There are two varieties of invoice discrepancies: intentional and unintentional. The former happens when one party willingly changes the terms of an agreement. The latter is typically a mistake made during the data entry process.
This article will review both and discuss how to resolve invoice discrepancy.
Some key takeaways:
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We’ve listed several invoice discrepancy examples below. Intentionality is not discussed in this section, but it can be implied to any one of these.
Don’t assume that every discrepancy in invoice preparation is a harmless mistake. However, don’t immediately fly off the handle when you discover errors. We’ll go over discrepancy resolution later in this article.
Sending or receiving an invoice late can cause financial unmanageability and cash flow projection issues. It could also skew your financial reporting if the invoice comes in after the reporting period is over. Your best bet is to address late invoices immediately by paying them and sending an invoice discrepancy email to the issuer to avoid misunderstandings.
AutoPay is a wonderful feature to have when you run a small business. Unfortunately, it can sometimes lead to paying duplicate invoices when they come in. This can be a bookkeeping and accounting nightmare. To avoid that, set up a review process on all incoming invoices before paying them. This can also ensure you’re not being overbilled for services.
Invoicing software, no matter how sophisticated, depends on human data entry for accuracy. People can make mistakes that could cause calculation errors. An example is entering the wrong unit price into a large order. Another is entering the wrong tax rate. Being off by even the slightest amount will cause the total on the invoice to be incorrect.
Systems in modern business are dependent upon each other. For instance, your invoicing software could be connected to tables that list prices for all your products. If that table isn’t updated, your prices will be wrong. This causes a discrepancy on invoice line items that may not be caught for several billing cycles, if at all.
Another common discrepancy in invoice management is incorrect time sheets. These could come in the total hours worked, the rate, or assigning hours from the wrong project. Contractors in growth mode sometimes make this mistake by billing for labor on one job that was done on a different job. Auto mechanics can also fall into this trap.
A missing tax rate or failure to put the number of units into an invoice could necessitate the delivery of an invoice discrepancy letter to a supplier. Incorrect tax rates can be a major headache, especially if you get audited. Missing an invoice discrepancy on the tax rate could cost your company thousands of dollars in back taxes, fees, and penalties.
Have you ever been handed someone else’s bill at a restaurant? Invoicing the wrong party can strain client and supplier relationships. This can lead to undermining your company's credibility. It also affects the party that should have received the invoice. They’re not seeing their bill, you’re not receiving yours, and the invoicing company isn’t getting paid by either of you.
After reading about what a discrepancy invoice is, you might be thinking about a specific invoice discrepancy and how you resolved it. Have you considered the causes and triggers that put you in that position? A big part of correcting a problem is addressing the circumstances behind it. Let’s take a look at those before we get into resolutions.
A price change is typically decided by ownership or management. It’s communicated immediately to the sales force because no one wants their products or services sold for the wrong price. Marketing will get the update because they need to change the numbers on their communications. Did you tell bookkeeping or accounts receivable? They need to know.
This is another scenario where the right hand might know what the left hand is doing. The sales or finance team negotiates (or renegotiates) the payment terms, but they’re not in charge of invoicing. Changing the deal requires a change in the billing so that invoice discrepancies don’t arise. Your internal processes should address this.
Merchandise sales may be subject to a state sales tax. That rate may change from time to time. If it increases or decreases, you must adjust that field on your invoices. Most accounting platforms, like QuickBooks, do this automatically for domestic changes, but they might miss international tax rate changes. It’s your responsibility as a business owner to catch those.
Putting out an improved version of an existing product can confuse your invoicing department. This is especially true if the new product costs more than the old one and has the same name. You can avoid this by clearing or disposing of all the old models before selling the new ones. Alternatively, you can upgrade your invoicing system by creating unique product codes.
Software can have glitches, so don’t assume a person is always behind the invoice discrepancy. That said, it does usually boil down to human error. Mistakes happen. Your best recourse is to apologize to the party receiving the incorrect invoice and work with the individual who made the mistake to ensure it doesn’t happen again.
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What would you do if you found an invoice discrepancy? The best way to answer this is to internally describe a time you found an invoice discrepancy. How did you resolve it?
We’ve learned two important things about the resolution process. The first is to thoroughly investigate the issue before taking action. The second is to be transparent with communications to vendors and clients.
Review the Invoice Discrepancy: Your first exposure to an invoice discrepancy might be an angry call from the client or vendor that received it. Review the situation carefully, starting with an analysis of the invoice in question. Assure the offended party that you’ll correct the mistake and get them a new invoice promptly.
Determine the Cause of the Problem: This step is not about assessing blame. Successful companies work as a team and solve problems together. People have bad days and sometimes make mistakes. Software is not infallible. Find out why the invoice was wrong. It could end up being an error made by its recipient.
Correct the Issue Internally: Fix the problem. Do this before sending a new invoice so you can honestly tell the invoiced party that it won’t happen again. An apology is meaningless if you don’t correct the behavior. Take the time to fix any internal issues and move forward without the fear of losing clients to that same mistake.
Communicate with the Vendor or Client: Communicating is different than simply contacting them. Prepare yourself by articulating the problem to another party who’s not affected by it. For instance, speak with a sales representative about how to word an explanation. They’re good at that type of thing.
Offer Incentives for New Business: Vendors or clients who receive incorrect invoices will often threaten not to do business with you again. Be prepared to offer discounts or incentives to preserve the relationship. Be transparent about how you addressed and corrected the problem. Your good clients will understand.
The key to accurate invoicing and avoiding invoice discrepancies is to have accurate data. Wise Businesscan help you with that by connecting your business account to your invoicing software with a secure API. Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The combination will give you real-time billing information, payment tracking, and updated tax and exchange rates on domestic and international currencies.
For example, QuickBooks users will be happy to hear that Wise Business offers a seamless connection to their invoicing platform. The combination of our user experience and their comprehensive dashboards gives your company all the tools you need to run an effective invoicing system.
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This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise Payments Limited or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.
We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.
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