How an Invoice Number can protect you from fraud and error
The simple Invoice Number can be a useful tool to protect your organisation.
In this blog, we will explore the importance of Invoice Numbers, why they are important for Accounts Payable, and how you should make the most of them to avoid losses due to fraud and error.
What is an Invoice Number?
Whenever a supplier sends you an invoice, it should include a unique Invoice Number.
This is a unique sequential code, typically between 5-8 characters long. It can be alphanumeric, including both numbers and letters, but should not include any other special characters.
Don’t confuse the Purchase Order number with the Invoice Number. The former would have been generated by you at the time you placed the order. However, the latter is generated by your supplier when they issue you an invoice for an order they have fulfilled.
Whilst including an Invoice Number on an invoice is not compulsory, it is definitely preferable for your suppliers to include one with every invoice they send you. It should be clearly identified at the top of the invoice. They ensure that your supplier is able to properly document their incoming payments for tax and accounting purposes.
Invoice Numbers are essential for both your Accounts Payable team and your suppliers. They make it possible for both parties to track sent invoices, quickly identify which invoices have been paid, which invoices remain outstanding, and avoid duplicate payments.
Whenever your Accounts Payable team pays an invoice, they need to reference the Invoice Number. This ensures your supplier knows that the funds you are sending them are for a specific invoice. If your Accounts Payable team does not reference the Invoice Number, your supplier will find it almost impossible to track their incoming payments. This may result in your supplier not being aware that you have paid an invoice. Thinking payment is overdue, they may issue you a duplicate invoice. This will create confusion for your Accounts Payable team and could result in you making duplicate payments.
Why is an Invoice Number important for Accounts Payable departments?
Invoice Numbers help your Accounts Payable team keep track of incoming invoices. They allow anyone in your team to quickly identify which invoices have been paid and which invoices remain outstanding. Without them, you would be at risk of losing track of which invoices had been paid, and you may erroneously issue duplicate payments for the same invoice.
By keeping track of Invoice Numbers, it also makes the audit process much simpler. Auditors will immediately be able to reconcile outgoing payments with specific invoices. Proper record keeping is crucial to ensuring the legitimacy of all outgoing funds and reducing your organisation’s exposure to payment fraud.
How should Accounts Payable teams handle an Invoice Number?
When it comes to entering an Invoice Number in your ERP or accounting software, special care should be taken to ensure consistency.
Set a policy for recording Invoice Numbers that addresses all possible formats. Every member of your Accounts Payable team should follow the policy. Some issues that should be addressed by the policy include:
- Whether or not to encode leading zeros.
- Whether any letters in the Invoice Number should be encoded in upper or lower case.
- How to handle any non-alphanumeric characters, such as dashes or underscores.
- How to handle spaces within an Invoice Number.
- What to do if the Invoice Number is longer than the spaces available in your ERP or accounting software. Many Accounts Payable departments eliminate numbers from the beginning of the Invoice Number rather than from the end.
There is no standard right or wrong approach to any of these issues. The most important thing is to ensure that every member of your Accounts Payable team acts consistently when encoding Invoice Numbers.
Such rules may seem overly pedantic, however, when you have multiple members of an Accounts Payable team responsible for processing invoices, having consistent approaches to handling data helps avoid the risk of losses due to human error.
Special note for Accounts Payable managers:
Even with a detailed policy in place, it is likely that on occasion, a member of your team will enter an Invoice Number in a way that is not consistent with your established policy. You need to be on the lookout for this and, as soon as you notice it, rectify the entry. Unless you rectify such errors, there is a greater likelihood of duplicate payments being made.
How should Accounts Payable handle invoices without an Invoice Number?
Invoice Numbers are extremely important when it comes to processing invoices.
Without recording an Invoice Number alongside each invoice that you pay, it will be almost impossible for all the members of your Accounts Payable team, let alone auditors, to reconcile every outgoing payment with a specific invoice.
This poses a number of challenges to your organisation including:
- Duplicate payment errors.
- Tax compliance challenges, such as not knowing how much you can claim in GST credits.
- Greater risk of fraud due to false invoicing.
Despite this, many suppliers still send invoices without a unique Invoice Number.
The good news is that these days, many accounting software programs require you to enter an Invoice Number when generating a payment. However, if a supplier sends you an invoice without the Invoice Number, what should you do?
One option is to generate your own Invoice Number for any invoices that arrive without a supplier generated Invoice Number. However, this is not ideal. It does not address the problem that the supplier may lose track of their incoming payments and issue you a duplicate invoice. If you ever end up in a situation where you need to discuss invoices with your supplier, the lack of an Invoice Number will make it particularly difficult and can create confusion.
Ideally, you should send the invoice back to the supplier with a polite note telling them to include an Invoice Number.
How can eftsure help?
As a vendor management tool, eftsure allows you to easily keep track of all outgoing payments.
Whenever your Accounts Payable team attempts to process a duplicate payment, it will be flagged in real-time, right before the EFT payment is processed. This gives you the opportunity to pause payment and investigate further.
So, even in cases where your Invoice Numbering policies are not adhered do, whether due to error or attempted fraud, you can still avoid losses. eftsure also maintains a complete audit trail, so all activities are seamlessly tracked, allowing your organisation to ensure the integrity of the entire Accounts Payable process.
Contact us today for a no-obligation demonstration and learn how eftsure can help secure your organisation from error and fraud.