17/04/2012

By Nigel Taylor, Head of E-Invoicing at GXS

Cash flow is a natural concern for any small and medium-sized enterprise (SME). The smooth flow of money in and out of a company is essential for survival in a tough business world. Yet, a recent survey by the UK Federation of Small Businesses revealed that 73% of UK businesses were suffering from late payments in 2011/11. On average, an SME could be owed around £27,000 at any given time.

These late payments are a big problem for SME’s that sell goods and/or services to large buyers, often resulting in a complex web of late payments all round. When orders are placed with these small suppliers, they have to fund production and this manifests itself in the form of a bank loan or other alternative forms of funding based on their own credit rating.

Once goods are manufactured, delivery is typically followed by inspection to ensure the correct quantity is received and quality is acceptable. Invoices are then issued, received, examined and compared to the Purchase Order and the Goods Received documentation, and eventually paid for. This paper process can take well over 60 days to settlement, which deprives SMEs of the cash they need to pay off existing debt and fund subsequent orders.

A new EU directive (2011/7/EU) introduced last year, and due to be implemented by all member states in 2013, will attempt to address this issue. It aims to ensure that private companies settle invoices within 60 days, and states that buyers cannot alter the date or period of payment, or alter the late payment penalty or rate of interest within transactions between businesses.

The UK government is anxious to implement the new directive by 2013 and additionally, its interpretation of the directive may allow suppliers to charge interest on payments made after the 60 day deadline at 8% above LIBOR, as well as a £35 late payment fee.

This directive could cause significant upheaval in the dynamics between UK businesses. One way SMEs can help themselves, and their customers uphold the new directive, and make cost savings at the same time, is through electronic invoicing.

E-Invoicing streamlines, automates and simplifies the invoicing and payment processes. It simultaneously reduces costs by eliminating the paper trail and person-hours spent processing documentation, not to mention the cost of the errors associated with manual processes and it reduces disputes with the customer. By electronically automating financial processes between companies, e-Invoicing can reduce the invoice to payment period to as little as 10 days.

At a time when late payments are a big issue, SMEs are turning to e-Invoicing to facilitate prompt payments. A recent report by industry analysts Billentis has forecasted 20-30% growth in the e-Invoicing market over the next few years as organisations of all sizes see the benefits that this automation method can provide. Companies can realistically expect to save around 2% of their annual revenues through optimising their physical and financial supply chain processes.

As the interest and momentum increases, e-Invoicing is set to become the mainstream method of ensuring on-time payment between companies with advantages for suppliers and buyers alike.


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