Let’s face it - the procure-to-pay process is rarely a smooth ride for any growing business. Between keeping vendors satisfied and maintaining internal efficiency, your AP teams are juggling exceptions and working to resolve invoice disputes before they hinder operations or impact your bottom line.
An invoice dispute occurs when an invoice received from a supplier contains exceptions or inaccuracies that prevent it from being approved. Common disputes arise from mismatches between purchase order details and the vendor’s invoice in areas like price, quantities, items descriptions, or terms. Even minor data discrepancies can trigger disputes that divert invoices to staff for additional research, reconciliation, and issue resolution.
While many finance leaders have an intuition that these disputes are piling up, far fewer can conclusively identify just how severe the problem is - and whether it’s getting better or worse.
Without clear visibility into a quantified invoice dispute rate, most organizations operate blind - unable to capture insights into process performance, pain points, and potential remedies. For those struggling with symptoms like frustrated suppliers, ballooning processing costs, or missed discounts, understanding and acting upon dispute rate data offers a path to both visibility and progress.
The Cost of Inaccuracy
Unlike some AP metrics that feature front and center in reports, invoice processing dispute rates often hide in plain sight without proper categorization and analysis. But make no mistake - excessive disputes and exceptions take a heavy toll including:
Cash Flow Disruptions
As invoices sit waiting for resolution to errors, payments stall - creating financial headaches for your vendors. Suppliers awaiting these late payments experience cash shortages themselves, limiting their ability to fund business operations and throwing off their financial projections.
Consequently, they'll often react by delaying new product/service shipments and deliveries to you until the payment issue gets resolved.
Strained Supplier Relationships
Even minor disputes erode supplier goodwill over time if they become persistent. Vendors might view persistent issues as unwillingness to pay, and complicate negotiations for future agreements and pricing if disputes and subsequent late payments become a trend.
Higher Processing Costs
Disputes divert Accounts Payable resources into time-consuming research, reconciliation, and issue resolution so exceptions can clear. Estimates indicate invoice processing costs rise by over 50% when disputes require manual intervention.
Depending on your regulatory environment and industry, persistent late payments due to unresolved disputes can leave you vulnerable to fines for non-compliance with statutes designed to protect suppliers.
Missed Early Payment Discounts
Even fleeting disputes stall approvals, limiting your ability to capitalize on early payment discounts that offer savings for fast turnarounds. The potential lost value multiplies rapidly at scale.
Calculating and Leveraging Your Dispute Rate Metric
Your invoice dispute rate formula shapes up simply:
(Disputed Invoices / Total Invoices Submitted) x 100
While industry benchmarks hover around 2%, less efficient organizations can see rates ranging from 5-15% or worse.
Uncovering this baseline dispute rate powers both targeted process improvements and cost savings projections once the root causes gain diagnosis through further analysis.
Breaking It Down - Additional Insight
Identifying a baseline invoice dispute rate metric is a necessary first step to diving into your company’s invoicing process. Analyzing the additional metrics detailed below can confirm if your dispute rates warrant concern:
- Count of Disputes Per Month – Is the raw monthly volume of disputed invoices staying steady or spiking across seasons?
- Invoice Value Disputed – Dissect disputes by size - are larger invoices causing exceptions disproportionately?
- Days In Dispute – How long do disputes take to resolve on average? Rising cycles signal inefficiency.
- Dispute Reasons – Categorize types collecting data on root cause patterns within systems.
- Disputing Suppliers - Discover whether issues concentrate around some vendor relationships.
Armed with clearer statistical insights into disputes, taking action becomes clear and possible.
Now What? Diagnosing the Root & Creating Change
Like finding leaks in plumbing, quantifying your dispute rate exposes cracks in processes that commonly lead to exceptions overflowing. But diagnosis is only the starting point - now comes the more intricate work of sealing those revenue drains.
