When it comes to contractor engagement and management, invoicing is a significant focal point for contractors and their business contacts alike.
Our conversations with numerous companies consistently reveal a common thread: invoicing stands out as a substantial source of frustration and inefficiency for both internal staff and external suppliers.
However, it's crucial to recognize that this invoicing pain often signifies deeper fractures within the broader contractor engagement and management processes. With this understanding, our aim is to delve into the top four invoicing challenges prevalent among asset-intensive companies. Moreover, we will present leading practices aimed not just at addressing these challenges superficially but at targeting the underlying causes to alleviate the persistent pain experienced across the invoicing landscape.
Challenge #1: Human error & high volume invoicing = potential process strain
Asset-intensive companies come with the guarantee that a large volume of contractor invoices will need to be handled. Managing a recurring influx of invoices inevitably leads to the need for corrections resulting in the issuance of credits or debits. Why? Because mistakes are an inherent part of any process involving humans; this undeniable truth becomes most apparent, and notably impactful, when financial transactions are involved.
With large volumes of transactions comes a large volume of adjustments and corrections – and consequently, a large volume of frustrations and delays for companies and their suppliers. For companies managing contractor invoicing manually, there is a higher risk for human error, which is perpetuated throughout the lifecycle of the invoicing process. For contractors submitting manual invoices, the probability for errors such as miscalculated values, mismatched purchase orders, missing backup information, and wrong or invalid approver routings are all higher.
Furthermore, when invoices require corrections there are several ramifications that extend well beyond just the corrected invoice. There are delays in payments to suppliers, increased administrative burden on employees processing invoices, relationship deterioration with suppliers who need their cashflow, and additional work time that adds up to a costly distraction from more critical tasks.
Solution: Automate invoicing processes
Utilising an automated invoicing system removes the friction in the invoicing process because it enforces the completion of accurate data from the start of the contractor engagement process. If contractors are inputting their time, materials, and expenses into a digital solution as they work, there are far fewer opportunities for error in the invoicing process. Additionally, using a system that is integrated with the original work order or purchase order information further reduces manual entry and the opportunities for error, as the system can auto-populate the purchase order details, scope of work details, and approved rates information.
Companies that have automated their contractor invoicing processes often find significant reduction in the volume of adjustments and corrections they need to handle, which in turn improves supplier payment timelines and strengthens contractor relationships.
Challenge #2: Cashflow implications for suppliers and companies
Manual invoicing processes can inadvertently contribute to delays in supplier payments – and consequently impact the cashflow needs of contractors. These payment delays often stem from the time required for manual review processes, approvals, and the resolution of discrepancies that may arise in the invoicing process. In industries where contractors may be smaller businesses or require consistent cashflow to manage their operations, these delays can create substantial challenges for their business operations.
From the perspective of the company engaging the contractors, delayed payments can strain supplier relationships, potentially affecting the quality of services received and the willingness of contractors to engage in future work. Additionally, managing many outstanding invoices can create administrative burdens and complications in financial planning and budgeting.
Solution: Simplify approval workflows and visibility
By utilising automated invoicing systems that include approval workflow capabilities, companies can speed up their invoicing process while maintaining important internal controls. These systems can route invoices automatically to the appropriate approvers and escalate invoices when approvals are delayed. Moreover, they can provide visibility to both the company and the contractor about where the invoice stands in the approval process, eliminating unknown delays and keeping all parties informed.
Additionally, for companies that want to implement more advanced cashflow management for their contractors, automatic or frequent payments can be set up within contractor management platforms to ensure contractors receive their payments more quickly and predictably.
Challenge #3: Matching invoices to work performed
One of the recurring challenges with contractor invoicing relates to ensuring that invoices accurately reflect the work performed. Discrepancies often arise when there is a mismatch between what was originally authorised (in the purchase order, work order, or contract), what work was actually performed, and what was invoiced by the contractor.
These mismatches can occur for several reasons: changes in scope without proper documentation, differences in understanding about the work required, time and material work that exceeds original estimates, or simple errors in recording or invoicing work performed. When these discrepancies arise, it often requires significant time and effort from both the company and the contractor to reconcile differences and agree on the appropriate amount to be paid.
Companies that manage their contractor work manually often struggle with this challenge because there is no central repository for work authorisation, progress documentation, and billing information. Consequently, when discrepancies arise, it can be time-consuming and sometimes impossible to determine what work was actually authorised and performed.
Solution: Digital work tracking and documentation
Implementing systems that track work from authorisation through completion and invoicing provides a clear audit trail for all parties involved. These systems can track the original scope of work, any approved changes, actual work performed, and ensure that invoicing aligns with documented authorisations.
Additionally, using systems that require contractor documentation throughout the work process (such as time tracking, progress photos, material receipts, etc.) further ensures that there is adequate documentation to support invoicing. When disputes arise, there is an accessible digital record that can quickly resolve discrepancies.
Furthermore, if contractor time and progress are being tracked digitally, systems can automatically generate invoices based on the tracked information, further reducing discrepancies between work performed and work invoiced.
Challenge #4: Setting and adhering to realistic payment terms
Another common challenge for companies working with contractors is setting and adhering to realistic payment terms. Companies often want to extend payment terms to improve their own cashflow, while contractors prefer shorter payment terms to support their business operations. Finding a balance that works for both parties requires careful consideration of business needs, industry standards, and the impact on supplier relationships.
Additionally, even when reasonable payment terms are agreed upon, adhering to these terms can be challenging when invoices require significant review time, corrections, or approvals. When payment terms are consistently missed, it can damage supplier relationships and potentially affect the company's reputation in the marketplace.
Solution: Transparent terms and automated enforcement
Setting clear, reasonable payment terms from the beginning and communicating these terms transparently helps set proper expectations for both the company and contractors. These terms should consider the complexity of work performed, volume of invoices typically submitted, and the approval processes required.
Using systems that can automatically track payment terms and send reminders when payments are approaching their due dates helps ensure adherence to agreed-upon terms. Additionally, implementing systems that expedite the review and approval process enables companies to meet their payment commitments more consistently.
Some companies also implement early payment discounts or other incentives to encourage efficient invoicing from contractors, while also providing an option for the company to manage their cashflow more effectively.
Conclusion
Addressing invoicing challenges requires a comprehensive understanding that invoicing problems often reflect broader issues within contractor engagement and management processes. The solutions we have outlined focus on digitalisation, automation, and improved visibility throughout the contractor lifecycle.
From human error and high-volume invoicing to proper management of cashflow and setting realistic payment terms, challenges in the invoicing process are common amongst asset-intensive companies.
Because asset-intensive companies rely on their contractors to keep business operating to a higher degree than those outside this space, it is important to mitigate the invoice challenges listed above before they have a change to take root and cause bigger delays and frustrations. After all, happy contractors and company employees produce the best work!
About NHD
For over 30 years, NHD has been providing an intelligent, all-in-one solution that bridges the gap between your company and your external workforce in the full source-to-pay cycle.
- Integrated communication processes with suppliers; from demand to payment
- Full worker profile visibility and management including certification and documentation tracking
- Quotation process supported by approved unit rate catalogues
- Effective time management with integration into gate systems
- Provides 100% contract compliance through standardized catalogues
- Dynamic auditing for process and rate compliance
- In-depth reporting and analytics for fatigue management, earned value management, contractor/site performance, and more
- Seamlessly integrates with SAP ERP/S4/Hana and more
