of


products regularly, your transaction database can be built to understand the typical
price range for a specific product and flag purchases made outside of that product’s
minimum and maximum price threshold. For instance, a pack of gum should cost no
less than 25 cents and no more than $5 just as a company may only be willing to spend
between $80 and $500 for a desktop printer.

The system should track both high and low tolerances to ensure that settlement is not
conducted on an erroneous transaction that will later be corrected or reprocessed.

• Merchant-product verification. Additionally, the transaction database for a billing and


payment program can be built to understand that your employee did not purchase a
new luxury sedan from the local stationary shop nor a ream of paper from the local
car dealership. Merchant-product verifications can be based upon merchant standard
industrial classification (SIC) codes, geographic location, or other similarities between
collections of suppliers.
Cost savings that cannot be taken for granted. Rejected invoices or invoice disputes
create unnecessary repetition within the payment process. An effective invoice processing
solution can significantly reduce the cost to process transactions and eliminate man-hours
currently dedicated to invoice dispute and resolution – a cost-savings that should not be
undervalued.

When surveyed, 76 percent of organizations indicated cost savings and


administrative staff reductions as a key benefit to adopting electronic
payment systems.3

Administrative Cost Savings through Invoice Verification 3


2010 www.msprivatelabel.com
Multi Service. Innovation Where it Matters.

Multi Service specializes in the design, implementation and management of custom


billing and payment solutions. The company collaborates with clients to isolate specific
commercial credit and payment issues, identify measurable business goals, and design
tailored private label payment solutions.

Thank you for your interest in this free white paper. We welcome your comments,
feedback and suggestions. Please consider sending us a note about how this paper
has helped you. If would like to contact a private label business development analyst
directly, you can call +1-913-451-2400 or email contact-private-label@multiservice.com.

Administrative Cost Savings through Invoice Verification 4

2010 www.msprivatelabel.com