Business
Automated invoices: The saving grace of the late payments crisis
Global Banking & Finance Review®
Company
It’s no secret that the global economy is entering difficult waters. In the UK, inflation is on the rise, leading to the Bank of England
It’s no secret that the global economy is entering difficult waters. In the UK, inflation is on the rise, leading to the Bank of England increasing interest rates for the 11th time in a row. For businesses, this means money itself is getting more expensive. Against this backdrop, it’s not surprising that 25% of UK businesses reported a lower turnover in February 2023 compared to January 2023. What’s more, the current economic situation means any delays to cash flow can be fatal. Yet late payments are on the rise. Research found that 87% of businesses reported that their invoices get paid after the due date, but that larger businesses are likely to wait the longest, with payment an average of 15 to 30 days after the invoice due date.
One factor that can mitigate the pain of late payments and make finance teams’ jobs easier is to address inefficiencies in invoicing by implementing digital solutions. Failure to modernise has serious consequences. In fact, with a legacy paper-based invoicing system, companies have reported accounts teams spend 30-40% of their time on manual data entry. Automating invoice processes cuts this time – it ensures documents are accurate and sent promptly so companies don’t waste hours chasing payments or inputting data. Automation also reduces the risks of hiccups in supplier and customer relationships caused by invoicing errors, and helps smaller companies hold larger companies to account – minimising the incidence of late payments.
Business often forget that finance is the front line of customer relations. Many customer issues stem from invoicing – from contesting an invoice, claiming payment for an outstanding invoice that has already been made, or seeking to renegotiate payment terms. If a finance team can deal with these issues effectively without needing to escalate them to other parts of the business, it is more likely invoices will be paid on time. In turn, customers can be rewarded with discounts for early payment or better payment terms. Automation ensures consistency, accelerates processing, and reduces the risk of human error.
Automation allows finance to generate, send and follow up on invoices consistently and with accuracy, so businesses can get paid faster. It also frees up time for members of finance and accounts receivable teams so they can deal with more important aspects of their role rather than chasing slow payers. As soon as an invoice is in an automated system, the platform will send an email to the appropriate person for approval – and regular reminders can be sent automatically until the invoice is signed off. This removes bottlenecks and reduces the risk of late payments.
The insights that automation provides teams through centralised dashboards and reports into customer behaviours also allow teams to understand their customers’ payments habits in depth, helping to stay ahead of potential challenges. For example, understanding what communication style will elicit a response from a customer, like whether you’re more likely to get a response over email or phone. This allows businesses to meet their customers where they are; a level of understanding that simply isn’t possible with legacy invoicing systems.
It’s important to note that while businesses can invest in automation and digital tools to combat late payments, given the power imbalances between small and large companies, they could also do with a helping hand from the government. There is currently a lack of regulation to ensure larger organisations don’t take advantage of their position. The only support that businesses have is the Prompt Payment Code, but as the Code is only voluntary it does little to enforce better payment practices. To truly change this power dynamic and improve late payments, the Code should be mandated as part of wider government initiative to create a standardised payment process.
In the meantime, and in the current economic climate, it is vital that organisations take their own steps to reduce their credit risk. This means achieving an accurate view of their finance situation at all times and arming finance teams for success. Intelligent invoice automation allows business leaders to quickly spot any potential cash flow issues and make changes to ensure issues are settled rapidly. With an automated invoice process, the finance team can future proof the organisation and eradicate the risky business of late payments.
Invoice automation refers to the use of technology to streamline the invoicing process, reducing manual data entry and ensuring timely payments.
Late payments occur when a customer fails to pay an invoice by the due date, which can negatively impact a business's cash flow.
Cash flow is the total amount of money being transferred into and out of a business, crucial for maintaining operations and meeting financial obligations.
A digital solution in finance refers to technology-based tools and systems that enhance financial processes, such as invoicing, payments, and cash management.
The Prompt Payment Code is a voluntary code of practice for businesses in the UK to encourage prompt payment of invoices.
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