With statistics showing that only 29.1% of invoices are paid on time in the post-pandemic United States, the already-fraught world of invoices just got messier.
However, no matter how messy it gets, invoices are a fundamental part of the procure-to-pay (P2P) process. Executives first, and relevant employees immediately following, need to know how to identify and correct invoice management issues for a streamlined P2P process.
Why Invoice Management?
As a C-Suite hospitality executive, you have a lot on your plate. You have entire companies to run; contracts to be negotiated, supplies procured, a brand to manage, a workplace culture to foster, customers to wow, and ratings to boost or keep high. Why the sudden fuss about invoice management, something that’s been around forever and surely already has a process in place?
First up, e-invoicing. E-invoicing is growing at a tremendous rate, with growth projected at 80% by 2027. If you are not already using electronic methods in your invoice management process, that needs to change and it needs to change quickly. E-invoicing is faster, cheaper, and less mistake-prone. We will go into the details of how and why it should be implemented later in the article.
Second, the omnipresent specter: taxes. Managing your invoices in an organized and thorough way will not only make paying taxes easier but will help to prevent you from being audited. And if you are ever audited, a well-thought-out system will make the process that much less painful as you locate important documents with ease.
Third, avoid the problems that come with late invoice payments. This can include a halt to services, a bout with collections (and their imminent fees), a kick to your credit score, or perhaps even legal action being taken against you. Even if late payments seem to be the norm in a pandemic-roiled world, the consequences have not gone away.
Issue 1: The Dread
Invoices are physical manifestations of sales between two parties. They itemize the products or services provided by the seller and the prices charged to the buyer. They help with the placement, processing, delivery, and final payment in a business transaction. But all that aside, we can’t ignore what a received invoice really comes down to a bill.
If you’ve ever dug through a pile of mail, you’re familiar with the sorting process that occurs: junk mail, important information or reminders, personal mail and things you would like to keep, and bills. Too often bills are set to the side to be “dealt with later.”
You cannot have this mentality within a successful company. Invoices are vital to the health of your business and must be organized and dealt with promptly. Don’t allow “bills dread” to infiltrate your workplace.
Issue 2: Poor Categorization of Invoices
Unfortunately, or fortunately, depending on how you look at it, there are several types of invoices. Some require immediate payment and some do not, but all call for careful attention. Here are some basic types of invoices you may find yourself receiving:
- A proposal invoice. This gives you a suggestion of how much a project or product will end up costing you in the end.
- An interim invoice. These are often sent during long projects as a reminder of current charges.
- A recurring invoice. These are often used for regular or repeat customers.
- A past due invoice. This is what the name implies, though there can also be additional charges that have accrued as a consequence of not paying on time.
- A final invoice. This is sent at the end of a project, perhaps after a proposal invoice and however many interim invoices.
Your invoice management system should have a way to categorize these separately from one another. While reading, you will have noticed some require immediate payment and some do not. The invoices you receive should at least be categorized by this metric.
There are several ways to organize these. You could have a file for each type of invoice and subdivisions within your separate projects, though it may be easier to file by project and keep invoices in the order you received them with those requiring immediate payment flagged and taken care of in a timely manner.
It’s also helpful to keep the proposal invoice handy as you receive interim and final invoices so that you can track how closely the actual costs reflect those predicted and agreed upon, so you can ask questions and raise issues when appropriate.
If you operate with paper, make a dedicated basket, folder, or file with the separate categories clearly marked. Although, even the most organized paper systems may begin to feel cluttered.
We recommend using an electronic filing system. You can scan and upload hard copy documents when you receive them and easily move the electronic files into a place like Google docs, a free system that multiple employees can access when given permission electronically.
When you make a table on Google docs, it’s automatically uploaded to Google Drive, so you don’t need to worry about your office computer crashing and losing all your electronic files (or a flood, fire, or other loss taking out your paper system).
Issue 3: A Lackluster (or Missing) Ledger System
According to a scholar at the University of Montana, “The general ledger system is the heart of an accounting system.” As “… the record of the balance of each of the accounts within a business,” it’s integral to day-to-day function as well as being fundamental when it comes to tax season. Keep revenues, expenses, and all other financial information organized within your ledger.
It’s also a good idea to have this ledger online, for the aforementioned reasons.
Issue 4: No Appointed Time or Person
To stay on top of your invoices, you should appoint a person to be responsible for them. If you don’t have one person solely dedicated to this, as many companies do not, make sure it’s clear to whoever is responsible and when they should be working on the documents.
Schedule specific days where bill-paying and invoice-organizing are taken care of. Stick closely to the schedule. If the duties are pushed off once, who knows how many more times it may happen and what sort of deadlines you may miss in the meantime. The appointed person should also keep a record of the status of the bills received and paid.
Issue 5: You’re Still Writing Checks
It’s 2022. Let’s face it: the days of check-writing are behind us. Even if you’ve upgraded from hand-written to print, the evolution of payment is not over for you. The first reason: checks are expensive. It costs on average about three times as much to pay via check as it does to pay via ACH. ACH is also safer and faster.
Checks are vulnerable to fraud in a way that ACH payments are not. Also, the turnaround time of up to five business days slows down business in a fast-paced world. If you are still using checks, this is your sign to switch to a safer, faster, and more cost-effective option.
A great way to handle payments is through BirchStreet Pay, a tool available from BirchStreet. BirchStreet Pay helps you switch your payments from checks to virtual cards. Not only do you save money by ditching the cost associated with checks, but you can earn cashback with BirchStreet Pay’s rewards.
This tool is easy to set up and easy to use – the simple interface allows you to make payments with the press of a button. It also has high-level security features and excellent, easy-to-access, customer service. Let the days of the check die.
Issue 6: You’re Receiving Invoices By Post
Simply avoid invoices received by post whenever possible. Receiving invoices by email not only saves you time sorting through physical mail and scanning documents into your electronic system but saves paper and office storage space, too.
Just request that whomever you’re doing business with sends their invoices via email. It isn’t a hard sell as this saves resources on both ends of the transaction.
Issue 7: You’re Not Taking Advantage of OCR Technology
While we’re on a modernizing streak, let’s talk about optical character recognition (OCR) software. This software recognizes text characters within a digital document.
This way information from an invoice can be automatically entered into an accounting system, removing the need for someone to spend time doing the same thing manually. This saves an average of about five minutes per invoice, and that can add up to an entire day’s worth of hours, depending on how many invoices your company typically processes.
In a busy and recovering world, certain things can’t afford to fall between the cracks. Invoice management is one of them. To keep your business thriving, make sure that you’re addressing the common issues within invoice management.
- Organize, organize, organize.
- Designate, set aside time, and implement software.
When you’re proactively looking out for your company, it will be better set up to take care of you.