We all know that sales are critical to any business but there are times when sales reps agree to customer demands in relation to invoicing that place additional workload on accounts receivable and credit functions. But is it the sales person or customer who causes special handling overhead?
To be fair, sales is a tough job. Reps who are responsible for bringing in new accounts face a lot of rejection every day as only a small percentage of prospects targeted will actually progress to becoming customers.
Even reps managing existing accounts face challenges to maintain sales numbers and ensure that they maximise the opportunities in each account while defending against new entrants.
Therefore there is often a temptation to concede to requirements that don’t appear to cost anything, but that in reality may cause headaches for those responsible for invoicing and collecting payments.
For example, to win a big account a sales rep may agree to providing reports and analysis that are not available as standard and have to be created manually on a monthly basis using a combination of data extracts into a product like Microsoft Excel and manipulation of the data.
Big Customers Demand More
Large customers have the capacity to make demands in relation to invoicing that their suppliers are obliged to meet. Examples of this include:
- Purchase order number must be present or an invoice won’t be paid.
- Invoices must be input into online portals.
- Custom reports have to be produced, e.g. spend by cost centre or spend by product line.
- Backup documents in support of invoices are required, for example signed delivery notes.
- Invoice data has to be provided in a specific format and uploaded to a particular location.
- In many cases, these requirements mean extra workload for staff in accounts receivable or credit control.
28% of respondents have ‘special handling’ for over 20% of their invoices
In the Credit Management Benchmark, 28% of participants indicated that over 20% of their invoices require ‘special handling’. This means that for these companies, nearly 3 out of every 10 invoices go through some form of manual processing, most likely one of the tasks outlined above.
It might come as a surprise to discover that this manual effort consumes an average of 17% of credit resources.
Winning a major customers can be very positive for a supplier, but in many cases, the margins are low because of the buying power of the customer, and when factors such as the time required to meet their invoicing requirements are taken into account, margins may in fact be lower than anticipated.
Who Causes ‘Special Handling’ Overhead?
The title of this article poses the question is it sales or customers who cause ‘special handling’ overhead?
Certainly, big customers will push as much of the administration associated with their Accounts Payable function as possible onto their suppliers. This can be something as simple as requiring purchase order numbers on every invoice, but it can become far more if invoice data has to be presented in specific formats, or invoices have to be input online.
Sales have a role in trying to minimise this overhead while still trying to close the deal. I have heard complaints from credit and invoicing functions who believe that sales teams often offer custom invoicing facilities to ‘sweeten’ a deal without knowing whether or not they can be delivered. It then falls to the credit or accounts team to devise manual workarounds to deliver what a sales team has promised.
Could the cause be internal?
Certainly. There are cases where manual processes have been introduced to address shortcomings in business processes.
I remember speaking with a contract cleaning company several years ago. In their case, every single invoice was printed and reviewed. A certain percentage were then scrapped and reworked because information was incorrect.
Instead of correcting the source of the problem, the company spent days every month end, visually inspecting every invoice to try to catch errors.
Visual inspection is prone to error as I witnessed in a demonstration when I was at college. The lecturer displayed a paragraph of text on screen and asked the class (about 180 students) to count the number of times the letter ‘e’ appeared in the paragraph.
After 30 seconds the screen was turned off and the lecturer asked for a show of hands – how many thought that the letter ‘e’ occurred 9 times. A few hands went up.
More hands went up when he suggested 10 and when he said 11, the vast majority of hands went up in the class.
As he increased the number of ‘e’s up through 12, 13, 14 there were fewer and fewer hands showing.
When he suggested 15, there were sniggers all around the room and only 3 students sheepishly put up their hands.
As it turned out, the 3 were correct which came as a shock to the rest of us. You see, humans are very bad at visual inspection. The reason that most of us had failed was because our eyes jumped over short words like ‘the’ and did not count the ‘e’ in those words or only counted one ‘e’ in a word when there were two.
This only became clear to us when the lecturer showed the paragraph again with each letter ‘e’ highlighted.
The story of my lecture experience was a long-winded way of saying that processes that rely on manual effort are prone to error and that is one of the problems with ‘Special Handling’.
Is ‘Special Handling’ Becoming More of an Issue?
Fortunately for almost 50% of respondents, ‘special handling’ involves less than 5% of their invoices.
However, for nearly 40% of respondents, more than 10% of their invoices require manual intervention.
Some companies have seen the volume of ‘special handling’ double in the past 18 months while for others, the level has remained static. Presumably this is a function of customer churn, the companies where this is not an issue have a stable customer base, while the companies experiencing issues with ‘special handling’ are typically growing at a significant rate and are acquiring lots of new and larger customers.
Is this primarily an issue with larger customers?
It tends to be – small customers don’t wield the power to make demands about how they should be invoiced.
Can ‘special handling’ be automated?
In most cases it can. Take for example the issue where purchase orders have to appear on every invoice. For some industries, purchase orders can only be gathered after invoices have been issued.
Traditionally this problem has been solved by getting staff to undertake a process of repeatedly calling customers until they obtain the appropriate purchase order number.
In looking at this problem, OnePosting devised an electronic means of gathering purchase order numbers which makes a very significant difference to the effort required to gather them.
In fact, OnePosting specialises in handling the invoices that require special processing before they can be sent to customers.
Credit Management Benchmark
The Credit Management Benchmark can be used to see how your rate of ‘Special Handling’ compares to other organisations, and the impact of this in terms of resource allocation and receipts.
Why not participate in the benchmark? Simply click on the following link and complete the assessment – it only takes 15 to 20 minutes. You will then receive a comprehensive report with lots of interesting insights.
All information is strictly confidential but the report your receive is tailored to your specific business.