When busy business owners think about invoice processing, they often take a super-simplified utopian view: they issue a purchase order, get invoiced and make a payment.
If only things always went that smoothly, but the fact is entrepreneurs and executives often underplay the amount of time they actually spend on exceptions, which is any time that things don’t go according “to plan,” such as when the goods weren’t shipped or delivered on time or were damaged along the way.
“That’s really where all of the friction takes place and where all of the costs add up when you don’t have digital and automated processes in place,” Matt Clark, president and chief operating officer at Corcentric, told PYMNTS.
Information, Visibility and Time
Simple put, time spent resolving perfect transactions, as well as those with exceptions, is not only time (and money) lost that could be more efficiently deployed elsewhere, but is one of the main reasons why invoice automation is gaining converts.
Another is visibility, which is essentially surfacing what the invoice flow looks like at any given moment. Knowing where those invoices are in the lifecycle and whether they have the right amount of information provides visibility and enable businesses the time they need to make the right decisions.
On the accounts payable (AP) side, the timing of the payment and the payment modality are also cash flow drivers, Clark said. On the accounts receivable (AR) side, electronic invoicing gets the invoice into the customer’s system so they can pay that invoice on time and get the dollars into the supplier’s bank account in a more predictable manner.
Quick Fix
When companies adopt the electronic invoice, Clark said, “The impact is almost immediate.”
A lot of that comes from the visibility, he added, noting that it is something he has seen over and over, with customers often not even knowing the problems they have until they get surfaced by that new visibility.
“We had a customer that we just recently signed that really had no idea how fast they were paying invoices,” Clark said. “They were paying them pretty much as they came in. They had no strategy around saying, ‘OK, if we have 45-day payment terms, let’s pay on day 45.’”
Accelerating payments unnecessarily like that has a direct impact on cash flow, so once they had the visibility and control over the process, they reconciled that very quickly, within the first payment cycle.
“They said, ‘OK, now we can put some strategy around this. We have full visibility to every invoice that’s out there, we know what our payment terms are and we know when we should be paying these now,’ ending that practice of paying invoices ahead of terms add an immediate cashflow benefit,” Clark said.
Barriers to Adoption
Despite these benefits, there are still barriers to adoption that keep lots of businesses on the sidelines. One reason, he said, is that people look only at the process of invoicing their customers and not the bigger picture, which includes the impact on cash flow and the other benefits they will receive.
“I think understanding the full lifecycle of a B2B transaction and then understanding how electronic invoicing fits into that picture, what the upstream and downstream impacts are, and then connecting all those dots really helps,” Clark said.
Another barrier is looking at legacy systems and processes and being overwhelmed by the idea of replacing them with a better solution.
“That’s one of the reasons we’ve taken an end-to-end, lifecycle approach on both the AP and AR side of the equation, because we understand that solving for this isn’t just a point solution that addresses one piece of the lifecycle; the whole lifecycle has to be looked at holistically,” Clark said.
The Digital Transformation Stage
Digital and automated processes also eliminate fraud and security issues caused by, for example, a paper check or invoice that gets mailed to the wrong place and puts sensitive information in the wrong hands.
“When you’re doing everything in a very digital fashion, everything is as clear as day to see,” Clark said. “And the bar has been raised so high for providers like ourselves from a security perspective and a data privacy perspective that you can get very assured, very quickly that this is a better way of doing business than the old-fashioned way.”
The pandemic has accelerated adoption of digital invoicing and digital payments. In Europe, the transition also has been driven by regulations requiring businesses to eliminate paper checks and invoices.
In the U.S., Clark noted, “We’ve left it in the hands of our individual businesses, and I think you’ll start to see more and more standards developed — whoever’s pushing those standards — that will probably get that last 30% or 40% of volume that’s out there to make that leap and get into that digital transformation stage.”
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