Invoice Exceptions: Where they come from and how to prevent them

Invoices Exceptions: where they come from and how to prevent them

When you think about it, the term “Invoice exception” is misleading. An exception, by definition, should be a rare occurrence; something that only happens every once in a while. Unfortunately, for many AP professionals, handling invoice exceptions is a full-time job. In fact, according to Ardent Partners, 62% of AP professionals report that invoice exceptions are the biggest challenge they face on a day-to-day basis. Why is this? How did we get here? And more importantly, what can we do about it? 

The problem with invoice exceptions

Invoice exceptions are such a big problem for AP departments because each one must be resolved via human interaction. For some organizations, 100% of incoming invoices result in an exception, meaning thousands, if not tens-of-thousands of invoices require manual intervention. Even best-in-class AP departments report that 30% of their invoices result in exceptions. With such high exception rates, the only way to increase invoice processing speed and decrease cycle times is to hire more full time employees. Hiring more staff is, unfortunately, only a temporary fix if your invoice volume continues to grow. More invoices equals more people to process them and handle the exceptions.

Many businesses are also sensitive to the impact that invoice exceptions have on their suppliers. Long cycle times put undue pressure on supplier relationships and typically result in inquiries to AP. Long story short, invoice exceptions are a huge drain on company resources. They pull AP professionals away from other important tasks and make it difficult to break out of a manual processing mindset.

What causes an invoice exception?

At a fundamental level, an invoice exception is a communication error. Sometimes the communication breakdown happens between a supplier and the AP department. In other instances, invoice scanning solutions make an error that must be corrected. Below we examine two common causes of invoice exceptions.

Optical character recognition (OCR)

OCR is a long-standing method of digitizing incoming paper or PDF invoices. It works by converting an invoice image into an electronic format using a character recognition tool. The major issue with OCR is that even with the latest and best OCR tools, the character recognition algorithms often return incorrect information. Most OCR imaging technologies boast accuracy rates of 98%-99% which, in theory, sounds perfectly acceptable, but will create major problems for AP departments, as even one wrong character will result in an exception. In recent years many businesses have invested in electronic invoicing to help reduce invoice exceptions, only to find they are still manually processing the majority of their invoices due to OCR errors. 

No PO, or Incorrect PO information

By default, any invoice that is not associated with a PO will become an invoice exception. if there is no way for your system to check if an invoice is valid and approved, how can it be submitted for payment without a review? Even if you use POs, the vast majority of suppliers are unable to include PO line information on their invoices, which leaves AP with a constant deluge of invoice exceptions.

How to fix invoice exceptions once and for all

The good news for AP is that reducing, or completely removing invoice exceptions is possible, and easier than you might think. New invoice processing technology uses advanced algorithms, AI, and machine-learning to automate exception resolution, and remove a great deal of manual labor from the process. A “smart” processing platform, paired with some small organizational changes can drastically reduce exceptions, processing time, and cycle time.

Create digital connections with suppliers

A true 100% digital connection with your suppliers will get you one step closer to straight-through processing and accounts payable automation. As we examined above, OCR read errors are one of the leading causes of exceptions for most businesses. Creating a digital connection with suppliers enables them to send invoices in a 100% digital format, which removes any potential for OCR read errors, and increases both speed and throughput.

You may be thinking, “that sounds a lot like EDI,” and you would be correct, with one big difference. Typically EDI integrations are incredibly complex and resource intensive because they require a custom data integration. Each integration is unique to each supplier because each data field must be mapped individually.

However, Modern digital platforms like Transcepta are purpose-built to quickly and painlessly connect any supplier regardless of technical capabilities. These modern technology platforms also come standard with a service component that connects and onboards all suppliers to a supplier network without additional effort from the enterprise. The supplier network enables instant two-way digital connectivity, ensuring that all invoice data is received and processed automatically with no scanning or manual intervention.

Automate exception resolution

As mentioned above, one of the leading causes of invoice exceptions is the lack of PO information on invoices. This may be because your suppliers are unable to add it, or that your business simply doesn’t use POs. For businesses focused on reducing exceptions and achieving 100% straight-through invoice processing, this can feel like a major hurdle. Luckily, modern platforms like Transcepta have solved this issue. Instead of manually coding, routing, and approving non-PO invoices, you can set up smart workflows that automate resolution. 

For invoices that do have a PO, but it’s incomplete or entered incorrectly, modern platforms use advanced AI and machine-learning algorithms to match the invoice to an open PO#, effectively removing exceptions caused by human error. By using predictive technology to automate exception resolution, you can remove one of the most time-consuming aspects of invoice processing, and take a big step closer to 100% straight-through processing. 

Eliminate invoice exceptions with digital invoice processing

If your organization is battling an onslaught of invoice exceptions, it may be time to think about making the switch to a smart platform that can create a digital connection with suppliers, and eliminate invoice exceptions. Platforms like Transcepta integrate with your existing ERP and help your team enable accounts payable automation and achieve straight-through invoice processing. If you would like to learn more about how Transcepta eliminates invoice exceptions, request a demo by clicking here.

Watch Webinar! AP in a Post-COVID World