When we talk about a paradigm shift in the history of indirect tax administration, e-invoicing in manufacturing under India’s GST mandate stands out.
This positive operational revamp had significant adaption challenges in 2020 when mandatory e-invoicing came. It surely will not be easy even now with the upcoming government mandate where e-invoicing for businesses with a turnover of 5 crores and above is compulsory. This is the same for manufacturing businesses.
For a manufacturing company, challenges occur with the e-invoice adaption under GST apparatus, maneuvering invoices, as well as the GST management process, and tackling any bottlenecks that arise along the way.
Let us dive deep into the manufacturing industry’s main challenges with the traditional invoicing process and how incorporating the e-invoicing mandate can help eradicate these challenges.
Primary Challenges in Manufacturing Industry Not Using E-invoicing Under GST
1. Inefficient Approval Workflows
In many manufacturing units, invoice approval workflows seem often fragmented and need clear guidelines. This results in delays, confusion, and bottlenecks, impacting the timely processing of invoices. The massive lack of a centralized and automated invoice approval system creates inefficiencies.
By establishing predefined approval workflows, manufacturers can ensure invoices under GST gets routed to the appropriate individuals for review and approval, reducing manual intervention and accelerating the invoice processing cycle.
What Stats Say – A manufacturing unit comprising of 2-100 employees encounters delays in invoice payments of at least 18%, while 61% of overdue payments are due to incorrect invoices.
2. The Ripple Effect of Irregularity in Invoicing Process Takes a Toll on Supply and Production
Invoice process irregularities have far-reaching consequences that disrupt supplies and production within manufacturing units. While encountering irregularities, such as errors, delays, or inaccuracies, the entire supply chain faces disbalance; suppliers experience delayed payments or disputes, leading to strained relationships, faulty product quality, and potential disruptions in the timely delivery of raw materials or components.
Moreover, irregularities in invoice processing create financial uncertainties, hindering the ability to forecast and allocate resources effectively.
What Stats Say – Only 5% of accounts payable teams have a fully automated process for handling invoices and payments.
3. Invites Unnecessary Penalties and Dues
A prominent effect of a de-centralized invoicing process is the creation of delinquent payments, which results in unwanted penalties and fines. This includes numerous factors like accurate tax calculations based on correct PO amounts, payment cycles, accepted payment methods, rates, quality standards, quantities, compliance with local tax calculations, and maintaining proper documentation for audit purposes.
These gaps in the e-invoice system adversely affect the cash flow and boil down to hampering the manufacturing process.
4. Abrades Goodwill and Brand Credibility
A streamlined supply chain of hundreds of suppliers is crucial for a manufacturing unit. The supply chain takes its toll when any delays and hiccups are faced in the invoicing process, either from the payer or payee side.
This culminates into shoddy or run-down payment terms or lower supply, service, and quality standards. The production line also gets undermined and causes a loss of brand credibility and ownership in general.
What Stats Say – A shocking 86% of SMEs (Small and Medium Enterprises) still use manual data entry as the core part of their invoicing process, while a staggering 46% still rely on paper invoice receipts.
Another shocking statistic reveals that 11% of customers never receive their invoices, resulting in a heavy dent in the brand credibility of manufacturing companies.
5. Erroneous Data Entry Due to Multiple Data Points
The complexities of entering incorrect data will occur for a manufacturing company with hundreds and thousands of invoices yearly. The primary reason for this error is the practice of manual and traditional invoicing methods that require checks by at least 3-4 departments.
This germinates miscommunication, spending lengthy hours on invoicing and invoice-approval delays affecting the productions, payments, and deliveries.
For a small manufacturing business to bring about a notable change in its workflow, GST e-invoice software can be transformative. It automates your day-to-day invoicing process, takes minimal time, and is entirely error-proof.
What Stats Say – The biggest challenge in the manufacturing industry is the slow process of final invoice TAT. It is all because of wrong data entries that require various approval checkpoints.
47% of invoices are delayed with a TAT of at least 1 week.
6. Staggering Cost of Manual Invoice Process
If the statistics are true, the cost of a manual or paper invoicing system in a manufacturing company processing 20,000 or fewer invoices totals an astonishing $15.97 per invoice. No sought-after organization should be indulging in such a heavy cost-prone ecosystem. Significantly when, an automated e-invoice system can help reduce these costs by an average of at least 60%.
A technologically advanced compliance GST e-invoice software like GSTrobo allows you to generate an e-invoice under GST. You can also send it to the vendors and other parties with an advanced dashboard, saving you redundant costs.
What Stats Say – 42% of SMEs send out invoice receipts by email.
7. Creates Information Silos
There are multiple vendors and other departments involved in a manufacturing company that interchanges information of payment cycles daily. An unorganized invoicing process leads to erroneous information from one department to another. A gap occurs while making important business decisions like budgeting, inventory, and supply chain planning.
When a centralized e-invoicing process is in place, everyone can view correct details from an automated dashboard to improve efficiency.
What Stats Say – Account receivable professionals spend at least 6-7 hours per week on invoicing. 25% of account payables teams are giving 6-10 hours per week to respond to payment requests.
Conclusion
To nullify the legacy system issue for your manufacturing unit, you must use a digitized and data-driven invoice management system like GSTrobo®. It helps you embrace an agile and accelerated process, systemize raw material flow, do superior cost analysis across the payables value chain, and address fewer vendor claims.
It is time to make the big switch and incorporate the advanced benefits of e-invoicing software in your manufacturing company. This helps you achieve your business goals faster and make your workflow process more transparent and easier to adapt.
