In addition to removing manual activities and cost savings this will deliver, E-invoicing also enables greater control and visibility within the finance function and increases the ability for the buyer to pay on time and take advantage of supplier discounts.
For an organisation to realise those benefits, it is clear they must convert suppliers from paper to electronic. E-invoicing has been around in various guises for over 40 years, yet there is still confusion and misunderstanding about the different types of e-invoicing.
A traditional paper-based purchase invoice process consists of several manual activities: the supplier raises the invoice in their finance application; they print it out, place it into an envelope and send it on its way in the mail. Their customer receives the mail, opens and sorts the items and enters the invoice details into their accounting system.
The manual activities don’t always stop there, as the invoice is often photocopied or scanned, with the copy invoice sent round the organisation for approval for payment. It often takes days, or even weeks, from invoice generation, through to it being approved and ready for payment, and is a manually intensive process prone to errors and delays.
Let’s look at the automation options available and why some approaches are having more success than others at on-boarding suppliers.
XML or EDI invoicing: the traditional e-invoicing approach was for a supplier to send XML or EDI files. Conceptually it is simple: the billing system of the supplier sends (often via a service provider) an XML or EDI invoice document to the finance application of their buyer. But for suppliers it is less simple. In the majority of cases, the supplier needs to change their billing application and infrastructure in order to send XML or EDI documents. If the supplier is sending 1,000 invoices a year to the buyer, they may be able to justify the effort and cost to do this (assuming they also have the skills available that is). But if they are only sending 100 invoices a year, it is far less likely they will be willing to make the changes to support this method of invoicing. As a result, on-boarding rates remain low and paper invoicing remains.
Invoice Portals: portals were supposed to remove the barriers to e-invoicing which exist with XML and EDI. And they do, but only for a minority of suppliers. The problem for all except the very smallest, micro business, is that to use an invoice portal creates duplication and operational inefficiencies. If an organisation already raises their invoice in an accounting application, why would they want to do it all over again in a 3rd party portal? Duplicate time, duplicate effort and duplicate cost. They also add risk that the invoice details recorded in the supplier’s finance application are different to that in the portal. So, portals may help the very smallest of suppliers who don’t use an accounting package, but for everyone else it makes no business sense. As a result, on-boarding rates remain low and paper invoicing remains.
Pay to send an invoice: not a type of e-invoicing per se, but this is a commercial model many service providers adopt when offering the invoice submission options above and which can have a serious impact on on-boarding rates. Many suppliers balk at the idea of paying for the privilege of sending in their invoice (and I must say I am with them on that!).
PDF e-invoicing: it is common knowledge (backed up by reports from the likes of Accounts Receivable Network) that PDF invoicing is the second most popular way to invoice after paper. It simply requires the supplier to create their invoice as normal within their own accounting package and send as a PDF file via email instead of printing and sending as a paper document via snail mail. Almost every billing application can generate an invoice as a PDF, what many people aren’t aware of is that when a PDF is generated by a billing application, in almost every instance it will be a text PDF with all the invoice data items embedded in the document and visible to the right technology. This type of e-invoicing is accessible to all, large and small companies alike. Suppliers are not required to change their processes, or incur any technology or infrastructure changes or costs, nor to pay to send their invoices. As a result onboarding rates are extremely high.
For an e-invoicing solution to be a success in your business it needs to achieve high supplier adoption rates, and to do this it needs to be simple to use and non-disruptive to your suppliers: Don’t ask suppliers to change their applications or infrastructure to send XML or EDI. Don’t ask suppliers to raise their invoice in their own accounting package and then do it again in a 3rd party portal. And don’t charge them!
By adopting these principles, you can pretty much guarantee high supplier adoption rates in your e-invoicing programme.