Trade Receivable And Why They Are No Longer Needed.
By: Team Anchor
Trade receivables are the largest form of credit in the world. Once upon a time, the only way commerce could function was if sellers had time to move inventory before being liable for the payment. For example, the village tomato stand would first have to sell its vegetables in the market in order to be able to pay the farmer that grew them.
This practice carried over into the business world of the last centuries, where invoices took time to be sent through snail mail and processed in an accounts payable process. Payers would have stacks of paper bills to go through, amounts to verify, mistakes, and double payments to check for, and only then cut a check to send back through the mail.
Where small businesses might have taken 30 days to go through an accounts payable process, mid-sized companies had more payments, so they needed up to 60 days, all the way up to 90 for enterprise and 120 for government agencies. This means businesses don’t get paid for services rendered until months later, but they’ve already had to pay their own expenses, like the utility bill.
Today, the practice of net terms is so entrenched that many larger companies won’t even do business with a service provider without being offered ‘standard’ terms. Even at the low end, service providers still tend to give a 10–14 day window as a courtesy because they know that the client needs time to pay in their accounts payable cycle.
To combat this payment delay, some service providers even offer an early payment discount. But clients are busier than ever and paying invoices is not top of mind. That’s because even with digital payments, multiple software solutions, workarounds, and tools, paying invoices is such a huge amount of effort, they need to focus and get it into their schedule.
Since most invoices are still issued manually even if they’re somehow digitized, payers have the burden of making sure the transaction is error-free, legitimate, and valid. This means verifying invoice amounts, billable hours, actual work performed, authorizations, previous payments, all trying to avoid fraud, and errors like duplicate payments. This takes a lot of people, a lot of software, and a lot of time. Service providers who extend net payment terms are essentially providing a loan, interest-free, for free, simply as the cost of doing business. Nothing has really changed in the way business has been done in centuries.
We created Anchor to eliminate this outdated cost of doing business by automating away any opportunity for errors. On Anchor, service providers get a single place to do business. Anchor makes the entire workflow sync up and run itself, from sharing the services proposal to getting the contract signed, to updating the agreement with any changes that come up, to issuing instant invoices and delivering payment with auto-reconciliation.
By doing business on Anchor, our clients are able to take away the risk of human error for their clients, making it as safe and secure to pay for services as it is for them to pay corporate expenses. Essentially, Anchor eliminates the need to process service provider invoices through the accounts payable cycle, turning these invoices into corporate expenses, just like software subscriptions or hotel charges. In this way, we take away the waiting time between the completion of the work and the receipt of payment by the service provider.
Trade receivables no longer need to exist for service providers’ invoices. It’s now completely feasible for businesses to be paid upon the completion of their services, as agreed, without a moment’s delay. The technology is now there, the security is there, and the full workflow is covered, from proposal to reconciliation, on both sides of the transaction.
By the way, if service providers choose to extend a loan to their clients, they should be paid for that privilege. Not used as a free form of credit, in a system people just blindly follow, with an unbearable cost of doing business.
Learn more about Anchor’s Autonomous Billing and Collections!