Invoices are documents that tell a business who is to be paid and when they need to be paid. Invoices that businesses issue make sure that they are paid within the given time. However, if you feel that your company’s buyers don’t pay on time or you need payments to be completed sooner, here are a few ways you can do so. Let’s consider the problems associated with invoice payment and how your business can solve them.
Miscommunication and errors
Most invoices are prepared manually. Sometimes, due to a lack of time and care, there can be problems associated with the invoice. The vendor later has to face difficulties in the process. This increases the cost to process the invoice and involves a lot of time, and can cause delays. There can also be a lot of errors in the invoice when prepared manually.
There is an easy solution to all this. In the case that errors are occurring because of your manual process, you can digitize the entire system. This can be a bit challenging with existing companies, so another way can be to clear out the terms and conditions so that your clients can understand them easily. Digitization won’t just help with clarifying the invoice and speeding up the process but will also save you a lot of time and money. It’s like killing two birds with one stone.
The time taken to create the invoice
The sooner you prepare the invoice, the sooner you are likely to get the payment. Even after an invoice is created, there is a huge margin of errors that can occur in the creation of the invoice. This time taken to rectify all the errors is called the reviewing period and you need to cut down on it to create a better invoice. The question is, how can you cut down on the reviewing time of your company?
The first solution is digitization. Digitization ensures that invoice errors are minimal and need little or no reviewing period. This ensures you can invoice immediately and get paid quicker. The second way is to make simple invoices. The simpler the invoices, the fewer errors, and the review period will be faster.
The mode of payment
Not every buyer you have will be able to pay you the way you tell them to without taking some time. If you want to eliminate this constraint of not being able to pay via their preferred mode of payment, the solution is simple. You can accept all modes of payment, whether it is through cash, DD, cheque, or online bank transfer. This will increase the number of ways through which you can receive your payment (which can be a hassle to check) and also increase the number of customers you will retain.
You can also allow automatic payments, this means that you will specify the date and time by which you require the buyer to pay you, and they can do so without even lifting a finger. Their software can easily make the payment without them even remembering that they have an invoice to be paid out. This is a blessing for all buyers who have automated their AP workflow process.
Lack of incentives
One big reason why you might not be getting paid earlier than you should be the lack of incentives. You might be thinking to yourself, why should you provide incentives to get paid? The reason is simple, your clients will feel more motivated if they see that there is a slight discount (just 1 or 2%) if they pay the invoice before a certain number of days. This is called dynamic discounting and it is the best incentive you can give to your buyers.
You can also go in the other direction and impose a late fee if the invoice is paid late. You might already have such an imposition, but you can also increase the late fees to ensure that your clients pay on time. You also need to follow up on late fees, though. There can be some trouble on the client’s side which you might need to clarify so that they can make the payment. It is the money you need to receive, so you might need to work a bit for it.
Conclusion
In conclusion, if you want your money to be paid on time, there are a lot of steps you can take. You need to take action and choose whether you want to get paid early or let things rest easy as they are, but if you are reading this article, you probably want the former. Hopefully, you gained something from this article to apply to your company.
Discounts are the saving grace for a buyer. They are hard to ask for, but they are equally hard to understand. There’s a lot of math involved in availing discounts, which you should understand well to get the best of the deal that has been provided to you. This article highlights the importance of knowing the way vendors’ math works, how it works, and how you can make the best of it.
It’s a bit hard to understand at first, but once you get the hang of it discounts can be easy to calculate, and you can save a lot of money.
Ordinary dating
Ordinary dating is the simplest way to know when an invoice is supposed to be paid. It is denoted in the following format << ”discount that can be availed”/ ”length of the discount period” net “till when can the payment be made” >>. Let us break down this terminology and look at it with an example.
The discount that can be availed is the discount by virtue of early payment. Early payment is heavily promoted by vendors in all businesses. The length of the discount period is the time in which you are supposed to make the payment or a part of the payment to avail of the discount. You can cross this date, but that won’t let you avail of the discount, which brings us to the last point. The part after ‘net’ tells when we can pay the invoice without incurring any late fees. If you follow this carefully, you should have no problem understanding how to make payments.
Types of discounts
There are various discounts available a supplier can offer you. This can be based on how much you buy the product, how close you are to the supplier (geographically), and your loyalty to your supplier. Here are the discounts a supplier can offer you:
Trade discounts: Trade discounts are discounts that you can avail of by virtue of your supply chain. It depends on how big your company is, how frequently you need to restock, and your position in the distribution system.
