So many industries trade on slim profit margins and rely on bulk and repeat orders for their survival. We all now know, that when a crisis hits and markets are destabilised, slim margins don’t provide enough leeway for contingency. The obvious place to look when seeking to improve profit margins is in the sourcing and procurement department. Less obvious, and therefore potentially an untapped area, is that of Accounts Receivable. You probably know the cost of raw materials labour and production for goods you sell, but have you really looked at optimising the back-office processes that push your operating expenditure figures North?
Reduce your operating costs to increase your profitability. It is a simple formula, but what is the cost of achieving it and how can a business tell that the effort and input will yield sufficient to justify trying? In our business, we help large organisations, typically those with high numbers of outgoing invoices or bills, to work out the potential cost savings from automation. In the majority of instances, a project is not driven by purely fiscal motives, there are typically other organisational or structural goals to meet simultaneously, or there is a commercial drive to remain compliant and meet the electronic invoicing needs of major customers. This is particularly so for businesses selling across Europe where electronic invoicing is being transitioned into local law as part of the rollout of an EU directive on the mandatory use of eInvoicing.
Within the EU, the ground rules are constantly changing and the cost of selling is directly related to the cost of maintaining compliance. By nipping this problem in the bud and choosing to work with an eInvoicing vendor that can help them maintain compliance cost-effectively, the time-bomb of electronic invoicing in the EU can be defused. IT managers can sleep better. Compliance officers can fret less. Credit Controllers can see a future that is not fraught with IT projects that they must do but which are somewhat outside their own field of competence as finance professionals. Managing your compliance costs through prudent connectivity choices and eInvoicing software selection will protect your profit margins, whilst also holding great potential to reduce OpEx to the point that it is impactful to the bottom line in a meaningful way that shareholders will be pleased about.
Three ways to reduce or freeze AR-related OpEx
My top three areas of opportunity lie in the way a company runs, sends and stores their invoices:
- Centralisation, rationalisation and harmonisation through a shared services approach
- Outsource the management of EDI connections used to send electronic invoices to large buyers
- Eliminate paper and digitise your archives putting all invoices, past and present, on one platform.
Since the surge in demand for flexible and remote working the idea of a shared or centralised back-office function has morphed from being about a building to being about an organisational change facilitated by a digital platform. Teams should be able to work together effectively, efficiently and in a way that is transparent to managers and easy to track. This does not require them to be in the same location. It does rely on software that is designed with good workflow, productivity and motivation features. If you choose a fancy Accounts Receivable platform with a high price tag and extensive artificial intelligence, that does not allow your teams to work tightly and conscientiously, it will not deliver the efficiencies it promised. We help businesses with quite complicated structural hierarchies of group, parent, child and sister companies work well on one platform. We do this through the configuration of user permissions and multi-level hierarchy features that have been tested and deployed in a wide range of seemingly unique situations.
It never ceases to amaze us how many scenarios this feature covers or how important it turns out to be to our customers. Nor does it cease to amaze me how many different accounting systems, invoice formats and ways of turning out an invoice can co-exist in one company. If this sounds familiar – teams in France using Xero, teams in Scotland using Sage Intacct, teams in other places using paper, quill pen and ink and no standardisation, then we can help you. This is a classic time-draining, cost inflating issue that breeds inefficiency. None of the source systems in themselves is particularly expensive, but then, none of them are designed for large corporations, they were chosen on the basis of individual business units acting autonomously in regards to AR and AP, and choosing something low budget and low powered. The economies of scale do not stack up when you look at rationalising these systems and bringing all invoicing across the business into line. That’s when you need to call in the experts with enterprise-grade capability.
The cost of maintaining one or two EDI connections for large or important customers may not seem worth worrying about. Until that is, things change. The biggest barrier to efficiency here is that certain invoices are hived off to be sent over those EDI connections through accounts payable networks, and are treated differently. It blows the notion of standardisation out of the window, especially when the number of different connections grows, and with it the number of formats and IT projects, consultants and suppliers involved in simply getting the invoices to the buyers. A proliferation of people and processes does not enable easy reporting, lean management or anything that could be considered cost-effective. The costs associated with invoices bleed outside the AR department to IT and to external suppliers making the total cost of invoicing creep upwards, and often without accountability.
We have a small but very competent team of EDI specialists who can set up a new connection for a customer in as little as half a day with some advance planning. This compares to 3-4 weeks in some cases when external suppliers are involved or IT departments decide to DIY it. As we manage, monitor a range of EDI connections the expertise and economies of scale are impressive. Complying with the changing electronic invoicing requirements of your customers should not cost as much as 2 FTEs but it very often does. It is, for this reason, we know that there is a compelling cost upside to allowing Data Interconnect to manage AR connectivity.
Digitise and centralise
Storing past invoices sensibly, being able to access them easily and use the data for reporting and analysis is crucial in providing both insight and legal compliance. In some countries, exact facsimiles – watermarked copies – of the original invoice must be archived for inspection and audit purposes. If your business adopts a new system, the old copies are still needed and making these searchable and accessible can be a challenge. Going from paper invoicing to einvoicing has the greatest cost-saving, but going from unrecoverable, poorly labelled and stored copy invoices to a searchable digital database has the greatest power to transform your finance team’s ability to gain insight.
If like many of our clients, you are sending invoices as PDF attachments, these too can be improved upon if swapped out for emailed links to a secure online portal. Customers are notified of invoices, dunning letters or other communication being available and click a time-expiring safe web link to access them from a portal. Each point of access is tracked and recorded which builds up a history of buyer behaviour. By far the most important consideration though is having all invoices on one platform.
As mentioned earlier, if each new EDI connection or invoice format is treated and managed differently, you could end up with one AR manager with no more than three customer accounts to look after. That will undoubtedly erode whatever profit margin your procurement and product team has worked hard to achieve. It is not the capital costs of products that are undermanaged, it is the associated operating cost of running an inefficient and fragmented credit function. One platform for all invoices no matter how they are delivered to the customer is what we offer. We even handle paper, print and postal invoicing for businesses that still have some customers that need to receive their invoices this way.
If these issues seem pertinent to your business, please call. I provide a listening ear for Credit Controllers and Finance Directors who know there’s more they can do but have a degree of distaste about the scale and complexity of the problem.
For more about the benefits of switching away from PDF and Paper invoicing, click here.