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Improve cashflow, pay invoices on time

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Paying invoices on time not only improves cashflow, but by using AI/BI/DM tools businesses can dramatically improve their order-to-cash performance.

30th Nov 2021
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During the pandemic and despite government support, one in seven small business owners say they had to use personal savings just to keep their businesses afloat as customers delayed paying invoices.

More than half of UK businesses are affected by delays

Whilst two-fifths of 3,700 SMEs polled by business insurer Simply Business say continuing disruptions to supply chains is eroding customer demand, and many now fear their businesses will be forced to close permanently.

More than half of UK businesses are affected by delays in receiving payments for goods and services leaving them facing a collective debt burden of £17.5bn, with more than three quarters of the outstanding debt being owed by one SME to another, according to research by the Chartered Institute of Credit Management (CICM) and Pay.UK.

Research shows that three quarters of businesses are now waiting two months or more over agreed terms for important invoices to be settled. Those waiting on funds are spending more than £500 per month chasing payments – adding a hefty £5bn total bill for the UK’s smaller businesses.

Who is to blame?

Whilst many small businesses blame slow payers in the private sector (accounting for £10.9bn in overdue invoices) as the worst offenders, late payment cannot be put solely at the foot of larger corporates.

“The feedback we are receiving from members, many of whom hold senior roles in major PLCs, is that they are taking significant steps to protect their supply chain, and some are even insisting on paying supplier invoices within 14 days or less, regardless of longer terms and conditions,” says Sue Chapple, chief executive, CICM.

“Small businesses can take action to reduce late payment volumes by invoicing correctly and on time and adhering to any specific requirements their customers may have (for example, a Purchase Order number) to ensure they do not fall foul of a simple process or risk their invoice being in dispute. They can also look at simple techniques such as offering small discounts for early settlement.”

Some businesses trying to manage their own cashflow are paying their own suppliers late resulting in a knock-on effect of late payments further down the supply chain.

“Whereas there are, of course, many businesses who are wont to pay late – partly because they, in turn, are trying to manage their own cash position – there are many more who value their supplier relationships. Agreeing terms and conditions from the outset, and employing professional credit management best practice, can make all the difference in getting paid and keeping the cash flowing,” adds Chapple.

Is tech the answer?

While technology can make payment practices more efficient, evidence suggests that the UK is lagging behind its EU counterparts in the adoption of innovative technologies as a solution to the payments process.

Lack of awareness and knowledge of which solutions and technology would be the most appropriate are cited as the main barriers.

Technology has a role in this in eliminating time-consuming manual tasks such as capturing invoice data, coding, and matching against purchase orders. By accelerating digital invoice processing in accounts payable, every step of the invoice management process can be automated and post straight back to the ERP system for payment.

“When it comes to automating invoice processing it is essential to ensure that whichever solution you use, the invoice stays in its original form – it doesn’t get copied (and put into five different places to be put on five different people’s desks where delays in authorisation can happen) – nor should the invoice be in a format in which the data within the invoice can be manipulated.  The integrity of the invoice must stay the same as when it arrived,” explains Jack Wright, sales director, YourDMS and Truth BI.

“It is not uncommon for businesses to receive rogue invoices, so the solution used must be able to incorporate a document management (DM) facility and integrate it seamlessly with artificial intelligence (AI) and business intelligence (BI) functionality so that invoices scanned are from suppliers who are known to the business, and more importantly, that the business is currently trading with them.”

No more invoice chaos

One thing that the pandemic has taught us is everything is not a 50/50 split anymore with invoices arriving in paper or electronic formats – most invoices now arrive electronically.  

There are of course those who still like a ‘piece of paper’ who will print out invoices only for them to get lost, and then find themselves searching for that all elusive email attached to the original invoice.

Or the accounts department faced with a lazy supplier who clumps together 50+ invoices into one PDF which then need to be split out into individual invoices for processing.

With DM/AI/BI functionality invoices are not lost, nor are 50+ invoices embedded together into one PDF likely to cause a problem. 

Case study: Pets Corner

At Pets Corner for example, they process over 10,000 invoices per month and use AI powered insights to predict how many of a particular product a business will sell in a quarter and adjust shipping orders accordingly.

“At Truth BI we have built a Predictive Ordering Dashboard for Pets Corner by taking ERP data, applying individual SKU-level information based on product type, sales run rate, and stock availability, all over selectable time periods to achieve a window into product behaviour,” explains Stewart Wright, managing director, at both Truth BI and YourDMS. 

“Not only does this show product behaviour, but by feeding the data back into accounts payable queries can be quickly resolved and encourages prompt payment of invoices.”

This vastly improves the Order-to-Cash (O2C) process and plays a pivotal role in determine a company’s cash flow. 

At the same time, decreasing the cycle time between when accounts payables are due and payment for goods and services is made, results in more working capital, fewer bottlenecks, reduced order to fulfilment time, and high customer satisfaction – all elements which lie at the centre of what makes businesses profitable.

Replies (3)

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By Hugo Fair
30th Nov 2021 16:50

Seems to be "Improve (my) cashflow, pay (your) invoices on time" ... in which case it's hardly 'Hold the front page' news.
I don't disagree with the moral dimension or the value to be gained long-term from treating your suppliers honourably, but there's no evidence that the title isn't just plain mis-leading.
And the tech stuff? It looks like it comes from a different place, without any demonstrable connection to the main article!

Thanks (1)
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By Munch
02nd Dec 2021 11:12

AI powered insights? Really. AI is such a misused term. ML at best. This article mainly refers to accuracy and efficiency. It’s click bait and adds nothing new. Sorry.

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Carol Baker
By Carol Baker
14th Dec 2021 15:55

Many thanks everyone for your feedback. I will be looking at the nitty gritty of AI, ML and BI (in separate articles) and what it means for the accountancy industry - so do look out for those in due course.

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