Quantity discounts: These discounts are based on the quantity of the product you buy. If you buy more, you’ll get it at a lower price; this is called buying in bulk. This is a practice usually undertaken by big companies.
Loyalty discount: Loyalty discount is usually given to customers who have repeatedly bought products from the same vendor. These are very generous but usually are given to those customers who have proven their mettle.
Sales discount: This discount can be availed by companies when a vendor is selling products at a price lower than the selling price in the market. This usually happens in situations like the end-of-season sale.
Seasonal discount: These are discounts you can avail of by virtue of the time of the year you are buying the products. This encourages retailers, suppliers, and distributors to get the products before the season starts.
Partial Payment
If you feel like you don’t have the money to pay the supplier in the discount period, there is a way you can get a discount on a smaller amount. This is called partial payment, and it works in a peculiar way. The amount you pay before the date can be discounted, and the rest can be paid at the nominal rate without the discount. For example, if the bill comes out to be $3700 at 2/10 net 30, you can pay $980 to avail an offer on $1000 of the bill.
So, effectively you have paid out a part of your bill at the 2% discount and the rest without it in the next 20 days. This makes payment much easier. This might not seem too advantageous at first, but the more the value increases, the more you save on your bill. You will most likely see this in your own business; practical knowledge is very important, after all.
Conclusion
It is important to build a healthy relationship with your vendors if you want your business to grow and flourish. If you want to fetch better discounts, then you can try any of the above-mentioned methods. This will provide you with some relaxation, and you will be able to work with consistency. Also, if you are a customer, then this will help you in saving your hard-earned money. However, if you are the vendor, then this will help you in attracting your customers and help in building the foundation of trust among your customers. This also helps you in getting early payments from your customers.
To sum up, there are numerous advantages of discounts. Both vendors and customers get an opportunity to save their money and emerge profitably at the same time.
The accounts payable department is the heart and soul of a business. The importance of AP is exactly what makes it the prime target of fraudulent actions. This fraud can come from various areas, inside the business and outside the business, unintentional or intentional fraud, and so on.
Invoice fraud is the most common form of fraud that can occur in the AP workflow of a company. This article highlights invoice fraud and the best ways to prevent your company from falling victim to it.
What is invoice fraud?
Invoice fraud is fraud where someone tells you that your supplier payment deals have changed and gives you the wrong details. This is called invoice fraud because you are making the wrong invoices for the fraudster and end up losing a lot of money (That’s why it is a fraud.) This is a matter of grave concern, and you need to make sure that this doesn’t happen to you or your company.
Even if this fraud occurs once, it is problematic for your company. This is because once the fraudulent transaction takes place, there is no telling that the details won’t be saved and used for a later transaction. If it is a big amount, paying it twice can really harm your company’s capital. You need to absolutely make sure that invoice fraud doesn’t occur in your company. The next section is going to cover how you can prevent invoice fraud.
Ways to prevent it
There are many ways to prevent invoice fraud; the first and foremost is to stay wary of your AP workflow. Automating your AP workflow can also help increase the chance of this fraud not happening to you. Here are a few ways how you can reduce the chances of invoice fraud.
Three-way matching
Three-way matching is a way to verify whether an invoice you have approved is right or not. It is a simple fix to an otherwise risky transaction. What you do is that you check your invoice with the purchase order and the receipt of goods. This is a lengthy but safe way to go about the transaction because not many frauds will bother making three fraudulent documents.
Watching Invoice amounts
Invoice amounts can also be a good parameter for checking whether there’s potential fraud happening or not. In companies, after a certain threshold, there’s a check on the transaction. Fraudsters are careful about this and make transactions right below that specific amount. You need to be careful of this and check such transactions which are tending close to the threshold.
Lessons of Morality
As mentioned earlier, fraud can be caused by a person on the inside. This is an issue that needs to be addressed in such a way that it doesn’t drop the morale of the company but needs to be upheld in such a way that it maintains the morals of the employees. After all, it is obvious that a happy employee is much less likely to cause fraud and probably even catch fraud.
Check with Vendors
The best way to find who’s a fraud and who’s not lying is in the name and details. If it is a fraud, they’ll most likely be registered under a false name or have some fake details. You need to be aware of this while making the transaction, making sure that the fraud doesn’t happen while you are looking into it. Checking invoices should be made a common practice in your business to prevent any such case from happening in the future
Invoice tracking
You can cancel a payment while it is being processed in the bank. The problem is, how would you know whether the payment you are making is to a legitimate vendor or a fraudulent party? The simple answer is invoice tracking, through which you can easily tell where the invoice has been sent from and where the transaction is going.
