4 min read
Use of (External) Data Sources at Accounts Payable
Sjoerd de Heer, Solutions Architect ICreative
11-Apr-2018 12:22:55
In order to process supplier invoices efficiently, the data on the invoice must be valid. By using external and, in many cases, publicly accessible data sources, data validity can be improved and any errors in invoice processing prevented.
The IBAN and VAT Number on the Invoice
In the accounting of any business, invoices are important documents. In this regard, invoice processing is often seen as a cost. To make processing as cost-effective as possible, it is necessary to minimize manual processing.
Traditionally, invoice processing begins with matching the information to a supplier. In the world of paper and PDF invoices, the IBAN number is often used as the basis for making this match. After all, the supplier wants to be paid. And in order to be paid, the IBAN number is usually established in the financial or ERP system, so this seems to be the ideal matching criterion.
In addition, the VAT number is also often used to identify the supplier, as this data is also present on invoices due to the requirements of the tax authorities. The VAT number is going to play an increasingly important role especially in the world of electronic invoices. Indeed, based on the VAT number, each company can be uniquely identified, making it an obvious choice to use as an e-invoicing address.
Lack of Correct Data
An invoice that is not matched to a supplier or to the wrong supplier requires corrective action. The times when an accounts payable department will notice the error varies and so do the actions to correct the error. But a few things will always apply, including:
- Retrieve invoice in the system (waiting time)
- Interpretation (error) notification (meaningful notification present?).
- Visual inspection and identification of problem (billing image available?)
- Save invoice and start further processing (wait time)
Interpreting and correcting the error can easily take 1 to 2 minutes per invoice. Besides the necessary actions to move the invoice forward in the process. Is this lost time, which recurs with every invoice from the same supplier.
Control through External Data Sources
The data used was provided by two customers upon request. Because not every supplier has both an IBAN and VAT number in the data, the verified numbers vary by source.
IBAN numbers
The Internet provides many publicly accessible data sources in the form of raw data, as well as in the form of verification capabilities of supplied data. In addition, there are many sources that are available for a fee.
An example of a publicly available data source for IBAN numbers is https://www.openiban.com, which allows IBAN numbers to be very easily validated as to whether they are arithmetically correct.
When we enter the lists of IBAN numbers of two selected customers for validation, the corresponding website does not return incorrect IBAN numbers. However, many IBAN numbers are filled with words like "unknown" or empty in the input lists. The first list shows this 660 times out of 7150 numbers. The second list 775 times out of 8050 numbers. So in both cases just under 10%.
VAT numbers
For VAT numbers, an EU website is available. It lists all valid EU VAT numbers, which are updated in real time by the national tax authorities.
VAT numbers are also listed in the format used in different EU countries. In England, for example, spaces are used in VAT numbers. Unlike IBAN numbers, where spaces or punctuation are often added for readability, spaces in VAT numbers serve a function. Dots and hyphens, on the other hand, never appear in VAT numbers.
After entering the two lists of VAT numbers into the relevant website, many VAT numbers turn out to be incorrect. The first list returns 4000 errors out of 8000 VAT numbers entered. The second list returns 1250 errors out of 1450 VAT numbers.
IBAN and VAT numbers
If both IBAN and VAT number checks are applied, out of 8050 suppliers, 615 suppliers have both VAT and IBAN numbers indicated as not valid. For the second dataset, this holds true for 568 suppliers out of a file of 1400 suppliers.
Respectively 7 and 40 percent of the suppliers will not be recognized in matching the IBAN and VAT data between the mention of these numbers on the invoice and the registration in the financial or ERP system. With the assumption that the supplier itself mentions the correct IBAN and VAT number on the invoice.
Back to our math.
If we assume that 10% of the invoices are not correctly linked to a supplier, which is plausible given the above samples, this means that for 10,000 supplier invoices, it will take over 33 hours to manually select the correct suppliers. And then the invoice must also be processed for content.
Other Applications
So by including these checks in the process of listing the vendor in your accounting software, time can easily be saved. Such checks can be extended fairly easily. For example, the VIES EU web service also returns the name and address details of the registration from the corresponding VAT number.
Other checks can also be applied. With data in the Central Insolvency Register, for example. This prevents blind payment to suppliers who are in receivership or have been declared bankrupt.
The checks listed here relate to incoming invoices from suppliers. But also at other times in the purchase to pay process, or order to cash process, controls through external data sources can be applied. When placing an order, for example, a buyer can be made aware of possible delivery problems.
The time savings from this is difficult to estimate, but possible reputational damage from not being able to meet your own delivery obligations on time is a risk. Or the risk that a creditor will place an order with you that they are unlikely to be able or willing to pay. A Chamber of Commerce (CoC) survey of SMEs, published in September 2017, indicated an average damage amount of Euro 5,122 per event for this.
Should your as a company consider implementing vendor management software, it is wise to build in automatic and periodic checks. For example, by also asking vendors to complete certain data and provide any supporting documents, such as when changing a bank account for payments. But above all, to improve the quality of your master data without your organization spending extra time on this.
The Dutch Chamber of Commerce has a Web service to check various business data. Other companies, for example Dun & Bradstreet, also offer services on which various data can be checked and completed.
Sjoerd de Heer
Solution Architect, ICreative
Disclaimer
This is not a scientific study but an area test to confirm experiential facts. No link has been made to the number of invoices a supplier sends per year so the quantification may be more favorable for lower invoice numbers. Also, no further research was done to determine the cause of the errors found.