Intermediary payments: easing the pain of inefficient invoic
Matthew Abbott, Chief of Staff EMEA SMB at SAP Concur, discusses ways in which companies can ease the painof ineffcient invoicing.
Late payments are an ongoing problem and given the current climate this is a heightened worry. What’s needed now is a solution that maintains cash flow.
Last year saw an unprecedented number of big businesses in the UK being publicly named and shamed for late payment of invoices. In July 2019, a total of 18 high-profile companies including British American Tobacco, Screwfix and Prudential were found to be in violation of the CICM’s Prompt Payment Code, which requires businesses to pay 95 percent of its invoices within 60 days. All 18 companies were suspended from the Code’s list of signatories until such time as they can prove compliance.
Late payments are clearly an ongoing concern. According to a report commissioned by the UK Government’s Small Business Commissioner, around a third of invoices are paid later than agreed terms. The actions of bodies such as the CICM appear to be largely ineffective as a deterrent, however. Indeed, it could be argued that many of the companies named in July’s report are simply too big for their suspension to have any significant impact.
Without a change in business culture or a tightening of regulations, the problem of late payments is one that’s likely to persist, much to the detriment of smaller businesses. A solution is needed that can help maintain cashflow throughout a supply chain, ensuring businesses are paid on time, thereby avoiding subsequent late payments further down the line.
By employing advance invoicing systems, for example, in which partner applications shoulder the burden of managing strict payment terms, payees can pay their suppliers promptly, while still enjoying a steady cashflow.
Inefficient invoices, damaging delays
Typically, large enterprise-sized businesses will be supplied by smaller firms. Any inefficient invoicing practice on the part of the larger business can have a major impact on the supply chain, although in most cases, it’s the smaller suppliers that will suffer, rather than the big businesses. In a worst-case scenario, it can even result in a company’s collapse.
Delayed payments are especially damaging. If a company is late in paying its suppliers, those suppliers can incur unnecessary costs which can put a real strain on their cashflow. Smaller companies may be unable to keep their heads above water while waiting for payment, threatening the future of the businesses themselves as well as disrupting the entire supply chain.
And late payments can often have a knock-on effect, with affected companies unable to pay their own suppliers. It can affect productivity too, as suppliers waste precious time and energy chasing what they’re owed.
Fortunately, the increasing adoption of digitisation means there is a light at the end of the tunnel for those businesses that are especially vulnerable to the effects of inefficient invoicing.
Technology investments, paying dividends
Inefficient and wide open to errors, paper invoices are outdated. The challenges around invoicing must now be met by new and evolving technologies.
Automated invoicing systems, for example, are far more efficient and reliable than processes previously carried out by hand, while partner applications, such as intermediary payment services, are a viable and secure way of syncing up disjointed payment terms and smoothing out the payment process.
Indeed, intermediary payment services should prove attractive to any smaller suppliers that have been let down by bigger businesses. In uncertain times, when payment is slow in coming, they offer a margin of safety. By granting suppliers an inexpensive loan while they wait for payment to arrive, intermediaries enable them to pay what they owe, ensuring a smooth, uninterrupted flow of goods and services throughout the supply chain.
Technologies such as this require a level of investment, of course. But there is a wide – and growing – range of advanced tools on the market; tools that use machine learning to help with everything from monitoring and analysing cashflow, invoices, expense and travel, to setting budgetary expectations and negotiating late payments. Any investment in tools like these will quickly pay for themselves – in insights, in productivity, and in cash savings.
An ecosystem approach for friction-free finance
Beyond the benefits delivered by specific services and solutions, advances in technology mean businesses can now apply an “ecosystem” approach to finance. Here, anything finance-related can work side-by-side, in close harmony, ultimately helping to maintain a frictionless payment cycle.
Take the processing of invoices. Automation will greatly reduce the risk of errors and duplication, while the greater insight afforded by analytics technology into spend and cashflow will increase cash visibility. Intermediary payment services then fit in seamlessly with these applications, ensuring constant cashflow to help maintain the supply chain.
Many of the technology vendors involved in processes like this will often have an ecosystem of partner applications that can be bolted on to their core offering to address specific issues that might arise, such as the need for intermediary payments. Smaller businesses should make the most of these ecosystems, and ensure they derive the greatest possible value from them.
Inefficient invoicing has long been a problem, particularly for smaller businesses – even now, as much as a quarter of SMEs surveyed by the Institute of Export & National Trade feel they don’t have access to adequate finance. What’s more, given the largely ineffective action taken against late payers, it looks likely to remain a problem for some time, as the report also reveals. Until the issue is finally resolved, small businesses should take advantage of invoicing and intermediary payment technology and the ecosystem that surrounds it, so they don’t find themselves facing financial difficulties when their big business customers fail to pay. Again.
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