Despite their many world-beating qualities and efficiencies, British businesses are still surprisingly poor at a very key business process: making sure they get paid – and pay who they owe.
This is happening partly because too many business workflows are even today, still on paper, not being done digitally. Research from Gartner, for example, shows that a typical office worker spends 70% of their time processing paper, with the average document getting copied at least nine times. There are 30 billion invoices processed per year in Europe but an astonishing 95% are still done manually, according to Deutsche Bank.
It seems a particularly broken process, finance. Research from the Accounts Payable Association shows that 3.6% of invoices that get manually entered into a finance system contain an error – which matters, as the average cost to process an invoice is between £3.50 to £8.60 and problematic ones can cost more like £15. Worse, 56% of businesses contacted for one AP Association study experienced forecasting challenges due to invoice data gaps, 78% admitted to paying supplier invoices late, 58% had to make late payment charges to suppliers because of invoicing issues – and 36% said there were concerned with late payments due to process delays.
Worrying occurrences. The good news for FDs, however, is that a move to a more joined up, digital finance way of working will dissolve a lot of these issues pretty much at a stroke. Which is good news – and if you want motivation to actually begin that journey, the reality is that as we gear up for a very different post-EU trading environment we all need to get a lot better at invoice management.
The following five steps you need to take on your digital finance journey will help you get away from paper and win back some of this wasted organisational money and time.
Going digital means the data you need from the invoice coming in your door can be quickly, automatically and securely taken out and put straight into your systems. The soundest way to do this is via modern OCR (Optical Character Recognition), which today has very high accuracy rates and is all round a very robust technology. Doing this will save time but also get the information into a data repository for all the other value-add things you will want to do.
Automated finance and accounts payable processes – using software in a structured way to speed the routing of invoices around the teams that need to see them – will also speed things up, as well as reduce to effectively zero your chances of losing invoices. You can also move to workflow that supports a three-way match between the orders-payments-delivery loop, tying your core ERP into all your invoicing processes. That will be a real boon when it comes to any kind of dispute and stop you needing to expensively fire up CHAPS to settle a late payment. Another excellent side effect: fraudulent accounting practices becoming more visible and transparent, flushing out any rogue invoices or suspicious internal behaviours.
If it’s digital, it’s in the system – which means it can always be brought up and looked at, by whoever needs to. HMRC states that you need to store invoices for six years as you know, so use that storage need to your advantage. Set up a permanent corporate electronic memory bank that means there is always a trail to show what was done, by whom, on what date, and what information was available at any one time. It’s also going to be of value to auditors, who will appreciate the faultless state of the record keeping.
Again, if it’s digital, and properly captured on entry into an organisation, invoice data can be immediately piped into whatever finance or ERP system it needs to be stored in (remembering the other useful things you will want to achieve with those invoice fields). This will also markedly speed up internal information flows, or those between the firm and its supply chain or partners, as useful fiscal data will be so much easier to process and exploit.
Lastly, there are more and more reasons why FDs need to be able to have total clarity about their invoicing process: there’s the reporting of payments system for bigger firms the government has set up, whereby from April large companies and limited liability partnerships (LLPs) will have to report twice a year on their payment practices and performance – including the average time taken to pay supplier invoices. Failure to report, warns the government, will be a criminal offence, while there will be a special performance league table on the GOV.UK website where anyone can see how they are progressing.
That may be just for big firms right now, but the principle already applies to all organisations, public, private and SMEs: there will always be disputes when you will want to be able to state without any possibility of doubt when and where x, y or z payment occurred (or was problematic).
So in conclusion, if you want to stop those manual invoicing costs leaking out of your profits every year, there’s only one way forward: end the paper chase. And best practice shows us that the most effective way of doing that is that by investing in systems and processes to expunge all paper and streamline your processes.
EASY SOFTWARE UK will be going into more depth on the issues George has raised here in a special webinar scheduled for March 14. Please go here if you’d like to join.