Solving the problem of late payments: automated invoice processing is the solution
- 28 Feb 2019
- AP Automation
Late payments are a common problem for all types of companies worldwide, including major corporations such as Sears. Failure to pay vendors on time impacts supplier relations could lead to product supply interruptions, and costs companies money. So how can businesses tackle this costly problem? Automated invoice processing is the answer. Manual AP processes are time-consuming, and leave room for human error. Automation accelerates the process as well as ensures compliance to policies and reduces the risk of errors.
Late payments - A growing trend to avoid
In financial news, it appears that many major corporate players are making late invoice payments. Suppliers expect large corporations to have the resources and organizational systems to pay invoices in a timely manner, making this a surprising trend. And this is a trend nobody wants to be a part of because it means lost profits. So how does it happen? Humans inevitably make errors, even when they are educated, hard-working, and well-trained.
As a result, manual AP processing provides unpredictable results. The use of manual processing could also mean staff working long hours and still missing payments. Consider the recent news. Companies such as Sears have faced the stress and expense of defending lawsuits for making late payments to vendors. Reports indicate Sears halted its payment to suppliers before its anticipated bankruptcy. And one of Sears Holdings’ vendors filed a suit, claiming almost $840,000 in outstanding invoices. The lawsuit, filed by InGear Fashions, accuses the corporation of misrepresenting its financial situation and states Sears owes the money due to merchandise breach-of-contract charges. While in this instance, the missed payments to suppliers appear to be strategic on behalf of Sears, the problem of late payments is a problem across all industries and company sizes.
Automated invoice processing puts corporations in control of their finances. While the end goal should always be to avoid late or missing payments, AP automation also puts essential data at the fingertips of the AP team and C-suite. Updated financial data can be used to make early payments to capture potential supplier discounts and hence save money. And this information, which also includes critical cash flow updates provided in real-time, can help the C-suite make difficult decisions about financial strategies based on the company’s current situation.
The ripple effect of late payments
The consequences of late payments for a company who falls behind on compensation is evident. Late or missed payments result in late fees, missing out on early payment discounts, and the destruction of vendor relationships. However, late payments also have a ripple effect on global business and finance. Recent UK news reveals how small businesses are suffering and closing their doors due to repeated late payments. The government in Britain is cracking down with the Prompt Payment Code and appointed a late payment director to govern its terms. This type of governmental intervention proves the serious impact of late payments.
The implementation of AP automation solutions can make a difference in scenarios like this. Routine tasks are performed automatically for optimum speed and accuracy. The AP team has more time to become strategic partners with management, providing key financial updates that help fuel the decisions made to protect the company’s financial stability and reputation with suppliers. Organizations around the world are discovering the benefits of automated invoice processing to avoid making late payments that could lead to bankruptcy, interruption of operations or closing their doors for business altogether.
The potentially high cost of late payments
Late payments may be more harmful than many would think. Missed or late payments have an impact on an entire business, including short-term cash flow stability and long-term bottom line results. With the array of AP automation solutions available today, companies no longer need to suffer from late payments from organizations. Conversely, companies also do not need to miss payments or be late due to lagging behind with manual processes. AP automation is a worthy investment because it ultimately helps lower costs, improve productivity, and boost profits.
Organizations that implement AP automation soon discover it pays for itself, usually within a year or two. Streamlined operations improve efficiency by saving time on routine tasks, such as the approval of invoices and payments. Cloud AP solutions enable the team to work together remotely to find bottlenecks and reduce or eliminate delays in verifications and approvals. Everyone can analyze the latest financial data to detect invoicing and payment patterns that could cost the organization money. With the smart use of automated tools, the AP team uses its time and talents for more beneficial projects, such as actively seeking ways to save money on invoice payments.
The advantages of automated invoice processing
The C-suite may question the ROI for AP automation, and the financial team might be concerned about learning a new way to process invoices. The implementation of AP automation helps organizations cut costs and increase working capital while the AP team ultimately enjoys a better quality of work as they leave mundane manual tasks behind for more thoughtful ones. Consider the advantages of automated invoice processing:
- Cost-effective and easy to learn, AP automation helps organizations save money and realize a measurable ROI;
- Brings the AP team out of the back office into a strategic position to seek money-saving opportunities for the company, such as discounts for early payment or loyalty pricing from specific suppliers;
- Streamlines operations and puts pertinent financial data within reach to everyone at all times and everywhere, encouraging collaboration in real-time regardless of time or location;
- Reduces the time, cost, and stress associated with manual invoice approvals that could wait on a desktop for days, ultimately resulting in late payments.
Maintain positive vendor relationships
Strong vendor relationships are essential to the success of a business. Companies rely on suppliers to create their products and expect quality items at competitive prices. When suppliers are paid late, it has a negative impact on these important relationships. Some suppliers may charge late fees. Others might expect POD or terminate the relationship altogether due to late payment.
An interruption in supplies can halt production, leading to significant losses for the company. It can be challenging to find new suppliers that are reliable and charge a fair price. This has a ripple effect on the business’ reputation, production time, and cost of goods. AP automation helps the financial team stay on track to avoid late payments, or work proactively with vendors if a problem arises.
Late payments can damage an organization’s reputation, production, and overall morale by compromising vendor relationships. Automated invoice processing eliminates the errors associated with manual processes to ensure organizations are always on the right financial track.