Freelancers, SMEs, large companies... It doesn't matter what size your organization is, what sector you work in, or your turnover. From the day you started your business, there is surely one concern that has been with you every day: paying suppliers. This is a constant concern for any company and, if not managed properly, can become a real headache. How can you deal with it? Let's try to identify some key points.
What are supplier payments?
The process by which we pay an amount of money equivalent to the value of a product or service that a natural or legal person has provided us with. That could be the definition of payment to suppliers. However, the concept encompasses much more: which platforms or channels are currently being used and how to get the most out of them, deadlines to be taken into account, current legislation, etc.
How to improve the supplier invoicing process
Every company or self-employed person needs suppliers. Without going any further, an Internet connection is nothing more than a payment to a supplier that we all have to make. Basic, yes, but the best example of how every company has to deal with this process. Obviously, paying suppliers becomes more complicated if your company is very large or if there are many external agents involved in your production and, consequently, in your financial controls. How can you make this process more efficient? By seeking to optimize resources and time with these three keys:
- Use services and applications from companies specializing in electronic invoicing to suppliers such as easyap simplifies the process.
- The automation of steps in supplier payments through computer programs standardizes this process so that it can be replicated in future administrations.
- Using these services reduces the manual tasks involved in supplier invoicing, saving man-hours and personnel.
In this regard, although the human factor can be an added bonus, how you manage it will be important when implementing an efficient supplier invoice process. Manual tasks are slower, so automating them will speed everything up. However, it is not enough to simply purchase and implement an optimal ERP or CRM system. You will have to adapt it to your company and business characteristics or complement it with solutions that reduce manual work. That way, you can exploit the three advantages we have just listed to pay your suppliers in the most optimized way.
What are the most common supplier invoice processes?
For larger companies or those with high billing volumes, managing payments to suppliers can be a real headache. These processes require many hours and resources. That is why they will always be more agile and convenient if we automate them. The arrival of companies, systems, and applications that offer electronic invoicing services has greatly helped in this regard, with significant savings in time and, in the long run, money.
However, most ERPs and accounting systems do not significantly reduce the workload of posting an invoice. There are many remaining manual tasks that, if not eliminated, limit productivity. On average, an accountant posts 10,000 invoices per year. Automating the following tasks will revolutionize the process.
- Data entry: manually entering invoice information takes up 35% of the total time spent on accounting. Processes such as OCR and/or electronic invoicing will be of great help.
- Electronic approval, to reduce the time spent and allow for the process to be relocated and eliminate the need for physical documentation.
- Incident resolution, procedural and geared towards each participant collaborating in their areas of expertise.
- Online supplier information: using a supplier portal improves relationships with suppliers and reduces the workload involved in requests for information and payments.
Ultimately, how you process supplier invoices will depend on your individual circumstances and what works best for you. However, the higher your turnover and the greater the number of suppliers you work with, the more beneficial it will be to use a workflow automated invoice will become a basic requirement. Payment terms are also an important point that we will discuss below.
Payment terms to external companies
Balancing the books is vital for any business. This is where good invoicing comes in, with the costs incurred by the companies we are owed money by playing a key role. Money and time are resources that we need to make the most of. That is why it is essential to to optimize the payment schedule for suppliers , taking into account both deadlines and average payment periods.
Therefore, we recommend that you plan your purchases and payments in detail, as this will give you greater control over your financial health. Along these lines, it is advisable to agree in advance on the payment dates for suppliers, which will allow you to automate payments and make your billing process much more convenient.
What is the Average Payment Period?
And when it comes to good planning and reaching favorable payment agreements with suppliers, a key concept is the Average Payment Period (APP). This is an indicator that will give us an idea of the image we project as a creditor when it comes to paying outstanding invoices. The formula for calculating the average payment period to suppliers is:
PMP = (Average purchases payable / Total purchases) x 365
The result we obtain will be the average number of days it takes us to process payments to suppliers. This will tell us how we finance our purchases, which is very useful both for us in terms of presenting a financially sound image to external companies and for securing good commercial agreements.
Legal issues in supplier payments
On the other hand, regulation has been constantly adapting and developing. Currently, there is not only a single law on payments to suppliers, but the invoicing of commercial transactions between companies falls within a very broad legal framework. This includes official and general standards such as the following:
- Any commercial transaction must be recorded on an invoice or similar payment document, whether it is an electronic or conventional invoice.
- Suppliers are required to provide the customer with the invoice within a maximum period of 30 days, counting from the date on which the product or service was provided.
- No agreement may set deadlines longer than 60 calendar days for payment of the invoice.
- If there are trial periods for the products or services established in the contract, the customer must approve or reject them within 30 days. In turn, the date for payment to the supplier after the trial will also be 30 calendar days once the order has been approved.
As we mentioned in one of the points, agreements can be extended by mutual agreement, provided that they do not exceed 60 days. However, everything is explained in more detail in the various laws governing invoicing between companies.
However, we must separate the payment term to suppliers from the invoicing process. The payment term must be adapted to the needs of the business and not be conditioned by a deficient and slow invoicing process. "An invoicing process that takes just a few hours allows for visibility and cash flow forecasting for months."
Given the complexity of the legal world and, for many, the management of billing processes, what could be better than letting yourself be guided? That's why, in conclusion, we advise you to use the services of a good electronic billing system such as the one we offer at easyap. It can be your best accounting tool, offering convenience, simplicity, agility... and, above all, saving you a lot of headaches with your electronic invoicing.
