Invoicing Inefficiencies Drive up Costs, Missed Opportunities to Offset Inflation

As companies struggle with inflation across the board, it’s important for them to offset some of that pricing pinch and drive some deflation by removing inefficiencies from their processes. One way to do that is by updating their invoice management practices by adding automation, transparency and data analytics that help companies negotiate better terms with their suppliers.

Varun Tejpal, co-founder and CEO of FourQ, shared with PYMNTS some of the areas in which multinationals are tackling the problem.

Adding Transparency to Complex Deals

One problem, said Tejpal, comes from procurement in the cases where there are large, complex deals. For example, there might be cell phone bills that the accounting team has to allocate, with 10 bills going to human resources and 22 bills going to sales. When the accounting team does this manually, without the right level of transparency, they often have to deal with someone from HR, for example, saying they have only nine cell phones, not 10.

A multinational company can remove that inefficiency with an invoice management system that covers both intercompany and global vendor invoice management.

“By marrying those two, you’re showing the end-to-end,” Tejpal said. “The invoice comes in, and right down to the end, you can invoice it to any part of the world, and you have an allocation engine that gives you 100% transparency and makes sure you’re in compliance with the different tax rules in 100-plus countries.”

Comparing Invoices to Contracts

A similar situation comes up in companies that outsource functions like finance and back-office activity. When the company to which they’ve outsourced these functions sends an invoice, someone has to manually check the number of people and the amount of work for which they’re being billed.
This, too, can be improved with an automated system.

“It has the contract already loaded up, it compares the incoming invoice on a line-by-line basis with what’s in the contract, and then it tells the company that’s receiving the bill that it’s okay to process it,” Tejpal explained.

Another inefficiency comes from large and increasingly complex invoices. The invoices are large because sourcing and procurement teams are trying to get a cost advantage by consolidating vendors. For example, rather than buying laptops from two companies, they’ll buy them from one provider. In addition to being large, the invoices are complex because a multinational company might then have those products shipped to different countries, each of which has its own rules about taxes and compliance.

“Companies have to manage that complexity, and they have been doing it very manually,” Tejpal said. An automated system will resolve that.

Consolidating Multiple Invoices

Another common problem for companies is having multiple invoices come from a single vendor. Often, the invoices are the same each time, and the company’s accounting team has to waste time checking each one separately.

This situation can be improved with a system that allows mass approval of the invoices and groups them together as a single transaction. “That makes it easier not just in terms of the manual work of approving them, but also from a payments point of view, because you’re not paying them at different times, you’re paying them in a collective way,” Tejpal said.

Inefficiencies like these can strain the relationships between companies and their vendors. For example, slow payments can affect the vendor’s cash flow, so they may add extra margin to future purchases, anticipating that the customer’s next payment will be slow, too.

Improving Vendor Relationships

“It’s a lose-lose proposition, and that’s been impacting relationships,” Tejpal said. “We want to come back and say, ‘you negotiate a deal between the supplier and the buyer on good faith, and then you basically make sure that from then on, it’s not a pain for the supplier to get paid on time. And on the flip side, you’re not getting charged late fees or paying more than what you negotiated.’”

On the other side of that coin, vendors can fall short of their contractual obligations. For example, a vendor that provides cloud service or tech support may be required to have only a certain amount of downtime or to resolve the issue in a specified amount of time. Companies can resolve this by using a system to monitor vendor performance. That might mean a system can automatically compare a consumption database to the requirements specified in the contract every time an invoice comes in.

“If it fails any of them, it sends the invoice back to the vendor, saying, ‘look, you failed here, you didn’t have the uptime for more than 95%, so you need to give a credit in the invoice and then send it back,’” Tejpal said.

Improvements like these, large and small, can add up. With enough change in the right direction, companies can improve their relationships with vendors, reduce costs and mitigate some of the ill effects of inflation.