For most of us the past year has seen a focus on GDPR and meant that perhaps other important legislation may have been missed. One example is the Payment Practices and Performance Regulations 2017 that came into force on 6 April 2017. James Smith, UK Sales Manager, Kefron looks at what this legislation means and why businesses may be falling short.
No one can deny that late payments are a major problem in the business world with many small and medium sized enterprises (SMEs) struggling to survive when invoices are delayed or paid late. The issue was so great that Government has identified that the late payment of undisputed invoices is so significant that it warranted investigating and in turn regulating.
How big is the issue of late payments?
According to Department for Business, Energy & Industrial Strategy (BEIS), as of June 2015 over £26bn of late payments were owed to SMEs in Britain. Late payments are an enormous issue for businesses impacting on cash flow and jeopardising solvency. So, to avoid this Government introduced the Payments Practices and Performances Regulations 2017 legislation.
The regulations impose a duty on large companies and large limited liability partnerships (LLPs) to report twice yearly on their payment practices and policies in respect of payment of suppliers’ contracts. Depending on the key financial dates of large companies and LLPs, reports are due within 30 days of each six-month period. For example, for a company whose 2016/2017 financial year ended in April 2017, the first report would have been due to be published in November 2017 and the second report will be due to be published in May 2018.
Many businesses must comply with this regulation and the first way to do this is to evaluate current invoice processing systems. The assumption is often that big businesses hold back payments deliberately, however is it more the case that traditional accounts payable systems are no longer fit for purpose and are creating lags, costing money and delaying invoices being paid.
Is it time to go digital?
Whilst many areas of business have undergone digital transformation there is still some way to go within accounts payable (AP) departments. As a result of being still largely paper based AP teams face the below challenges and stumbling blocks:
The problem with paper
It almost seems hard to conceive that many AP teams still use a paper-based system to log, process and approve invoices. This approach is outdated and has multiple issues that can delay the time it takes to process an invoice. Problem areas include spending time searching for lost or misfiled invoices, printing and physically filing the invoice and then system input time.
Duplicate invoices cause AP teams a headache. When invoices aren’t processed on time, suppliers will often send the invoice again when chasing payment. This often results in the invoice being processed twice and creating additional time as it has to be investigated and the second payment has to be stopped.
A main pain point in getting invoices approved is the limited number of team members with the authority to sign them off. If only one or two senior team members are authorised to sign off invoices it can create a back log and add time to the processing. Even with some automated software systems it requires the authoriser to be at their work computer to approve.
Human error is unavoidable but also very costly to businesses. It can cause incorrect dates or amounts to be input and therefore delay the process or create even more work for busy teams.
With all the drawbacks of paper-based AP systems and the payment regulations in play, now is the ideal time to seek digital systems to negate as many of the pain points identified above.
Automated AP systems prevent the need to print and file as well as manually input the information. An automated system does this all and makes the invoices very easy to locate for busy teams and it completely eliminates duplicates as the system will automatically alert you of any you may receive, ensuring no time is wasted in processing the same invoice.
Digital solutions now mean that approvals can be completed remotely using cloud access, meaning there is no longer a delay whilst the authoriser gets to their desk. And the automated system eliminates the errors associated with the human touch.
What is clear is that the Government mean business when it comes to late payments and will crack down on those guilty of it. Perhaps there was once an excuse that invoices were delayed due to administrative processing times, but with great packages on the market that speed up the process, cut costs and reduce errors there really is no reason to hold onto the paper.