Member Article

Moving away from paper based invoicing

The construction industry has finally realised that the day of the paper invoice is over and e-invoicing is here to stay.

If anyone in construction doubted that electronic invoicing is here to stay, they should have changed their outdated mindset when the 2015 financial year began.

The London Stock Exchange’s official news service announced that a leading house building and construction group has chosen Tungsten Corporation to provide an electronic invoice and purchase order system.

The company wasn’t even identified, but the value of the contract was so significant that its provider had to issue a formal statement.

The overwhelming logic of getting rid of paper appeals not just to blue-chips, but right down the scale to SMEs and their supply chains.

In an industry long noted for both its volatility and its tight margins, anything which increases visibility of a company’s cash-flow, and drives efficiencies into its business model, really should be welcomed by management teams.

E-INVOICES GUARANTEE CLARITY ON YOUR CASH-FLOW

Over-trading is an ever-present danger in construction when business begins to pick up. As Peter Vinden, a Fellow of the Chartered Institute of Building, admits: “The temptation to take on seemingly profitable work is hard to resist.”

He analyses the issue in detail, stressing the critical importance of understanding the cash flow and outflow on every project, as well as the cash required to fund operating overheads.

Maintaining visibility of all your cash flow is much easier of course, if you have an electronic invoice processing and payments system.

The benefits of switching from paper invoice to e-invoice are many, including the ability to process more work with fewer staff, the elimination of rogue spending, and fewer errors, which means less time wasted chasing disputed bills.

Admittedly, the ‘paperless office’ has been slow to catch on, and not just in a sector so notoriously slow to embrace change as construction.

This intriguing piece reveals that the concept was conceived in the 1960s - by IBM’s marketing agency to promote its new mainframe computers - and much more about our long-time love affair with paper.

Now though, the mood even among the sector’s most traditional players has changed dramatically. This case study reveals the major benefits that getting rid of the paper invoice had on McNicholas Construction.

COMPANIES MUST TAKE THEIR SUPPLY CHAIN WITH THEM

In the case study, McNicholas’s then Finance Director, Andrew Kerr, makes the excellent point that it is crucial for all companies migrating to electronic payment and invoices to take their suppliers with them, when their new system is rolled out.

“Within a year of the project starting, 90% of our Accounts Payable suppliers are now submitting electronic invoices” he said.

Moving from paper to electronic payment and invoice systems also greatly enhances security - a crucial current issue, given the upsurge in mandate fraud, where fake invoices are sent to a construction firm’s clients, asking them to change bank details for subsequent payments. The fast-dwindling minority who think such woes couldn’t happen to them, should learn from the latest attacks made upon main contractor Speller Metcalfe.

However, ditching the paper invoice and migrating to digital doesn’t mean firms can dilute their focus on making sure invoices are correct.

As James Tucker, of Ariba Inc, points out that digitisation alone only leads to bad invoices being delivered faster. A company’s internal processes and systems must always be monitored and fine-tuned from the ground up, rather than purely imposing top-down digital solutions.

For example,his research suggests that one-in-five construction invoices still contain overcharges or other exceptions, although e-invoicing does generate solid audit trails which make errors much easier to identify.

Put simply, there are huge benefits in adopting an electronic invoice system, but it’s still only one step in what must be a constant drive to innovate and increase efficiency.

TAKEAWAYS:

• Learn about the benefits of electronic invoices.
• Discover what efficiencies digital payments would bring.
• Find out more about the threat of mandate fraud.
• Assess whether your system monitors cash-flow accurately.

It’s time to ditch the paper invoices and go digital: Effectively manage payment delays with construction management tools. Download your eGuide today.

This was posted in Bdaily's Members' News section by Wes Simmons .