How do you check sales orders against invoices?

You check sales orders against invoices by putting three things side by side for each order line: what was ordered, what was delivered and what was invoiced. Every delivered line should have an invoice line with the same quantity and the order price, plus the agreed surcharges such as freight and express delivery. The biggest leaks sit in partial deliveries whose remainder is never invoiced, prices adjusted by hand on the invoice, surcharges that are not passed on and order changes that never reach the invoice.

Why orders and invoices drift apart

In a simple world, an invoice is a copy of the order. The customer orders ten units at EUR 40, you deliver ten units, you invoice EUR 400. In practice, between order and invoice there is a series of events that disturb the relationship: part of the order is out of stock, the customer changes the order, an express surcharge is added, an item is replaced by an alternative, the customer returns something.

Each of those events requires an adjustment, and every adjustment can go wrong. The ERP system, whether that is Exact, AFAS, SAP, NetSuite, Dynamics or another package, can handle some of it automatically. But as soon as something is adjusted by hand, the link between order and invoice is no longer a given. The whole chain from order to payment is described in order-to-cash explained. This article is about checking the last step.

Three documents, not two

Most companies, if they compare at all, compare the order with the invoice. But the delivery is the document that matters. An order line that was not delivered does not need to be invoiced. A line that was delivered must be invoiced, even if it was not on the original order.

On the purchasing side, many companies know the three-way match: purchase order, goods receipt and supplier invoice must agree before anything is paid. On the sales side the same discipline is rarely applied. Yet the logic is identical, only the risk is reversed: on the purchasing side you pay too much, on the sales side you receive too little.

Where it goes wrong

Partial deliveries and backorders. The order is for a hundred units, sixty are delivered and invoiced. The remaining forty are delivered later, but the backorder was handled manually and the invoice for the second delivery was never raised. Or the backorder was cancelled in the system while the goods were shipped anyway.

Manual price changes. The order says EUR 40. The invoice says EUR 36, because someone applied a discount the account manager had promised verbally. Or because the price was copied from a previous order. Or simply through a typing error. If the system allows the invoice price to differ from the order price without approval, it will happen. This is a specific form of revenue leakage from wrong prices.

Surcharges that are not passed on. Freight, express surcharge, small-order surcharge, pallet charges, energy surcharge. They are in the terms and conditions or on the price list, but are only invoiced if someone adds them by hand. Per order they are small amounts. Across thousands of orders a year they are not.

Order changes after confirmation. The customer calls and adds two items. The warehouse ships them with the rest. The order in the system was not updated, so neither was the invoice.

Substitute items. The item ordered is unavailable and is replaced by a more expensive alternative. It is delivered at the original price, without anyone deciding that this was the intention.

Returns and credit notes. A customer returns part of an order and a credit note is issued. But the credit note is for more than actually came back, or the goods never came back at all.

How to carry out the check

1. Export all order lines over a closed period. For each line: order number, customer, item, quantity, price, surcharges, status.
2. Export all deliveries over the same period. For each line: order number, item, quantity delivered, delivery date.
3. Export all invoice lines, with a margin of one month afterwards. For each line: invoice number, order number, item, quantity, price.
4. Match on order number and item. If the order number is on the invoice, this is straightforward. If not, that is the first thing to sort out.
5. Compare line by line. Quantity delivered against quantity invoiced, order price against invoice price.
6. Check surcharges separately. For every order that should have carried a surcharge under your terms: is it on the invoice?
7. Check credit notes against returns received. Every credit note should have a matching receipt in the warehouse, for the same quantity.
8. Sort the deviations by amount and investigate the largest.

This check is a specific application of the broader question of whether all revenue is invoiced. For invoices that are missing entirely, rather than just different, see how to find forgotten invoices.

Worked example

Worked example: suppose a technical wholesaler processes 18,000 orders a year with an average order value of EUR 650. A check over one quarter (4,500 orders) shows:

• 38 backorders delivered with no invoice, averaging EUR 280: EUR 10,640.
• 210 orders where the invoice price is lower than the order price with no recorded approval, averaging EUR 22 per order: EUR 4,620.
• 640 orders below the small-order threshold where the EUR 15 surcharge was not invoiced: EUR 9,600.
• 12 credit notes for which no return, or a smaller one, was received, averaging EUR 190: EUR 2,280.

Together EUR 27,140 in one quarter, or roughly EUR 108,000 a year. The surcharges are the smallest per item and together one of the largest items. That is typical: small amounts that nobody thinks are worth adding by hand add up at high volumes.

Why small differences matter

In order processing, the differences per line are often small. A fifteen-euro surcharge, a price two euros too low, a backorder of a few hundred euros. Nobody loses sleep over that on a Tuesday morning. That is exactly why it persists.

The effect is in the volume. A company with thousands of orders a year multiplies every small difference by thousands. And because the cause usually lies in the process rather than in a one-off mistake, the same difference repeats on every order with the same characteristics. A surcharge forgotten on one small order is forgotten on every small order.

That makes order leakage different from the leak of a large deal with no invoice. No single line seems worth the effort, but the total is often larger than all the big cases combined. How this fits into the broader picture of where and how revenue leaks away is covered in how to find revenue leakage in a business.

How to fix it structurally

• The order number mandatory on every invoice line. Without that link, every check is manual work.
• Invoice price equal to order price, unless approved. Set up the system so that a deviation requires approval, or is at least logged.
• Surcharges applied automatically. If your ERP can add surcharges based on rules, let it. If it cannot, make it a standing check.
• Backorders with a status and an owner. Every open backorder has an expected delivery date. A backorder reported as delivered must have an invoice.
• Credit notes only after receipt. A credit note for a return is only issued once the warehouse has confirmed receipt.

Frequently asked questions

Why should I look at deliveries and not just at orders?

Because the delivery determines what you may invoice. An order that was not delivered does not need to be invoiced. A delivery that was not on an order does need to be invoiced. Comparing only order against invoice misses both situations.

How large are the differences usually?

There is no reliable average. It depends on the number of orders, the share of manual adjustments and whether your terms include surcharges. A check over one quarter gives you your own figure within a few days.

Do I need to check every order?

At high volumes, a full check is only feasible if it is automated. Manually, you start with the largest orders, all orders with manual price adjustments and a random sample of the rest.

Who is responsible for this check?

Usually finance or order administration, with the warehouse as the source for deliveries and returns. What matters is that the person checking is not the same person who raises the invoices.