Soaring costs, tight margins: How to safeguard your war chest in an economic downturn

Written by Ralph Dangelmaier, Global CEO of BlueSnap

Many small-to-medium-sized businesses (SMEs) fail when the financial headwinds get choppy – because having money set aside for a rainy day is a luxury for most. To stay afloat, businesses often have to take the difficult decision to restructure and lay off critical members of their staff including those in the finance department. While this can help to cut costs in the short term, losing these finance employees has a major impact – particularly when it comes to collecting payments and invoices.

This only serves to compound the problem for businesses, as they’re less able to recoup the costs they’re owed. And in a cost-of-living crisis, maintaining a positive cash flow is key to survival. In efforts to cope with the intense pressure of the increasing costs of natural materials, and other assets, businesses are settling their invoices late to stretch their finances. Three-in-five SMEs are waiting on money that’s tied up in overdue invoices – a scenario which can be crippling for these companies. Having fewer hands on deck begs the question – who will chase these businesses for their overdue payments?

But it’s in times like these that innovation is born and companies look for uncovered efficiency. Enter automation. Developments in this field mean businesses can harness the powers of efficient, easy-to-use software to streamline the entire quote-to-cash process, ensuring they get paid faster. The most crucial part of the invoicing and billing process is a predictive procedure that requires time. By automating this, SMEs can invest these saved hours into value-added tasks that can help them remain competitive in challenging times.

Clunky billing processes hamper business survival

 With the cost-of-living crisis pushing many businesses to a breaking point, cost-cutting measures are now impairing their ability to get paid on time – damaging cash flow forecasting and weakening their market position.

 The logistics and manufacturing industries have been hit particularly hard, as disrupted supply chains – which are causing the price of raw materials to soar – have led to significantly reduced margins. To balance their books, many manufacturers have had to increase the costs of their contracts. While this has covered their outgoings in principle, manufacturers are now suffering the consequences of late payments, with their customers in turn paying later to stretch their own finances.

Overdue invoices result in less capital being injected into a business on time, pinching balance sheets and shifting their focus to survival – to the detriment of their market share. Rather than going toe-to-toe with competitors, businesses must grapple with their own overheads in order to avoid bankruptcy.

With this shift in priorities comes more difficult decisions, such as laying off existing employees. This has far-reaching implications for those in charge of finances as it typically takes 11-15 people to complete a single invoice. When it takes up to 11 hours to manage a single invoice, the implications of a reduced staff become concerning.

A manual and out-of-date billing process then can impair a company’s ability to survive, let alone thrive. In the midst of these adverse market conditions, many will be focused on coping with external pressures – invoicing procedures that rely on staff to chase customers for late payments only add to the sinking feeling for firms in the current economy.

Inefficient billing processes are slow, costly and damage relationships
Many businesses’ invoicing processes are antiquated, with paper cheques still being sent by hand. This is not only inefficient but also costly in an era of increased financial awareness. A single invoice can cost a business up to £15 on average. This may appear to be a small sum for a company with millions of pounds in revenue. However, when you consider the number of invoices sent to generate that large sum of revenue, the magnitude of that cost becomes clear.

Time can also be lost due to the arduous nature of chasing late payments, which is amplified by the reduced number of hands on deck. For the remaining employees, whose morale has already been impacted by layoffs, their skills are much better utilised in dealing with new customers or other value-added work. Chasing late payments is not an efficient use of their time, so their work becomes less profitable.

Late payments have a long-term impact on businesses’ ability to accurately forecast cash flow and plan budgets. This means that any associated partners and suppliers may suffer a knock-on effect in which they are also paid late – a lose-lose situation.

Automating to weather the storm

In a challenging market, invoice and billing automation – the process by which manual processes such as producing, sending, and uploading invoices are handled by software – increases a company’s commercial imperative. Businesses can use new technology to automate the entire billing process, ensuring they get paid what they’re owed, when they’re owed to help them weather the storm.

With nearly nine out of ten businesses with an automated invoice and billing process getting paid within agreed-upon payment terms or faster, the pressure to manage strained balance sheets lessens. Businesses that automate their invoicing can reduce financial losses from laborious processing and better manage their cash flow.

Aside from the financial benefit, finance teams’ spirits are lifted. Employee productivity and morale improve when they are relieved of manual, time-consuming tasks. This has a positive impact on customer satisfaction too, as finance teams are better able to interact with clients on a personal level and build stronger relationships.

Despite the many efforts taken to cope with the cost-of-living crisis, businesses need to ensure their ability to collect late payments doesn’t slip. Now more than ever, it’s crucial that businesses look to technology for quick and cost-effective solutions. Payment technology exists for that very purpose and with the right partner, businesses can jump from teetering balance sheets to positive cash flows to help them safeguard their war chest during a time of rising costs.