Why Accurate Invoice Submission is a Vital Step in Factoring

Nearly 40 percent of invoices have errors, according to Ascend. Regardless of your situation, this is a major concern, but accurate invoice submission may become even more important if you leverage invoice factoring to accelerate your cash flow. Give us a few moments, and we’ll walk you through how invoice accuracy impacts your business and factoring. We’ll also provide some simple steps you can take to start improving your invoice accuracy right away.

Why Invoice Accuracy is Important

Generally speaking, errors in invoices can lead to delays, disputes, and even rejected invoices, which can severely impact a business’s financial health.

• Timely Payment: Inaccurate invoices can lead to delays in payment. More than 60 percent of late invoice payments occur because of incorrect invoices, Invofox reports.
• Trust and Reputation: Consistently accurate invoicing builds trust between the factor and your clients. Mistakes can erode this trust and harm long-term relationships.
• Cash Flow Management: Accurate invoices ensure that businesses receive the correct amount of funds on time, which is critical for maintaining a healthy cash flow.
• Operational Efficiency: Reducing errors in invoices means fewer resources are spent on correcting mistakes and resolving disputes, allowing businesses to focus on growth and operations.

Common Invoice Errors

• Incorrect Client Information: This includes wrong names, addresses, and contact details. For example, if you’re invoicing ABC Manufacturing but mistakenly address it to ABC Corp, it can cause confusion and delays.
• Wrong Invoice Number: Duplicate or missing invoice numbers can lead to processing delays and accounting confusion. Each invoice should have a unique identifier.
• Mistakes in Calculations: Incorrect totals due to miscalculated taxes, discounts, or item prices are common. For instance, if GST/HST calculations are incorrect, it can result in an inaccurate invoice amount.
• Missing or Incomplete Information: Essential details like purchase order numbers, payment terms, and item descriptions must be included. Missing any of these can lead to disputes. For instance, if a PO number is not referenced, the client might not recognize the invoice, leading to a payment delay.
• Incorrect Dates: Errors in the invoice date or due date can cause payment timing issues. An incorrect due date might lead to early or late payment, disrupting cash flow projections.

Impact of Inaccurate Invoices on Factoring

Invoice factoring involves selling your invoices at a slight discount to a third party called a factor or factoring company. The factor advances up to 95 percent of the invoice’s value right away, then waits for the client to pay, so you’re not stuck waiting the usual 30, 60, or 90-day payment term. When the final payment arrives from the client, your factor sends you the remaining sum minus the fee for the service.

Naturally, the factoring company must verify the accuracy of the invoice before they send your advance. This usually happens very quickly, with some factors even providing your payment on the same day that you submit your invoice. However, if there are invoice accuracy issues, you may experience some or all of the challenges outlined below.

Delayed Funding

Factoring companies rely on the accuracy of invoices to quickly verify and approve funding. Errors necessitate additional verification steps, delaying the release of funds. For instance, if an invoice has incorrect client details or amounts, the factor may need to contact the client for confirmation, which can significantly slow down the funding process.

Increased Costs

Errors in invoices can lead to additional administrative costs. Factoring companies may charge fees for the extra work involved in correcting and verifying inaccurate invoices. This not only increases operational costs but also reduces the overall financial benefit of factoring.

Disputed Invoices

Clients are more likely to dispute inaccurate invoices. Disputes can lead to non-payment or partial payment, affecting the amount of cash flow a business receives from the factor. For example, if a client disputes an incorrect charge on an invoice, the factor may withhold funds until the issue is resolved.

Reduced Advances

Factoring companies typically advance a percentage of the invoice value upfront. Inaccuracies can lead to reduced advance rates or the rejection of certain invoices. This means businesses may not receive the expected level of funding, which can strain cash flow.

Damage to Relationships

Consistent errors can damage relationships with both clients and the factoring company. Clients may become frustrated with frequent billing mistakes, while factors may view the business as high-risk, potentially leading to stricter terms or even termination of the factoring agreement.

Cash Flow Disruptions

Factoring is meant to provide a steady cash flow, but inaccuracies in invoices can disrupt this. Delays and disputes can lead to unpredictable cash flow, making it difficult for businesses to manage expenses and plan for growth. For instance, a construction company relying on factoring to pay suppliers on time might face delays due to invoice errors, affecting project timelines and supplier relationships.

Best Practices for Invoice Management

Effective invoice management is key to ensuring accuracy and smooth financial operations, especially when factoring is involved. Let’s take a look at some best practices for invoice management that can significantly boost accuracy.

Automate Invoicing Processes

• Use Reliable Software: Implement accounting software such as QuickBooks, Xero, or Zoho Books that offers automated invoicing features. These platforms can minimize human errors by automatically populating client details, calculating totals, and applying taxes.
• Set Up Recurring Invoices: For clients with regular billing cycles, set up recurring invoices to ensure consistency and reduce manual entry errors.

Standardize Invoice Templates

• Consistent Format: Use a standardized invoice template that includes all necessary fields such as client information, invoice number, date, due date, itemized list of services or products, and total amount.
• Clear Descriptions: Provide clear and detailed descriptions of each line item to avoid confusion and disputes.

Implement a Review Process

• Double-Check Entries: Before sending an invoice, double-check all entries for accuracy. This can be done through a formal review process involving multiple team members.
• Automated Checks: Use software with built-in validation rules to flag potential errors such as missing fields or incorrect calculations.

Maintain Up-to-Date Client Information

• Regular Updates: Ensure that client information is regularly updated in your invoicing system. Outdated or incorrect details can lead to delivery issues and payment delays.
• Verification Process: Implement a process to verify client details before sending out significant or first-time invoices.

Set Clear Payment Terms

• Detailed Terms: Clearly outline payment terms, including due dates, acceptable payment methods, and any applicable late fees. This reduces ambiguity and helps clients understand their obligations.
• Early Payment Incentives: Offer discounts for early payments to encourage timely settlement of invoices.

Training and Education

• Employee Training: Regularly train employees involved in invoicing on best practices and the importance of accuracy. This can include workshops and updates on the latest tools and techniques.
• Client Education: Educate clients on how to correctly read and process your invoices to minimize disputes and payment delays.

Use Electronic Invoicing

• Email Invoices: Send invoices electronically via email or through an invoicing platform. This not only speeds up delivery but also reduces the risk of lost or misplaced invoices.
• E-Invoice Platforms: Consider using e-invoice platforms that integrate directly with clients’ accounting systems for seamless processing.

Track Invoice Status

• Monitor Payments: Use your invoicing software to track the status of each invoice. Set reminders for follow-ups on overdue payments and automate notifications for clients.
• Reporting Tools: Utilize reporting tools to generate insights into your invoicing process, such as average payment times and common errors, to continuously improve accuracy.

Accelerate Your Cash Flow with Factoring

If you’re trying to get paid faster, improving invoice accuracy is a great place to start. However, it often is not enough by itself, especially for small businesses. Invoice factoring eliminates payment waits, allowing you to cover daily expenses and grow – all without taking on debt. If you’d like to learn more or get started with factoring, request a complimentary rate quote.

FAQs on Accurate Invoice Submission