Earlier this Spring, interesting news came in from across the pond with the publication of the first edition of the UK Government's new ‘name & shame’ report on late supplier payments. The good news is that just under half of all the invoices that were reported on were paid within 30 days, but there were serial offenders, who made their suppliers hang on for 31 days and longer.
While Europe is ahead of the USA with their e-invoicing initiatives, the figures shows that only 25% of the companies in the report offered e-Invoicing. What happened to the rest? Why aren’t they taking advantage of e-invoicing to manage their supplier payments? And what lessons can we learn?
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My view is that while many organisations appreciate the problem of late payments, and the knock-on effects it can have on their supply chain they cannot change their modus operandi: they are hamstrung by their current systems, practices and processes and cannot make any change in the short or medium term due to help erase late payments. This is a global problem.
It’s clear that the UK and US markets are different in their approach to supplier’s payments; with the UK using more traditional ‘direct’ banking methods to pay their suppliers; whilst, in the USA, a lot of organizations still use cheques but there is also a wealth of payment providers who provide a multitude of solutions from invoice receipt/processing, online vendor/supplier payment portals and invoice automation to help manage the payment process.
But I do wonder how many organizations are able to take advantage of the hard earned, and negotiated, early payment discounts (EPDs) from their suppliers? Many of the payment solutions on offer in the US allow organizations to keep their existing bank relationships and pay suppliers by automated clearing house (ACH), check, virtual cards and credit cards in a faster time frame than would normally be achieved by processing in-house. Using a payment provider can slash processing costs by up to 50% or more and gives a business’s accounts payment function full visibility into payment status and approvals. But what about those EPDs?
In comparison to the UK, the USA is streets ahead when it comes to paying suppliers - The Paystream Advisors 2016 Data Capture and Mailroom Technology Insight Report said that nearly 92% of invoices received electronically are paid on time, compared to only 45% when invoices are received in paper form.
In my view this is where the problem lies. The Federal Reserve states that currently only 25% of US invoices are electronic, so that’s 75% of all US invoices being processed by other means – a huge opportunity for efficiency and EPD gains.
We know that reducing your Days Payment Outstanding (DPO) helps support your supply chain partners, and that shortening your DPO could provide additional margin to your bottom-line and improve your cashflow – so where is the problem?
Well, let’s consider the 75% of invoices that aren’t electronic – these will include, paper, PDF and other electronic forms, outside the traditional EDI or network-based channels. A proportion of these invoices will have been outsourced for processing by an optical character recognition (OCR), mailroom or payments provider, who will provide invoice capture, management, and integration services to give users an end-to-end payables solution.
The attraction of this approach is that it gives organizations one solution for all their AP processing needs – no matter what format invoices are received. The service provider will typically process the documents using OCR, which means that every electronic document received is converted into an image for OCR processing.