Fuzzy matching
What is fuzzy matching? It is checking whether or not there are duplicate invoices in the mix or not. Duplicate invoices can cause heavy losses to the company, both monetarily and morally. It can cause issues within the company, raise questions regarding the management, and get the vendors to lose trust in the company.
Automation of AP workflow
Automation is the best thing to happen to AP workflows. It cuts down on most of the problems mentioned above. It makes invoice tracking easier, makes fuzzy matching the norm, and makes sure that things are always run by the vendors. Every payment is accounted for by the software appointed by the company to make sure no fraud occurs.
These are some ways by which you can prevent fraud from occurring in your company. Hopefully, you have gained something from this article and will apply the measures in your company.
An early bird gets all the worms. In this case, an early buyer gets all the discounts. Discounts are a ray of hope to small and medium businesses, which let them compete with the large companies in the market. Early payment or dynamic discounting is a good way to make sure that the relations between you and your supplier are not strained, and it is beneficial for you too.
This article highlights the importance of paying early in a business deal and how you can claim the advantages of early payments.
Dynamic discounting
Dynamic discounting is a way by which you can get discounts by paying early. This is a way to leverage your supply chain in such a way that it is beneficial for both parties, the supplier and the business. It is a flexible way to make payments on your terms; you can choose when to pay and how soon to pay. While traditional methods are easier, like ordering in bulk or bargaining, dynamic discounting is a much more efficient to go about doing your business.
Dynamic discounting is denoted in such a way: “5/15 net 45.” This means that a discount of 5% can be availed by the buyer if they pay the money in 15 days. The net 45 part means that the payment can be made in 45 days; however, the discount can only be availed in the specified period. You need to be very careful when you make payments, or you can automate your AP workflow for the same.
How important is an early payment?
Early payments are the key to your business’ success. If you pay a vendor early, it helps accelerate the cash flow in both the businesses (yours and your vendor’s) and lets them reinvest the money sooner. It also generates a sense of trust between you and your supplier, and it completely negates the risk of bad debts (payments you cannot make). Making early payments can also expand your repertoire of suppliers you can approach, like the companies that work on a cash basis rather than an accrual accounting basis.
Early payments are a wonderful marketing scheme. They go well with startups and medium businesses; early payments are more feasible than traditional ways of making payments. This is because they are in a growing stage, and they don’t have a customer base large enough to make use of the entire stock they buy (if they buy in bulk).
How can you get them?
The best way to avail of discounts in this market is to automate your AP workflow. This is advantageous for new businesses, as they can start with an automated workflow, unlike large businesses which have a pre-established workflow. What does AP workflow automation mean? It means that you are leaving the manual tasks like filing, storing, and paying invoices to the software, which helps you automate the workflow. This makes sure that your work becomes more precise and efficient.
The best way to see if your vendor offers early payment is to ask them. It is as simple as that. If they offer early payment discounts, all you need to do is enter a date into your system by when you need it done, and that’s all. You will save a lot of money this way; it is a godsend for small and medium businesses.
What can go wrong?
There are several steps involved in the accounts payable process, which include writing the names of the vendors along with their details and then waiting for the confirmation, after which the payment process finally comes to an end. This process includes a lot of time and steps, especially if the data is prepared manually. This even increases the risk of payment failures or errors.
There are possible chances of losing your hard-earned money due to duplicate payments. Sometimes, you can end up paying for both original and duplicate invoices. Besides, it also becomes difficult for you to keep track of which business location is paying which vendors if your business is running in multiple centers.
Early payments don’t have too many risks associated with them, but if there is an error in the AP workflow automation, there can be wrong payments from your side. You need to be careful of the amount you are sending to your vendors.
Conclusion
The best way to avail of discounts without bargaining or ordering in bulk is to automate your AP workflow and make early payments. You need to ask your vendor whether they provide the services. Small and medium businesses don’t have the option to spend too much money on procuring supplies over research development. So you should make sure that you can avail of such discounts to save money.
The workflow and processes within accounts payable departments are constantly evolving, and productivity and performance are measured best using various different methods. Heads of AP and finance departments alike are constantly honing in on what goals and achievements they can reach to accomplish within their company, and making sure the attributes of their employees match with said company’s values. In order to assess the efficiency and success of your accounts payable department, it is important to put an emphasis on not only the quality of work, but each employee’s specific productivity levels, and the overall costs of what it takes to keep your department completely functional and running. Most all business professionals use several key performance indicators to analyze performance and results – including finance professionals – so AP departments will not be overlooked. To confirm that your accounts payable department is operating as well as possible, we’ll be examining costs per invoice, transactions per employee, the number of invoices per AP full time employees, vendor payment processing cycle times, and invoice lead times. First, we’ll be diving into the term KPI, and what makes a properly functioning performance measure in your specific department.
