The Costly Pitfalls of Inefficient Invoicing Processes  

One of the things every business owner knows is that little things make the difference and that when you get the small things right, it often leads to positive and impactful outcomes. One of those things that many freight brokers and third-party logistics providers (3PLs) struggle with is their invoicing processes. While it might seem like a minor detail, inefficient invoicing can have a significant impact on the bottom line and be the difference between growing your business and staying flat.  

In this article, I will outline four ways that inefficient invoicing processes can cost your company money.  

Late Payment Penalties and Fees 

One of the most immediate consequences of inefficient invoicing is the increased likelihood of late payments from clients. This delay in receiving payments can lead to costly penalties and fees.  

An estimated $3Trillion is held up each year in outstanding accounts receivables (AR) and an SMB has on average 24 percent of their accounts receivable held up in AR. This is not only a major disruption to any business, but these outstanding payments will most assuredly incur late payment penalties and fees.  

By optimizing and automating the invoicing process, organizations can reduce the time it takes for invoices to reach clients and ensure payments are received promptly, avoiding unnecessary costs and improving cash flow. In fact, customers have reported seeing their cash conversion cycle reduced by over 50 percent.  

Administrative Overhead 

Inefficient invoicing processes can also result in higher administrative overhead costs. The response to managing invoicing of many 3PLs and freight brokers is often to hire more people. While assigning many resources may be helpful, it is costly.  

Additionally, when invoices are not streamlined and automated, the finance team spends more time manually processing and chasing payments. By automating the invoicing process organizations can see up to a 31% increase in the speed of invoicing. Embracing automation technology and investing in an efficient invoicing platform will significantly reduce administrative expenses, allowing personnel to focus on more strategic tasks that will help grow your business.  

Increased Days Sales Outstanding  

Days Sales Outstanding (DSO) is a critical metric that measures the average number of days it takes to collect payments after a sale has been made. Inefficient invoicing processes can extend the DSO, which has a negative impact on cash flow and liquidity.  

There is a clear difference between organizations with a low DSO versus those that do not. Those that continually improve their DSO via technology are in a better cash position and can use this to continually optimize their business, minimize the risk of bad debts, and continually improve financial performance. 

Continual Errors  

Research varies significantly when it comes to the percentage of freight invoices that contain errors. Some research states at least 83 percent of invoices have errors and others state the percentage is closer to 25 percent. Regardless of the exact percentage, a lack of a defined process for freight invoicing will only lead to continual errors. 

These errors in turn lead to poor carrier satisfaction, loss of revenue, and an increase in the cash conversion cycle, all of which will have a negative impact on the business.  

By having an automated process, organizations will see a significant impact similar to Evans Transportation which saw their cash-conversion cycle reduced by more than 50% and invoice errors reduced to almost zero percent. This process, combined with AI-powered automation has led to a 10x increase in profitability in just two years.  

It is evident that inefficient invoicing processes can be costly for freight brokers and 3PLs and limit their ability to grow. Organizations that invest in the right technology and automate this process will see business growth and financial health as an outcome and outperform their competitors in the short and long term.