Harnessing technology to support faster payment

This from Paul Haddlesey…

It is often said that the construction industry has failed to achieve the efficiencies and cost savings that are now the norm in other industries. Sadly, there is still much truth in this statement in relation to various aspects of construction – not least procurement and remuneration.

Yet e-Invoicing technologies have the potential to address many of these issues if they are adopted through the supply chain – as discussed in more detail below.

There has certainly been considerable debate, as far back as Sir Michael Latham’s ‘Constructing the Team’ report in 1994 and Sir John Egan’s ‘Constructing Excellence’ report in 1998.

All these years later there are still serious issues around payment, as evidenced by this recent article in Construction News. The article notes that the Cabinet Office plans to exclude suppliers with poor payment track records from winning major government contracts. Cynics may observe this isn’t the first time a government has announced such sentiments but, with the demise of Carillion, the pressure on our industry to get its act together is considerably greater.

The key issue in this respect is slow payment of sub-contractors, something that many companies struggle with on a daily basis – some of them losing that struggle.

There are essentially two main reasons for such slow payments. The most notorious is the wilful withholding of payments by main contractors to ease their own cash flow and maintain high reserves. Technology can do little to change such a mindset.

Far more common, one likes to think, is the sheer number of documents that need to be exchanged, validated and managed in a typical construction project. This takes considerable resources when done manually and is a slow and expensive process for those companies that haven’t found more efficient ways to manage their transactions.

If this process is slow at the top end of the supply chain, then it has a cumulative effect as the payments make their way down the line. For example, North Midland Chief Executive John Homer has recently highlighted the impact of slow payments on how quickly his company can pay its suppliers.

Letting technology take the strain

As noted earlier, many of the delays in payments arise from the manual processing of transaction documents such as requisitions, purchase orders and invoices, and this is exacerbated when errors occur that necessitate further investigation.

Exchanging documents with supply chain partners can also be time-consuming. Most companies may have abandoned ‘snail mail’ in favour of email, but there is still considerable input required by members of staff. The only real time-saving is that emails are delivered faster than by post.

The obvious alternative is e-Invoicing, where trading documents are sent and received electronically, with automated validation of documents in the majority of cases. Not only does this require considerably less time than manual methods, it reduces the risk of errors and frees up staff for more added-value tasks – such as dealing with the few documents rejected by the automated validation process.

This also has the benefit of freeing staff from tedious tasks to more interesting and rewarding activities, which has an impact on staff turnover.

Beyond increased speed of processing, the digitisation of the whole process improves visibility of transaction data, with advanced searches making it easier to find individual documents and resolve issues. From a management point of view, this improved visibility also supports better management of cash flow.

All of which feeds into a more efficient transaction process which, in turn, underpins faster payments, improves the company’s reputation and will ensure the company is considered for projects where payment track record is taken into account.

The right choices

In choosing an e-Invoicing solution, there are a number of important criteria to apply. It must be easy to deploy within your own company and work alongside your own back office systems. To that end, selecting a solution provider that will work with you to tailor the system accordingly is essential.

Just as important is the ease of onboarding for suppliers. The ideal situation is to have 100% of suppliers onboarded, as this will deliver maximum benefits. An e-Invoicing partner that makes it easy for suppliers to get involved, and already has many of your suppliers using its platform, helps to ease the whole implementation and ensure a fast return on investment.

More information is available about e-Invoicing in general and Causeway’s Tradex platform in particular, on the Causeway e-Invoicing page.


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