How To Reduce Time To Invoice
Sometimes clients don’t pay your invoices until a large amount of calendar days have passed. In the meantime your business has to survive. The worst case scenario occurs when too many clients are delaying the payment of your invoices, forcing your company into the red and as a result, overdraft interest payments and sometimes other charges begin to be accrued.
As a company you also have a legal duty to settle invoices on time. Late payment regulations mean that your organisation could become liable for a charge percentage of interest above base rate. Yet for many businesses this surplus fee is hard to collect. Even so late payments can negatively impact on your client and supplier relationships. The delays might be caused by your own staff holding onto invoices rather than sending them to finance for payments.
As a finance manager you’ll be glad to hear that this process can be made more transparent, allowing you to see discrepancies or payments pending, among other things, by implementing a project-based ERP system which includes billing management capabilities. Such systems allow companies to manage payment schedules more efficiently and effectively with greater transparency and control than traditional filing allows. These drivers are behind the reason why in 2014 the European Union is promoting a common standard for e-invoices in order to promote a paperless invoicing future.
With an ERP system that has integrated billing management capabilities, Professional Services organisations (PSOs) can optimise accounts receivable and accounts payable processes. Efficient processes lead to positive results, including improved levels of customer and supplier satisfaction. Better cash flow management can often lead to an increase in profit margins as unnecessary costs are avoided. With these systems it’s possible for you to identify any early warning signals that might indicate whether a client will pay late or whether a supplier hasn’t been paid.
So in summary here are 3 useful tips:
- Remember that a fast billing cycle is a win-win for clients and suppliers, leading to longer and often more profitable relationships. Therefore it’s important that you use an integrated ERP system with billing management capabilities to invest in your organisation’s future.
- Gain efficiency with the automation of project entries. This also helps to reduce errors; they can annoy clients and suppliers as they will need to set time aside to ask for them to be corrected, and in some cases errors can lead to a loss of trust. Delays also occur as a result of mistakes being made, and this means payments are delayed – no good for cash flow!
- Avoid payment delays and overruns. You should analyse the scenarios relating to the estimated time of completion (ETC) to allow you to make any necessary changes to avoid this situation. This analysis will also enable you as a finance manager to bring your budget back on track. Not knowing this can prove detrimental to commercial relationships and to profit margins. The danger is that delays could add surplus costs to fixed price projects, leading to a reduction in the profit margins relating to that specific project.
Hindsight is an invaluable tool, which you can use to examine how efficiently and expediently your organisation manages its invoicing, accounts payable and accounts receivable operations. By taking such steps you can make process improvements. They will in turn add value to your client and supplier relationships. So remember, to move your finances forward you need to look back.