In an economic downturn, customers and buyers will often resort to whatever means necessary in order to either delay payment or reduce the amount that they owe, and using disputes and demanding corrections on invoices is a fairly common delay tactic. Still, according to NACM's most recent monthly survey, despite the grip of the economic downturn on the U.S. economy, the number of invoices that need to be adjusted due to disputes, corrections and other problems represents a rather small amount of most companies' total invoicing.
In response to the question "what percentage of your company's invoices need to be adjusted due to disputes, corrections or other issues?," 72% of respondents noted that only 0%-10% of their companies invoices need to be adjusted. Another 17% said that 10%-20% of their invoices required adjustments, and 7% said that 20%-30% of their invoices needed changes. A very small minority noted that their percentage of adjusted invoices was higher, with 2% saying "30%-40%," and 1% each saying "40%-50%" and "more than 50%." The handful of respondents whose companies adjust 30% to over 50% of their invoices often cited industry practice as the reason for their high numbers. "Due to the nature of our business we have numerous retro price changes made after invoicing. This accounts for the major portion of our invoice price adjustments," said one participant who answered "30%-40%." "The differences are due to weight variances, which is normal for our industry," said another respondent, whose company adjusts 40%-50% of their invoices.
Reasons for disputes were fairly diverse, with respondents citing freight, tax and contract issues. "The majority of disputes are over freight and tax; buyers don't seem to know if the product being purchased is exempt or taxable," said one participant. "Many of our mistakes are due to project managers not paying careful attention to the contract and billing according to the milestones," said another respondent. "Running a close second is not making sure that the order and invoice has the proper purchase order for the customer to process against. Many times work authorization numbers or requisition numbers are used instead of the correct purchase order number." However, simple errors and mistakes were the most commonly cited causes for adjustments. "Our disputes are mainly for pricing and for invoices not signed," said one respondent. "Most adjustments seem to be self-inflicted: incorrect pricing or freight," said another. "We strive to tighten those processes where the errors occur."
While most participating credit professionals noted that the percentage of total invoices adjusted was, in many instances, lower than 10%, and in some instances even lower than 5% or 1%, the cost of dealing with these issues remained a source of frustration. "The actual amount is less than 1%, however this still requires man hours for me to catch the error, man hours to process the credits to close the invoice and man house to re-bill for the corrected billing," said one participant. "On average it requires approximately 45 minutes of labor to recognize the error and process it for correction."
Additionally, while the percentage was still low, some respondents noticed a marked increase in adjustments over the last several months. "While our company aggressively strives for a very low percentage of disputed/corrected invoices, the ratio of disputes has undeniably increased over the last year," said one respondent, "mostly debits taken in error."
NACM's new monthly survey asks about how much economic indicators affect your company's processes and procedures. To participate today, click here.
Jacob Barron, NACM staff writer. Follow us on Twitter at http://twitter.com/NACM_National.