By Safock Procurement Research Team8 min read
Over 17 weeks, three suppliers to a restaurant group sent 50 invoices with 172 lines. 37 of those lines were billed above the contract price, $1,564.88 in total. The biggest single overcharge was $111.51, on a case of chicken that had gone up $5.31. Every invoice was approved and paid.
That is 1.1% of spend, spread across lines too small for anyone approving an invoice to notice. At the same rate, the 24-restaurant group in our maverick spend guide, spending $21.6 million a year, would overpay about $240,000.
When you sign a supply contract, you agree a price for each item, often with a price freeze (the price can't rise before a set date) and an escalation cap (after the freeze, it can rise by no more than an agreed percentage). Contract price compliance measures whether the invoices you pay respect those terms.
The usual measure is the compliance rate: invoice lines billed at or below the allowed price, divided by all invoice lines for items that have a contract price. In the 17-week sample, 77.7% of contracted lines were compliant. Track the overcharge in dollars alongside the rate, because one large line can matter more than a dozen small ones.
Items bought with no contract price at all are a separate problem: maverick spend. The sample had six of those lines, worth $417, which this check reports but doesn't count as overcharges.
The sample covers a meat supplier, a dry-goods distributor and a disposables supplier from June to September. Each overcharge falls into one of four patterns.
| Pattern | Lines | Overcharge | What happened |
|---|---|---|---|
| Rise during a price freeze | 12 | $646.16 | Chicken and ground beef invoiced 4% above contract from mid-July, while the price was frozen until August 31 |
| Rise beyond the escalation cap | 3 | $206.28 | After the freeze, the same items invoiced 7.5% above the original price against a 3% cap |
| Keying errors | 8 | $410.81 | Random lines 5% to 13% high, such as flour at $46.19 against a contract price of $41.75 |
| Never moved to the contract price | 14 | $301.63 | To-go clamshells invoiced at $64.39 on every delivery against a contract price of $63.00 |
| Total | 37 | $1,564.88 |
Each pattern has a different cause and a different fix:
Most of these invoices would pass an ordinary accounts payable process, for three reasons.
The match uses the PO price. A three-way match compares the invoice with the purchase order and the goods receipt. If the PO price was copied from the supplier's last invoice, the drift is already on the PO and the invoice matches it perfectly.
Match tolerances let small rises through. Every overcharge in the sample is at least 2% above the allowed price. A 2% price tolerance would flag them all. At 3%, the 14 clamshell lines pass. At 5%, only the keying errors are caught: $410.81 of the $1,564.88, about a quarter. Our guide to three-way match tolerance shows how to set one that is tight enough to matter.
Approvers look at the total. A site manager approving the July 20 meat invoice, four lines totaling $5,790.46, checks that the delivery arrived. Whether chicken is still $118 a case isn't on the page in front of them, and the $47.20 overcharge on that invoice is less than 1% of its total.
The test for each invoice line has three steps.
Three lines from the sample, worked through:
| Line | Contract | Allowed on that date | Invoiced | Over per unit | Qty | Overcharge |
|---|---|---|---|---|---|---|
| Chicken, Jul 20 (frozen) | $118.00 | $118.00 | $122.72 | $4.72 | 10 | $47.20 |
| Chicken, Sep 7 (after freeze, 3% cap) | $118.00 | $121.54 | $126.85 | $5.31 | 21 | $111.51 |
| Flour, Jun 22 (keying error) | $41.75 | $41.75 | $46.19 | $4.44 | 24 | $106.56 |
The meat contract froze prices until August 31. If it had allowed the 3% escalation from the first day instead, the same invoices would contain $1,080.26 of overcharges rather than $1,564.88. The freeze was worth $484.62 over 17 weeks, but only to a buyer who compares invoices with it. Without the check, the supplier's increase was paid in full either way.
Pacific Meats accounts for 54.5% of all the overcharges, from just two items: chicken breast and ground beef. That is typical of what the check turns up. Overcharges cluster on a few high-volume items at one or two suppliers, which makes them quicker to fix than the compliance rate suggests.
Enter a contract price, its freeze date and cap, and one invoice line. The defaults are the chicken line from September 7.
Check one line · same rules as the full checker
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Contract Price Compliance Checker
Upload your contract price list and invoice lines as CSV files. Every line is checked against the allowed price for its date, overcharges are totaled by supplier, and the checker drafts a credit claim letter for each one.
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Claim only what the contract supports. Small differences inside the rounding tolerance, and increases the supplier announced and you accepted, aren't overcharges.
It is how closely the prices on supplier invoices match the prices agreed in the contract. A line is compliant when it is billed at or below the contract price allowed on the invoice date, including any freeze or agreed escalation.
Divide the number of invoice lines billed at or below the allowed contract price by the number of lines for items that have a contract price. In the sample audit in this guide, 77.7% of contracted lines were compliant. Track the overcharge in dollars alongside the rate, because a few large lines can matter more than many small ones.
Small, unannounced increases in the price a supplier invoices, above the price in the contract. Each one is too small to notice on a single invoice, which is why it usually continues until someone compares invoices with the contract line by line.
List each overcharged line with the invoice number, date, invoiced price, contract price and quantity, and send it to the supplier with a request for a credit memo. Ask them to confirm future invoices will use the contract price, and to send the price notice or amendment for any line they believe is correct.
Only if the purchase order carries the contract price and the price tolerance is tight. A three-way match compares the invoice with the purchase order, and a 5% tolerance passes increases below 5%. In the sample audit, a 5% tolerance would have paid three-quarters of the overcharges automatically.