Paying on time, something that seems to get harder and harder and more and more neglected. How serious do you take paying on time? Yesterday an article was published by NOS, a Dutch news site, saying that large organizations do not pay their small business and freelance vendors on time. Which causes financial uncertainty for these smaller organizations.
Small business organizations are pleading for a 30-day payment term instead of the 60-day term which is upheld in The Netherlands. For, after years of decline, the number of days before an invoice is paid has increased. On average, it now takes 41.5 days. In 2017 it took 40.3 days.
A white paper published by SAP Ariba gives an explanation to as why companies pay invoices too late;
- Inaccurate vendor master data or system functionality leads to payment-term discrepancies between a contract, purchase order, invoice, and, ultimately, the calculation of a correct due date.
- Decentralized, manual, and paper-based invoice processing requires more time, effort, and people to move invoices through the system.
- Lack of knowledge and poor communication, incomplete internal knowledge of rules and regulations, limited external communication of invoice best practices to ensure accurate and timely payment is received, and no visibility into granular and operational metrics related to payment performance.
- Workflow automation for purchase order and invoice approvals has not been implemented.
- High rate of purchase order errors (price, quantity, and so on) causes rework during invoice processing.
- Decentralized contract management contributes to variations in the source of truth for discrepancy resolution
The numbers above show that not only companies receiving money after date are at risk, also companies paying after the due date risk losing money due to fines and penalties. SAP provides advice in their report to improve your DPO; Maintain a single instance of the supplier master centrally, manage and maintain the data proactively, and connect the supplier master to business processes, install metrics to monitor performance, identify gaps, recognize root cause, and develop corrective actions, educate all relevant internal key stakeholders about the risk, cost, and working capital impacts of late payments.
After reading the report and the article, one can only draw the conclusion that paying attention your DPO and taking action to improve it will help lower costs and improve cashflow. Two important factors for growth. We can conclude; taking your DPO serious is not a luxury but a necessity and CFOs should implement this mind set within their department as much as the rest of the company.
So, how serious do you take paying on time?