Your invoice dispute metric can reveal several potential hangups happening within your procure-to-pay process. Bottlenecks in workflow, disjointed systems, deficient validation rules, and unclear supplier documentation tend to drive the majority of avoidance issues.
Now that you've discovered specific issues through dispute rate analysis, here are targeted action items that can patch your process holes and streamline efficiency:
Streamline Approval Workflows
Lengthy approval processes enable exceptions to multiply rapidly. If manager sign-offs or repetitive validation steps allow disputes to stack up, assess workflow efficiency via:
- Cycle time analysis - document delays between touch points
- Volume thresholds - are low-risk invoices being over-scrutinized?
- Misrouted documents - identify any status tracking gaps
- Priority manipulation - are urgent disputes fast-tracked?
Optimize by setting system rules that accelerate processing for compliant, low-risk invoices. Introduce dynamic workflows that escalate priority based on aging metrics.
Enhance System Integrations
Gap-ridden data flows between procurement, ERP, accounting, and payment systems hamper dispute prevention. Lacking purchase order details and cumbersome cross-checking enables exceptions.
Evaluate current integration approaches and explore tools like:
- Robotic Process Automation to centralize data
- Smart matching algorithms (e.g. 3/4-way)
- Machine learning for pattern recognition
- Vendor portals for direct PO-to-invoice linking
The productivity dividends from auto-matched invoices can minimize manual disputes dramatically.
Refine Invoice Matching Configurations
Outdated invoice matching policies fail to keep pace with business complexity. Inflexible matching logic falls short with discounts, contract nuances, indirect spend, and other edge cases - creating exceptions.
Analyze your current criteria with scrutiny, identify common exceptions, and revisit tolerances including:
- Price variance
- Quantity variance
- Delivery date variance
- Description variance
Layer predictive analytics to continuously tighten policies over time while avoiding barriers to valid invoice clearance.
Engage Suppliers on Clean Invoicing
Poor upstream invoice quality from vendors plants the original seeds for downstream disputes. Missing purchase order associations, incorrect prices or rates, and incomplete item data break reconciliation.
- Promote consistent e-invoicing adoption through:
- Onboarding assistance and pre-formatted templates provided to suppliers
- Online portals with invoice creation wizards to standardize data
- Webinars and quick guides on capturing required elements
- Periodic analysis of errors by supplier to guide training
With suppliers as partners in clean data exchange, disputes dwindle.
The Bottom Line
Getting granular into diagnoses and targeted solutions at a process level makes all the difference between simply understanding dispute rates and actually reducing them. The payoff makes this deep dive worthwhile.
The downstream savings derived from slashing dispute rates can be dramatic thanks to productivity gains, more early payment discounts captured, and substantial cost avoidance across AP.
One B2B distribution firm uncovered a 13% dispute rate stemming primarily from inaccurate supplier invoices lacking standardized purchase order numbers that created reconciliation headaches.
By transitioning vendors to consistent e-invoicing methods and tightening their matching logic, disputes fell by over 60% in under a year - saving an estimated $840,000 annually.
Shedding Light Pays Dividends
As this case illustrates, bringing your invoice dispute rate out of obscurity and into the light empowers tangible improvements within P2P systems. Quantifying and classifying disputes forms the foundation for both calculating efficiency metrics and chasing cost savings.
So if those pesky disputes seem to be multiplying or payment delays drawing supplier complaints, don’t wait any longer. Dig into the data, diagnose root causes, and act upon the insights to institute operational excellence while keeping vendors satisfied. A little light can go a long way toward accounts payable harmony.
We help leading B2B companies to improve supplier pricing and invoicing processes to strengthen visibility, cycle times, accuracy and their bottom line. We work with your current systems to identify the right processes and reduce wasteful ones, build secure and stable automated workflows, and bridge the gap between new and existing systems. If you have struggled with invoice processing and you’re noticing a hit on your bottom line, reach out to our professionals. Set up a time to talk to our team and learn more about how you can work faster and scale invoicing operations across your organization.