Key Performance Indicators and Benchmarking in AP Departments
In order for key performance indicators (KPIs) within accounts payable departments to work as accurately as possible, they should include quantifiable data points and be set and agreed upon by all staff members, including specific project members if your company is measuring success based on individual assignments. KPIs should be observed regularly, be time-bound, and have the overall goal of ensuring your AP processes are in line with your company’s goals and missions regarding broad improvement and growth. In general, KPIs are measurable values that serve as extremely helpful tools to measure your company’s success and status on achieving particular business objectives. Benchmarking is also an important term all companies should be familiar with, which is the process of comparing your company’s success with others. Specifically in accounts payable departments, the drive to measure costs, efficiency, and effectiveness is constant, so keeping track of the correct metrics is essential.
Analyzing Costs Per Invoice
The average cost of processing just one invoice through differing organizations depends heavily on your specific AP department, and can vary greatly depending on several different factors. One company’s cost per invoice could depend on how time-consuming and labor-intensive their invoice processing system is, or how much time spent by employees in AP departments are diverting towards invoices. When examining other contributing factors regarding cost per invoice, you could look at your systems and equipment set in place, mailing, processes for late or missed payments, general errors, supplier discounts, and audit expenses; all in all, your costs will depend on what systems you have set in place, and how much of your AP department is automated. Finance and AP professionals of all statuses should pay close attention to this KPI, as alternative methods should always be sought after to cut costs and focus on driving expenses down long-term. However, the metrics regarding costs only need to reflect what core values your company has expressed; if spending more heightens efficiency, then that is your department’s prerogative to do so. Either way, careful assessments towards identifying the best measures for your company should be made.
Accounts Payable Transactions per Employee
An additional productivity metric is the complete number of transactions performed by the AP function over a set period of time, combined with the total number of AP employees; this is specified as the accounts payable transactions per employee. Analyzing the success using AP transactions can make known various issues including invoice quality, AP software interfaces, volume of invoices requiring manual entries or overstaffing within AP departments. When looking into ways to increase productivity in this area, it is important to be using as many streamlined and efficient processes within AP, including methods to reduce low quality invoices and automate processes in order to save time on manual entry and invoice matching. This may require extra training and attention towards employees struggling within these parameters and showing a lower quality of work, but effort can always be improved with good communication between higher-ups and all employees within AP departments.
Number of Invoices Per AP Employee
Another way to measure success is the number of invoices per AP full-time employees. This KPI is slightly complicated seeing as how often the volume of invoices are measured within your department can affect the numbers and make benchmarking more difficult. The easiest way to analyze this metric is to take your annual invoice volume and divide it by the number of full-time AP employees. When done correctly, the number of invoices per AP employee is a good indicator of your team’s general performance, and should be measured to assess overall productivity and success.
Vendor Payment Processing Cycle Time
Vendor payment processing cycle time is another way to benchmark within AP departments, as examining the number of business days required for a company to process an invoice can give insight once again on employee productivity and the quality of work accomplished. While higher and lower values can have two different meanings, ultimately the goal for this KPI is to improve on typical processes for payments including formats for invoice submission, monitoring any and all internal errors, reducing paper invoices as well as keeping track of manual input and enhancing management practices.
Invoice Lead Time
Further benchmarking using invoices in AP departments is tracking the overall time it takes for a single invoice to be received, processed, and finalized; this entails coding, data matching, and completing a final review which is posted to the ERP. All of these efforts combined help measure overall growth and success within AP processes. Once again, automation stepping in to remove manual steps improves heavy workloads and is a tool all AP departments should be utilizing. Not only do using these metrics help measure success, but automation will directly boost efficiency of all the processes being measured.
Why Is Measuring Success So Important?
All businesses must strive to track productivity and performance, but it is especially important for AP departments to keep track of these metrics in order to avoid any possible liabilities, whether financial or reputational. Late payments, errors within invoices, or bad credit terms could all put a company at risk of losing clients or taking significant financial hits. Comparing your company to others to assess success and efficiency is essential to making sure your workers in all departments are consistently hitting the marks; benefits of doing so include increased workflow in AP processes, reduced costs, measured performance towards goals in AP departments, set expectations for your company, and better problem-solving through accountability. To learn more about benchmarking and implementing KPIs within your workplace, feel free to reach out to an oAppsNET Partners consultant to learn more today.
