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Why you need visibility into invoices (and how AI can help you get it)

by Claire Chen August 6, 2019

We’ve covered how having visibility into employee expense reports helps organizations catch errors, waste, and fraud, and streamline process so that employees get reimbursed faster. But there’s another area of business spend where visibility might be even more critical: invoices. 

Enterprise AP departments pay thousands of invoices every month. Overworked AP teams may be hard pressed to scrutinize every invoice manually for adherence to contract terms, pricing anomalies, gradual increases in invoice amounts, or patterns that could indicate fraud, such as repeated invoices that fall just below the PO limit. Even worse, criminals can exploit an AP department’s lack of bandwidth by sending invoices for products that were never delivered or services that were never rendered, sometimes from companies that don’t even exist. 

Of course, the vast majority of vendors are trustworthy and want to earn and retain their customers’ trust, but with humans in the payment processing equation, honest mistakes are bound to happen. 

The risk hiding in vendor invoices

We recently reviewed the aggregated, anonymized data from billions of audit transactions across hundreds of customer accounts in a variety of industries, and summarized the results in our quarterly report, The State of AI in Business Spend. We found that, for the average enterprise, invoices comprise 96% of their business spend. (In comparison, employee expenses for travel and entertainment (T&E) make up only 3.7% of spend). The average company processes 60,354 invoices every month, but only audits or reviews at most 10% of them, usually after payment. In other words, most companies only find mistakes after the money is out the door, when clawing it back is expensive and time consuming.

Our report also revealed that 4% of invoices could be considered high risk. These invoices generally fell into three main categories:

  1. Prices, discounts or terms didn’t match the contract. Procurement teams may work hard to negotiate great terms with vendors, but if AP doesn’t ensure that invoices reflect those terms, that effort is wasted.
  2. Vendors billed inflated prices compared to the market. Most AP teams don’t have time to see whether better rates are available elsewhere.
  3. Duplicates. We uncovered double billing that may or may not have been accidental, as well as amounts duplicated on expense reports. 

Why visibility into high-risk invoices is critical

We probably don’t have to work that hard to convince you that incorrect invoices hurt your bottom line. But you might be surprised at how small mistakes, intentional or not, can add up. 

For example, we’ve found that many invoices don’t align with the signed contract, and the most frequent error is net payment terms: A contract may list payment terms as Net 60, but the invoices list Net 15 or Net 30. This difference can have a huge impact on your cash flow…and even profit.

Duplicate charges or payments happen with surprising frequency. Often, after an invoice is held up, an employee may intervene and approve manual payment of the invoice, but when the system clears the hold, the invoice is paid again. Even if the vendor notifies you about the duplicate payment, the time and energy everyone will spend trying to fix the mistake could be better spent elsewhere. 

But it’s the big mistakes, like fraud and non-compliance, that can cost your organization not only money but something that’s hard to replace: its reputation. Invoice fraud is real, and even large companies fall victim to it: A Lithuanian man recently bilked Facebook and Google out of more than $100 million by impersonating a vendor with which the tech titans do business.

What’s more, our report found that for every 10,000 invoices, at least one contains a regulatory violation. For example, a regional sales director might funnel payments to a distributor for fake “logistics services” that are actually a bribe to a government official who influences reimbursement policy for your company’s product. In a real-life story that illustrates the potential consequences, a large multinational retailer will have to pay the U.S. government $282 million for violating the Foreign Corrupt Practices Act (FCPA), in part because it failed to institute sufficient internal accounting controls related to third-party payments.

How AI can help

Given the value at risk, many enterprises are embracing AI as a way to get visibility into invoices—before they pay vendors—for errors, fraud, and out-of-compliance spend. Companies that use AI achieve 100% visibility into their invoices; companies that don’t use AI get at most 10% visibility.

AI extracts and analyzes key pieces of information on every invoice to catch duplicate charges, enforce payment terms, identify missing discounts, eliminate overcharges, catch suspicious activity, and flag compliance issues. This frees your AP team to focus on tasks that will add more value to your financial processes—and helps improve your bottom line by stopping unnecessary outflows. 

To understand the magnitude of the issue and see what 100% visibility into business spend means to you, download our latest research report, The State of AI in Business Spend. The findings focus on spend visibility, value at risk in invoices, insights on streamlining the spend audit process, recommendations for finance teams, and more.

 

Claire Chen

Claire is a Business Operations Analyst at AppZen, where she’s passionate about providing simple solutions for complicated data.

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