How to Get Your Invoices Paid Sooner: Three Popular Routes
Finding out how to get your invoices paid quickly can make a massive difference to cash flow. Late payments result in higher days sales outstanding (DSO) and tie up working capital that could be put to better use elsewhere. The faster invoices are paid, the sooner cash comes into the business and can be applied to more strategic use – enabling growth and improving liquidity in uncertain times.
Overdue invoices are sometimes attributable to customers’ inability to pay on time, or reluctance to pay on time, but there is much that can be done to speed up invoice payments from the majority of customers who intend to pay by the due date.
Some businesses go as far as introducing late fees for invoices past the payment deadline, but we believe it is better to consider early payment discounts and do everything you can to remove barriers to prompt payment. These are, after all, your customers and it is important to give them the benefit of the doubt, as well as handle the invoicing and collections process with as much sensitivity as possible.
Much can be done to encourage prompt payment, fundamentals like clear payment terms and specifying exactly when the invoice due date is.
Some businesses consider invoicing to be a laborious and time-consuming process, but the reality is much of the invoice generation and delivery can be automated, queries and disputes minimised and the need to phone calls vastly reduced.
However, there can exist a fundamental tension between a seller’s accounts receivable department, striving to drive down DSO, and their customers’ accounts payable departments who may see the credit afforded through payment terms as a way to maximise their days payable outstanding (DPO). These are not incompatible objectives, as much as they may sound to be. The last section in this article explains a solution which allows buyers the long payment terms they desire, whilst ensuring sellers receive their invoice payment within the number of days they want.
Improve accuracy and speed of delivery
One of the best places to start to speed up invoice payments is to look at your delivery process. The faster invoices go out, the sooner they can be paid.
Accuracy of invoice content is extremely important too. If an address, or recipient name, is incorrect, there’s little chance of an invoice reaching the right person to pay it. It is estimated, by Atradius in their Payment Practices Barometer Western Europe, that as much as 22% of invoices in Western Europe are paid late due to incorrect information. Make sure invoices are as accurate as possible, ideally create these through direct data transfer from the accounting system or ERP to your invoice creation and delivery platform.
Disputes and queries slow down invoice payments, so ensure your invoices are as accurate and clear as possible. Detail for what was purchased and reference to PO and/or job numbers can help customer perform a 3-way match and approve your invoice for payment sooner.
According to Billentis, in their 2021 E-Invoicing / E-Billing International Market Overview & Forecast, most countries in Europe send more than 50% of their invoices as paper invoices. These take time to produce and deliver, they are also subject to postal delays and risk of loss (unless they are sent as tracked items).
Furthermore, with the increase in remote working, particularly noticeable during pandemic lockdowns, this has slowed the speed with which invoices sent by post are received and processed. An invoice arriving at an empty office will have to wait until mailroom and accounts payable teams are available to process the invoice.
Consider the steps in your invoicing process, how much delivery logic, personalisation and bespoke formatting is required for each invoice. How can this be simplified? Are you using invoice templates, and how can these be streamlined to ensure invoice generation is as fast and accurate as possible?
An increasing burden on accounts receivable teams is the need to upload, or re-key, invoices into buyers’ AP portals. This is a result of more and more AP systems utilising electronic invoice processing to streamline their operations. However, putting the onus onto sellers’ AR teams to manually supply invoices via online portals is time consuming and prone to copy-paste or rekeying errors.
Where possible, it makes sense to take advantage of electronic invoicing for invoice delivery. Electronic invoices (or e-invoices) can be generated directly from data held in your ERP or accounting system and the invoices can be emailed or, better still, delivered via secure electronic transfer as XML or EDI formatted data.
Small businesses and startups may seek simple invoicing software or online e-invoicing solutions that build on accounting software such as Xero, but larger businesses will often have more complex delivery requirements and will benefit from a more comprehensive e-invoicing platform such as Corcentric EIPP (where EIPP stands for electronic invoicing presentment and payment).
An e-invoicing platform, such as EIPP, provides customers with a secure online invoicing portal where they can log in to view and pay invoices online. Platforms like this can provide access to previous invoices, to reduce calls into the support desk requesting reprints and downloads of old invoices.
E-invoicing platforms can provide a link to payment, improving customer experience and helping to speed up payments. Payment methods such as debit card or credit card payments, as well as direct online payments, or even PayPal can help customers pay invoices more quickly and easily.
Online payment options are provided by connection with a payment gateway, which your e-invoicing provider can help set up or allow you to choose to minimise online payment fees. Connecting the payment gateway with your bank details ensures the online payment process delivers payments directly to you as soon as possible.
The speed, accuracy and improvements to customer experience that e-invoicing can provide will not only improve your cash flow, but also maintain good relationships with your customers as they are able to self-serve and make payments more easily via on online portal.
Automate with electronic invoicing
Invoice automation is growing in popularity, as this process connects data sources to the generation of invoices, by pre-defined templates and content rules. This eliminates human error from the invoice generation process.
Furthermore, invoice automation fits well with the paradigm of e-invoicing – enabling businesses to send invoices out, following predetermined delivery rules, rapidly, at scale.
Your customers will appreciate e-invoicing, as this facilitates automated invoice processing via their AP systems. However, there are a growing number of invoice delivery formats or AP portals to connect with, so make sure your e-invoicing solution, or service provider, can meet these requirements. Where your customers utilise invoice automation for invoice processing, this improves the chances of prompt payments or even automatic payment.
Once automation is in place, simply set it and forget it, then manage by exception, perhaps reviewing and approving batches, or invoice due to be sent to specific accounts or above a certain amount.
It’s not just invoices that can be automated, but payment reminders for unpaid invoices can be sent ahead of the due date, and dunnings can be automated up to a point where a phone call is needed, or the debt is passed to a collections agency.
Ultimately electronic invoice automation allows you to focus the accounting team on areas of higher value and where there is real need for human interaction. Automate invoicing to work smarter, not harder, for faster invoice payments.
Leverage Accounts Receivable as a Managed Service
So far, the above approaches outline ways to incrementally improve your chances of getting invoices paid sooner. But wouldn’t it be great if there was a way to guarantee the business outcome of getting your invoices paid sooner?
Well, it turns out there is!
Managed Accounts Receivable (orManaged AR) from Corcentric enables you to literally fix your DSO to a specific number of days – guaranteeing payment of all invoices, regardless of whether your customers pay them on time or not.
Managed ARprovides a consolidated upfront payment, simplifying the process of cash application and providing you with a timely payment to ensure cash flow certainty. While this may sound like invoice finance, or invoice factoring, there are some important distinctions to note.
As a managed service provider, Corcentric delivers the Managed Accounts Receivable programme as an extension of your business – following your invoicing and collections best practice to treat your customers with the respect they deserve and not risk collections negatively impact on customer relationships.
Corcentric Managed ARutilises the aforementioned EIPP technology-enabled managed service to streamline and maximise delivery, as well as providing visibility of delivery, read and payment status for every document sent. This enables sellers to keep track of invoices and payments even when the process is fully managed by Corcentric.
Another important difference to many invoice factoring solutions is the provision of a non-recourse agreement for all invoices delivered and paid by Corcentric. If your customers pay late, or don’t pay at all, Corcentric absorbs this as part of the agreement. This gives you the assurance that cash in is cash in permanently, with no risk of having to settle up customers’ debts at a later date. This provides supreme cash flow confidence and supports more accurate cash position forecasting, financial decision making and strategic spending.
You can find out more about Corcentric Managed Accounts Receivable in our white paper about How Managed Accounts Receivable Unlocks Working Capital.