Paying invoices often seems like a small thing. The invoice comes, the business pays, and that’s it. What more is there to it? Unfortunately, the reality is often more complicated. A study shows that 60% of invoices are paid late, with average delays ranging from six to 26 days. Invoices get lost, neglected, or overlooked—precisely because we think of them as small things.
The consequences of late invoice payments can be anything but small. Late fees can balloon up. Missed invoices can be paid twice. Auditing and compliance issues may arise. And most of all, late invoice payments can damage relationships with vendors and suppliers. In turn, this can result in your business having an unfavourable bargaining position when it matters.
Keeping up to date with invoices can be challenging. This is especially true for businesses with numerous vendors and suppliers. We are all only human, after all. We forget things easily. More urgent issues always come up, taking our focus away from dealing with invoices. So how do we handle this situation?
The first thing we need to do is to acknowledge that this is a problem. Accounts payable should not be taken lightly. There needs to be a system in place to prevent late payments. Afterwards, we can do these four strategies to reduce invoice payment delays.
1. Mitigate human error as much as possible
Most mistakes in invoice management can be traced back to human error. We suffer from stress and fatigue. We lose focus from time to time. Or maybe we simply forget. When we use a paper-based system for our invoices, this problem can compound. Data entry from paper to a machine is always prone to mistakes. In fact, human error accounts for more than a quarter of all tax and accounting mistakes.
This is why it’s always a good idea to go digital as much as possible, as early as possible in the process. Data works best when it is entered and managed by a machine instead of humans. That way, we can eliminate stress, fatigue, forgetfulness, lack of concentration, and other potential human error out of the way.
Furthermore, going digital also brings the benefit of automation. Gone are the days where employees need to spend hours to manually enter data or transfer them from one file to the next. Automation brings increased efficiency in the process, eliminating wasteful usage of human resources.
Studies show that automation reduces 90% of data entry errors in accounting. An automated invoice management software will significantly improve the management of your accounts payable. Additionally, you will also enjoy the added benefit of freeing up precious resources to be utilised for other activities.
2. Improve coordination across multiple departments
Another issue that often causes invoice payment delays has less to do with human error and more to do with red tape. Managing invoices that involve multiple departments can be tricky. Businesses do not always have clear visibility among them. Sometimes, invoices get lost or neglected somewhere in the process. Other times, they result in duplicate payments.
This is especially true in Asian markets. Businesses often need to manage multiple invoice formats in different countries. Naturally, these come with different currencies and languages. Now we have yet another layer of a potential breakdown in communication.
The key issue here is coordination. And the key to coordination is visibility. In a recent survey of US-based companies, 65% of employees believe that they could make more effective contributions if they had greater visibility to the financial performance across their organisations. One can conclude that the number would be greater in the Asian context.
Those in charge of accounts payable would benefit from clear visibility among various departments. Being able to keep track of where each invoicing task is at, which might be stuck and which may already be paid, will significantly improve the process. This is where cloud-based invoice management software that offers visibility comes in handy.
It has been said that visibility is key to reaping the benefits of cloud-based solutions. Such software can give businesses much-needed visibility among all units and geographical locations. Good software will also seamlessly work together with your other business processes and be able to update the status of your invoicing tasks in real-time.
3. Track your invoice payments closely
There are cases where you fail to pay their invoices on time for a variety of reasons. There are also cases where you are eager to pay what you thought was an outstanding account payable, only to later find out that you have made that payment before. Worse still, you fail to pay the other invoice that you were supposed to pay instead of that.
When this happens, it can be very annoying. The refunding process, the auditing, the bureaucracy, all the time and energy wasted, all those can be frustrating. Cases like these often come from a mistake in tracking your invoices. Proper tracking can easily avoid these kinds of errors, and save you plenty of precious resources.
A business needs to track all activities of expense management. This includes close monitoring of all accounts payable. If your business still relies on paper-based invoice payment systems with little coordination across multiple departments, things can get confusing very easily.
Hence, another key feature to look out for in your invoice management software is the ability to track each individual payment in real-time. 99% of CFOs and finance leaders believe that real-time data is crucial to making better business decisions. Good software will allow you to do just this.
4. Forecast future payments
There is one final strategy that can do wonders for invoice management. This is the ability to forecast future payments. Instead of waiting for invoices to arrive, you can utilise your history of invoice payments to forecast when you will need to pay which accounts, and how much.
With invoice management, the ability to forecast can do wonders for the management of your accounts payable. By anticipating future payments, you can prepare all the resources and coordination that you might need beforehand. This will ensure on-time payment by a significant margin.
Of course, this may be challenging to do manually. Doing proper forecasting, especially in a large organisation, may require crunching large amounts of data. Without proper software, the process can take a long time and open the door to more errors.
Good software can make this process a lot faster and more efficient. It will know your history and process your data accordingly to make reliable predictions. It will then be able to inform you of your next round of invoice payments far before any money needs to be spent.
For more on our #BusinessSpendManagement series, click here.