Late payment is a significant burden for any type of business, and is a particular challenge within the construction industry.
As well as hindering healthy cash flow, late payment makes companies more dependent on overdrafts and other forms of borrowing and increases the risk of being unable to continue trading.
Research carried out by Hackett Group early in 2016 showed that 24% of all supplier invoices are paid late. There may be many reasons for this but there are three key, underlying issues:
- 58% of late payments are due to long internal processes
- 57% of late payments are due to the invoice being received late
- 25% of late payments are due to technology issues
Moreover, it seems that this problem is getting worse. For SMEs in the UK, the value of unpaid invoices increased by 36% between 2011 and 2015. In the construction sector specifically, the average wait for payment in 2015 was 107 days, nearly twice as long as in the manufacturing sector.
All of which provides a very strong argument for taking measures to address this. And while it may seem that you are at the mercy of your debtors, there are solutions based on recognising unpaid invoices as short-term assets so that they are used as collateral for financing.
Improving working capital
This process, known as ‘supply chain financing’, might seem a little daunting at first sight, but such solutions can be built into electronic invoicing packages, making the entire process very simple. In fact, all you have to do is to select the invoice you want to finance and confirm the terms.
Improving working capital while taking advantage of the strength of your supply chain starts with steps like these.
These solutions are easy to implement within the business, especially if they are hosted, Software as a Service (SaaS). Hosted solutions make it very straightforward, compared to installing systems on your own servers.
Hosted solutions can also be connected to your own finance system so that the entire invoicing process becomes more efficient.
Enhancing key processes
It is for these reasons that many companies are now taking advantage of the benefits available from integrating supply chain financing with electronic trading solutions. Not only does this reduce the time and cost of managing transactions, it also enhances key business processes.
Thus, management of the supply chain, and the embedded working capital therein, takes on real strategic value in the business.
What’s more, this approach helps you address the three key reasons for late payment highlighted at the beginning of this article.
- Long internal processes are transformed into swift, efficient ones by complying with best practices that come with an e-Invoicing implementation
- Electronic invoicing by its very nature eliminates any time the invoice would spend in physical transport, making receiving invoices late a thing of the past
- Technology issues are tackled through a hosted solution that is regularly updated with the latest advancements in e-Invoicing technology
Clearly, though, it is important to select the solution that best meets your requirements. Key questions to ask during the selection process should include:
- Is the solution scalable for rolling out across selected suppliers at a pace that suits you?
- Can the solution be easily deployed within your company and integrate with your finance system?
- Is the chosen platform already being used by a high proportion of your suppliers?
- Does the software provider understand your business, and can they prove this?
The Tradex e-Invoicing platform hosts the largest business trading community in the UK construction sector. With more than 35,000 companies trading 5.5 million electronic documents per year, there is a very good chance that a significant proportion of your trading partners are already on the platform, making supplier onboarding that much easier.