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The Top 4 Challenges and Solutions for Contractor Invoicing

The Top 4 Challenges and Solutions for Contractor Invoicing

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.


While it’s reasonable to anticipate occasional corrections and modifications in invoices, this challenge is especially amplified for asset-intensive companies that may see an increase of credit/debit requests steadily pile up over time if they aren’t careful to mitigate this challenge at its source: manual entry points. This potential uptick in corrections not only strains resources who spend an increasing amount of time issuing credits/debits, but also disrupts the efficiency and accuracy of the entire invoicing system. What may be a minor issue for non-asset-intensive companies in processing occasional invoice corrections can quickly become a choke-point for asset-intensive companies managing a large volume of corrections.  


The leading practices to mitigate human errors include:


  1. Minimizing manual interventions through comprehensive automation.

    While humans are a necessary part of the end-to-end engagement and management processes for contractors, there is something to be said about the benefits of digitizing these processes. Utilizing a contractor management software can automate and remove several process points in which humans might have involvement, from time and expense tracking to the creation and submission of the invoice.

  2. Leveraging algorithmic indicators.

    Having a solution in place that can give warning indicators when something doesn’t look right on a timesheet, service sheet, expense sheet, or invoice is a great way to reduce the volume of corrections before they make it to the payment process and require a formal credit/debit. Leading Contractor Management Solutions offer the capability to catch errors before they become a bigger problem later in the process.


By implementing such measures, asset-intensive companies can streamline their operations, reduce error rates, and enhance the overall invoicing experience for all stakeholders involved.


Challenge #2: Bloated processes & a lack of visibility = potential for delayed invoice processing


Is this scenario a familiar one to your company? Each week tasks assigned to your employees are encountering delays in completion. When you do some digging you find that the delays are being caused by your workers handling emails and calls from contractors wondering where their invoices are at in the process of being paid.


Your employees want to keep the relationships with their contractors in a good state, so they set aside their assigned tasks to chase down the invoice details amongst approvers in varying departments. They then take more time to follow back up with the contractors, who then continue to reach out with more invoice processing questions, creating a deepening cycle of invoice chasing. Next thing you know, your employees are devoting large chunks of time to chasing invoice questions for contractors that are craving visibility and payment for their hard work.


When vendors are unable to track the status and details of their invoices easily, especially if they are new to working with a company, they often resort to contacting their initial contacts for assistance. More often than not, this leads to the above scenario taking place, even if this is not the responsibility of the initial contacts to handle.


This particular challenge can lead to further time drains as the contractor contacts set aside their normal responsibilities to chase down payment answers. This cycle of inefficiency not only burdens employees with constant inquiries but also hampers their ability to focus on processing new contractors, managing work, and processing new invoices promptly.


The root cause of this problem often lies in the lack of transparency within contractor processes, extending beyond the point of invoice submission. For instance, difficulties in calculating hours, deliverable status, and time exceptions, which all happen way before an invoice is even created and can take place for a number of reasons, can kick off the contractor calling with questions and starting the cycle of delays. A lack of cohesive visibility at any point in the process can exacerbate this particular challenge for asset-intensive companies.


A viable solution to address these challenges is digitalization, which provides crucial visibility to contractors at each point of the management of invoicing processes. By adopting a digital solution that provides real-time visibility into the components that contribute to the invoice and the subsequent invoicing statuses, companies can significantly reduce the time drains caused by constant inquiries. Digitalization also can improve contractor relationships as the tension around wanting to know where payment is at is significantly reduced.


This real-time transparency empowers vendors to track their invoices independently, alleviating the need for frequent follow-ups and enabling employees to focus their efforts on efficiently processing incoming invoices.


Challenge #3: Delays in the invoicing process = potential delay in payments to vendors


Delays in the contractor invoicing process can have a direct and significant impact on payment timelines. When contractor invoices encounter delays in submission, processing, or approval, it sets off a chain reaction that reverberates through the payment workflow.


Firstly, delays in invoice submission prolong the time it takes for invoices to reach the accounts payable department, where they undergo initial review and processing. These delays typically sit on the contractor side, but can be mitigated with the right tools in place to help ensure timely submissions. This delay alone can add considerable time to the payment cycle.


Secondly, if there are errors or discrepancies in the invoices, such as missing information or incorrect billing details, it further stalls the payment process as these issues need to be rectified through communication between the contractor and the invoicing department.


Thirdly, if the invoicing process involves multiple approval layers or complex workflows, each step adds more time before the invoice is finally approved for payment. Cumulatively, these delays in the contractor invoicing process directly translate into delays in payment, impacting cash flow for both the contractor and the company.


Similar to what is mentioned with the previous two challenges, the way to mitigate delays and ensure timely payments in the invoicing process can be addressed through the following:


  1. Streamlining the invoicing process:
    Take a look at how your invoice creation, submission, and payment processes are functioning today. Do you have several layers of review and approval across varying departments? Are there manual entry points that can be supported through digitalization?

  2. Improving communication and visibility:
    Set up proactive and meaningful notification messages for contractors to be aware if there will be a delay in processing invoices or payments

  3. Prevent errors through software support:
    Set up submission processes that have redundant checks and boundaries built into your contractor management process. Doing this will catch errors early and mitigate them before they have a chance to fully enter the invoicing and payment processes.

Challenge #4: Maintaining proper cashflow to pay invoices

But what happens if the challenge is with managing cashflow? Maintaining proper cash flow to pay invoices is paramount for asset-intensive companies, where substantial investments in physical assets like machinery, equipment, and infrastructure are commonplace. These companies often face the challenge of balancing ongoing operational expenses, maintenance costs, and capital expenditures while ensuring timely payment of invoices from vendors and contractors.

Proper cash flow management involves a strategic approach to revenue generation, expense control, and capital allocation. By optimizing asset utilization and lifecycle management, companies can minimize unexpected downtime and repair costs, thus preserving cash reserves for invoice payments. In order to achieve this, asset-intensive companies require strong reporting and visibility from their contractor management solutions.


Additionally, proactive accounts payable and receivable management, including negotiating favorable payment terms and maintaining strong relationships with suppliers, contribute to a steady cash flow. While contractors love to have short-cycle payment terms, it isn’t doing your company or the contractors any favors if the cashflow cannot actually support net 15 or 30 terms. Consistently late payments will do more damage to a relationship then setting realistic payment terms in line with actual cashflow. Finally, implementing robust financial forecasting, budgeting, and monitoring processes enables asset-intensive companies to anticipate cash needs accurately and allocate resources efficiently, ensuring they have the liquidity to meet their invoicing obligations on time.


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!


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