Money that you can see


Money that you can see

Universal fact: Always happy to receive money

In the list of messages that could make your day, a sweet message from a beloved would probably top the list. An equal contender for the top slot could be a message intimating you that money has just been credited into your bank account. Be it your salary or receipt of pending payment for the goods and services delivered, an ecstatic feeling runs down your spine when cash flows in. Chances are, you also get a little depressed when cash flows out. Then again what’s the point of earning money, if you don’t get to spend it? There has to be a balance between cash inflow and outflow

What happens when there is no money?

Let me share my personal experience when I used to manage a chain of fitness centers. I used to face a lot of cash flow issues, mostly because of late payments. Clients used to come up with various excuses, It could be as simple as, “I forgot to bring my  wallet, will pay in a week’s time”. I used to accept these reasons as long there was enough cash for running the business. But it was a nightmare when there wasn’t not enough working capital to run the business. We had to boost the cash flow by calling up those clients who failed to pay their balance and in some cases we even had to change the sales strategies, like reduced pricing for sustaining the business.

This may be an example of what happens at a micro level but the same scenario exists and haunts the SMEs and Corporations at a macro level. Indeed, the SMEs in UK are facing the biggest problems related to cash flows. Delayed payments have worsened the already tormented SMEs in the country. Every year, hundreds of European businesses have downed their shutters due to bad debt.

Can there be a guarantee of payments?

When businesses succumb to cash flow problems it does not affect a single entity alone. In fact, it affects the entire economy. To counter this problem banks are forced to come up with innovative solutions and governments with various regulations, to bring about some order into the chaos.

There are no global regulations which impact receivables management but there are country-wide regulations which ensure that the supplier gets his payment on time. These regulations monitor timeliness, contract payment terms, charges for late payment, repayment agreements etc.

For instance, in the European Union, directive 2011/7/EU helps the SMEs to better manage the cash flows. It was passed after large companies delayed payments to SMEs beyond a reasonable time. The directive states that the authorities have to pay for the goods and services that they procure within 30 days or, in very exceptional circumstances, within 60 days. Sellers are automatically entitled to claim interest for late payment and are also able to obtain a minimum fixed amount of €40 as a compensation for recovery costs. They can claim compensation for all remaining reasonable recovery costs

If you are trading in the cash bearing countries like U.S., the Treasury Directive: 16-14 delegates to the Commissioner of the Bureau of the Fiscal Service, certain debt collection authorities under the Debt Collection Improvement Act of 1996 (DCIA) and other receivables management authorities. The directive states that, invoices have to be mailed within 5 business days after the goods have been shipped or released or the service has been rendered. The payment due date has to be not more than 30 days from the date of invoicing. In some cases, if the value of goods or services cannot be specified accurately, a bill equal to 75% of the estimated value of goods/services is applicable.

Making payments electronic and transparent

The above mentioned directives are primarily to protect the suppliers since they are the ones who bear the brunt of late payments.  But now, the regulators have gone a step beyond, effectively introducing a revolution by making countries adopt e-Invoicing.

E-invoice: The Game Changer

The World Payment Report states, that many countries have adopted or are adopting e-Invoicing. In 2013, the U.S treasury department mandated all its commercial vendors to submit their invoices using the internet payment platform (IPP)..

In the EU, an Invoicing Directive adopted in July 2010 was applied in Member States from January 1, 2013. The Directive aims to harmonize invoicing rules, allowing tax authorities to accept electronic invoices as if they were paper. In June 2013, after intensive stakeholder consultations, the EC proposed a directive on electronic invoicing in public procurement to accelerate the roll out and usage of e- invoicing platforms, based on common standards across EU.

Money that you can see

Banks all around the world are bringing in innovative methods to process invoices, the latest one being e-invoices. E-invoices have the same cutting edge that e-mails had over traditional mail – speed. When invoices are passed electronically, it brings a significant reduction in   Daily Sales Outstanding which in other words means more working capital and happier suppliers. What once took about a month’s time of processing will now be possible in 4-5 days. You can envision the huge opportunity that banks can capitalize on by offering e-invoicing solutions to its customers. World trade is forecast to grow by 73% in the next 15 years. In other words, your revenue opportunities by offering trade services can multiply three fold in the years to come.

So stay assured that regulations in the world of receivables will bring your money to a place where you can see it and be happy.

Date Modified: 

Monday, September 1, 2014
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