It is essential to validate vendor invoices as a part of the accounts payable process. It ensures that all discrepancies are highlighted, rectified and acted upon in time to minimise losses and penalties, amounting to Rs.10,000 per invoice.
This article discusses how to identify errors in vendor invoices and penalties associated with processing incorrect vendor invoices.
How to identify if the vendor invoice is correct?
Review of vendor invoices is critical before approving them for payment. There are chances that some of your vendor invoices are erroneous or fraudulent. So, one must carefully review the invoice. The first thing to do is to create a checklist for invoice approval. Some of the things which should be carefully reviewed are:
- Check the e-invoices for any errors related to the QR codes. Risks associated with processing wrong e-invoices are high. Some of the high-level validations to be run are:
- QR code is invalid & not signed by NIC
- Vendor GSTIN in QR code doesn’t match with the GSTIN mentioned in the e-invoice
- Document date in QR code doesn’t match with the invoice creation date on the e-invoice
- Total invoice amount in QR code doesn’t match with the net amount on the e-invoice
- The number of line items in the QR code doesn’t fit with the number present on the e-invoice
- Ensure that the GSTIN is mentioned on the invoice. If e-invoicing is applicable, then the invoice should be e-invoicing compliant with a valid Invoice Reference Number (IRN) and QR code details mentioned on it.
- Check the goods invoice details with the corresponding e-way bill details. Invoice fields such as type of booking (outward/inward), vendor GSTIN, total amount, number of line items has to be checked, and in case of any discrepancies, the vendor should resolve the issue.
- Check the rate charged for goods purchased, amount payable, taxes charged basis item/service HSN/SAC codes, etc. In case of any discrepancies with the agreed terms, you can always go back to your vendor and resolve the issue.
- Make sure that you are not billed twice for the same piece of work.
- Use accounts payable software, which automatically alerts you about the invoices due. This way, you can confirm the due dates specified in the invoice.
- Check with your purchase manager whether the goods received were in good condition and meet quality standards. In case of any quality issues or quantity mismatches, you can withhold the invoice for further processing.
Use an automated approach to identify errors in the vendor invoices. ClearCapture helps protect businesses from booking non-compliant & fraudulent invoices by identifying mismatches errors. ClearCapture verifies the purchase invoice against the QR code, e-way bill & GSTR-2A/2B details and flag mismatches by conducting 40+ validation checks. Errors can be rectified on a timely basis & further invoice level actions can be taken.
Penalties due to processing wrong vendor invoices
Processing wrong vendor invoices affect the business in many ways:
- Charges: The penalty for processing a wrong vendor invoice may extend up to Rs.10,000 per invoice plus 24% interest per annum.
- Working capital loss: If you approve a wrong vendor invoice for payment, you may pay the extra money, which will impact your working capital.
- Late fees: If you make a delay in making payment of vendor invoices, they may charge you with late payment fees, interest or penalty, which will further increase your cost of purchase. If you habitually make late payments, your vendors may refuse to work with you.
- Legal battle: If you don’t pay an invoice on time, your vendor may take legal action against you. Taking a legal recourse will burden you with advocate fees and other legal formalities. This may take additional time for settlement which will harm your business.
- Adding back of input tax credit: If the buyer doesn’t make payment to his supplier within 180 days of the date of issue of invoice, then all the Input Tax Credit (ITC) claimed on that invoice will be added back to his output tax liability.