Is late payment deliberate or accidental?

By David Bryce, Managing Director at Cleardata

Late payments can affect any business and threaten its ability to trade, recruit new staff, or in the worst case scenario cause bankruptcy. In fact, according to Siemens Financial Services overdue invoices can cause UK SMEs to miss out on over £250bn every year. With SMEs making up 47% of the overall private sector turnover, this means significant potential impact on the wider economy. It’s often assumed that late payments are a deliberate ploy by businesses to hang on to their cash, with some taking up to 72 days to pay outstanding bills, however a large number may also be accidental.

On top of the persistent and growing trend for delayed payments in general, one specific reason for late payments is the increasing demand for 90-day payment terms from large companies. However 2015 saw the Government commit to strengthening the Prompt Payment Code, reinforcing the need for speedy supplier payments and providing clear guidance to encourage good business practice. But with many businesses not having a fast and efficient invoicing process in place it may prove to be a challenge getting them to pay on time, every time.

On average an invoice is dealt with by as many as 15 employees, from those opening the mail and checking for vital information to others making the payment. Not only is the process time-consuming, it means that these important documents risk getting lost and that handling errors may occur. If a business receives a high number of invoices, filing and storing them correctly can soon become hard to manage, especially when businesses can often receive invoices in a number of different formats.

In a study by the Institute of Financial Operations more than 90% of medium sized companies still use paper invoices to some extent. Receiving a multitude of invoices in different formats such as paper can become complex and tricky to control. If invoices are paper based, the data has to be manually inputted into the payment system. But with this comes the possibility of inaccuracy and it only takes an extra zero to leave the business out of pocket. Many businesses tend to match their invoices to specific budgets to ensure they have enough funds to cover the cost.

Ensuring business documents such as invoices are stored correctly and in the right conditions will not only shield them from damp and rot but also any potential security threats. With computer hacks becoming more and more frequent, not securing documents safely or not understanding who has access can leave a business wide open to a possible attack. Granted, these documents may not be high on the ‘must steal’ list, but risk of loss or damage during an attack still exists.

But how do businesses ensure important financial paperwork is safe from harm and that they can pay up when required?

A complex supplier base that includes many smaller businesses and separate orders can leave businesses drowning in a high volume of invoices that are both time consuming and costly. Weighing up the manual time involved and propensity for error, it can be more cost effective to outsource invoice processing. By redirecting postal invoices to an outsourced provider who can scan the documents, archive the paper work if required and keep a secure backup, organisations can free up valuable resources and employee time.

Manually checking invoice PDFs or word documents can be just as time consuming as paper invoice scanning itself. Automated data capture systems and services pull out key information from any invoice format and insert it into the business’ payment system automatically, whilst highlighting any errors to provide better cash flow visibility. Suppliers don’t have to conform to one particular invoicing format, while the accounts payable team avoid any potential invoicing backlog at the same time.

Cloud based invoice management is becoming an increasingly popular approach for those facing multiple invoice dilemmas too. Rather than applying linear solutions to individual invoice management problems this approach is about integrating all accounts payable processing work into one. Creating a single, secure and easy to access archive of invoicing data, can enable the information to be integrated into the business’ financial process. Removing the requirements for manual paper handling and data capture can reduce time spent and number of employees handling these important documents.

The number of businesses who genuinely provide late payments and those who chose to do so are unclear, but it’s clearly a problem that so many are slow payers. The benefits of defining an efficient process and speeding up final payments impact the business itself as well as its suppliers. Ensuring suppliers are kept in pocket helps to reduce the risk of needing to find new ones. It’s not only supplier satisfaction that will increase; consider employee satisfaction too. Having a fully functioning invoice process in place will mean fewer employees are constrained to scanning and filing, and more will be able to focus on other aspects of the business and finance.

There will always be mounting pressures on businesses to pay their bills on time and to comply with regulations like the Prompt Payment Code. Using an efficient invoice process whether it be outsourced or in house means that businesses and suppliers are able to reap the benefits of a smooth process and potentially a few extra pounds in their back pocket.

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