Why intelligent matching is key to gaining control of payment cycles – and saving cash throughout capturing early settlement discounts.
Ask a financial controller if he’d like a three per cent discount on his payment runs every month, while saving on invoice processing costs, and he’d bite your hand off. At the start of 2008, Experian found that on average, UK businesses are taking 61 days to pay their bills, up two days since the previous year.
While everyone’s doing it, it isn’t good for supplier relationships, nor is it the best financial sense. Paying suppliers early to improve your own cashflow seems counter-intuitive, but the figures add up. A typical business reserve account gives around five per cent interest, or 0.4 per cent per month.
However, a supplier will typically offer a 1.5 per cent to five per cent discount for settlement within 15 days. Let’s assume a company negotiates an average discount across its suppliers of 2.5 per cent. On a monthly payment run of £1m, this company would earn at most £4,100 in interest, but save £25,000 per month through early settlement.
However, the problem is, in many cases, that companies’ accounts payable systems aren’t up to the task of hitting early settlement deadlines. In many cases, companies’ AP automation solutions focus on the scanning and capture of invoice data, and uploading onto the accounting system.
But the most critical step is what happens after the invoice is digitised – the matching of the invoice to its corresponding PO and supporting documents, so it can be approved and passed for payment.
Matching is the most time-consuming phase of the process, as manual tasks like finding purchase orders and good received notes; checking and consolidating; and manual entry into business systems eats man-hours that could be better used.
If these matching-related tasks can be automated, then settlement deadlines can be hit, and accounting staff can have more strategic roles instead of chasing paper. The key is to integrate the captured invoice data with approved supplier details and approved purchase order information. This demands links with core business systems.
Invoices that match the defined criteria are automatically released for approval and payment, minimising the need for manual intervention and action. This workflow can be governed by business-specific rules, enabling AP staff to manage invoice processing by exception – so that only non-matching invoices require hands-on attention for approval. This also means that key targets like settlement deadlines can be built into workflow.
Jamie Taylor works for solution provider Contempus.