Shedding paper processing can reduce late supply payments
As financial teams exercise their operational strategies for the next year, it is likely time for many department leaders to factor in their organization’s approach to vendor payments.
Tungsten Network’s Friction Index research, carried out in conjunction with the Institute of Finance and Management (IOFM) to explore the sources of friction in the supply chain, found that late payments are exceedingly common among enterprise organizations, and the main reasons for this activity — and perhaps also their solutions — run contrary to many people’s expectations.
Nearly two-thirds (64%) of businesses surveyed cited slow internal processes as the biggest obstacle to timely payment; 39% lack of automation; 27% administrative errors; 20% team capacity to manage the volume and just 16% said they delay payment to manage cash flow.
Almost half (47%) of businesses admitted that at least one in 10 payments to their suppliers are made after their agreed payment terms. Only 5% said they always pay their suppliers in the time promised and one in 12 said they fail to monitor their payment practices altogether.
This research helps us get to the heart of the matter. It is not necessarily willful sluggishness on the part of buyers that causes late payment, rather much of the issue seems to stem from the way accounts payable departments manage the payment process.
There is a common misconception that late payment is always a result of working capital issues or of businesses holding on to their funds for as long as possible. While this can be the case, our research shows that more often than not it is clunky internal processes and slow, paper-based systems where invoices are manually processed and too often reworked from department to department. All this leads to friction in the supply chain, which damages business productivity.
Chasing payments has long been a frustration for suppliers and buyers alike and it often poisons good working relationships in the supply chain. Businesses need to get paid for the work they do and struggling to get access to funds causes unnecessary headaches.
For buyers, arranging invoice payments can be a complex task, particularly if they’re cross-border and involve ensuring compliance with local tax laws. It is unsurprising that such involved processes often result in delays, particularly if back-office systems are still paper-based.
Electronic invoicing increases the efficiency and accuracy of your accounts payable team, making administrative errors a thing of the past and sharply reducing the number of people required to manage the process. Another valuable aspect of using an e-invoicing solution is that suppliers can check the real-time status of their invoice at any point online. This helps to reduce calls and emails by around 60%, increasing productivity for your staff and cutting costs. Moreover, once connected digitally, buyers and sellers are better positioned to collaborate more strategically.