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This blog is part of my series on streamlining finance processes. I previously wrote about the procure-to-pay process (see link), specifically the supplier invoicing component, how it consumes a great deal of the accounting staff’s time and what companies can do about it. On the other side of the cash conversion cycle, the order-to-cash process, namely its more accounting ̶ focused component customer billing, is equally fraught with paper-based processes, time-consuming information checking and manual re-keying of data. However, the accounts receivable cycle is arguably more critical because of its impact on days sales outstanding (DSO), cash flow and liquidity. The reason is one of control. In the AP cycle, we have more control in that we can always delay vendor payments to stretch our cash. But since one company’s payable is another’s receivable, if a customer were to do that to us, we could experience a cash crunch.

So how do we streamline invoice creation to ensure that customers pay in a timely manner and enable a healthy cash flow? The obvious tactic is the early payment discount. If standard payment terms are net 30 (i.e. payment is due 30 days after the invoice date) we can offer customers discounts for paying early. Typical early payment discounts run 2% if the customer pays the invoice within 10 days.

Incentives are great and can go a long way to reducing DSO and accelerating cash collection. However payment delays can often result from other problems such as hard to find invoice numbers, incorrect line items or sending the invoice to the wrong person. Invoice disputes, according to some studies, can tie up as much as 25% of a company’s accounts receivable.  Frequently, disputes result from something as simple as line items on the invoice that are unclear or not recognized by the customer. In either case, it requires the accounting and purchasing staff to investigate the item in question by either matching it to their purchase orders or speaking directly with the person who received the product or service to make sure the item is valid and OK to pay.  A simple line item dispute like this can hold up an entire invoice for days. Another cause of payment delays is invoices that are sent to the wrong person or address. Often, this happens when sales force automation and order management applications don’t share data with the accounting or billing system. Lost invoices are particularly problematic because the issuing company typically doesn’t detect the problem until the receivable trips an aging threshold or goes into collections.

Fortunately, there are steps companies can take to ensure invoices are completely accurate and issued in a timely manner. Many of these steps are manual, such as working with customers who have online billing websites. Though keying invoice data into the site may add to the workload, most of sites are front-ends to their accounting or supplier invoice systems and this ensures the invoice is both received properly and the data is entered into the customer’s accounting system.

The most effective way to speed up customer invoice processing and reducing errors is though an integrated software system that combines sales order entry, shipping notification, journal entry and invoice creation within a single, workflow-enabled application. This is preferable to developing custom integrations between stand alone accounting and customer relationship management systems because integrations are costly to develop and maintain. Conversely, an integrated system ensures several things. First, the sales people who interact with your customers are usually the first to know about changes in the customer’s accounts payable process and organization and they should be tasked with keeping the account and “bill to” information up to date. Systems that have automated workflows notify the shipping staff when a sales order is entered and in turn, notifies the accounting staff when the order ships. System notifications tell the accounting staff to create a journal entry and issue an invoice. In addition, the information contained in the sales order is used to populate the invoice. Line items, monetary amounts and “bill to” information as well as references to customer’s purchase order ensures that  the invoice is accurate and spares the customer’s AP staff from having to perform more than cursory validation. Moreover, enabling the shipping notice trigger the customer invoicing process allows companies to issue invoices early which helps cut even more time off the payment cycle. These are examples of how an integrated order-to-cash process can save your accounting staff time, send invoices out quickly and with fewer errors and help speed up incoming payments to ensure you have strong cash flow and low DSO. In the next blog, I will discuss how the order-to-cash process works in SAP Business ByDesign along with a link to a short demo so you can see it in action.

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    1. Former Member Post author
      Thank you for the message Michelle. Yes, EDI or other electronic standards are very effective mechanisms for transmitting invoices. Like the invoicing portal, the messages can be formatted to upload the invoice direcly to the customer’s acccounting system or work through the portal itself to do the same.

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