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The Evolution of B2B Electronic Invoicing
By TMCnet Special Guest
For much of the past quarter century, business-to-business electronic commerce has boiled down to three letters: EDI. Electronic Data Interchange has been the mainstay technology for organizations wanting to deal in something other than a paper invoice.
EDI has been a very effective tool for select groups of trading partners, especially those who do a significant amount of business with each other, such as in the manufacturing and retailing industries. Now, thanks to the way EDI established a baseline for the business benefits of paperless invoicing, more companies are embracing electronic invoicing in a manner that evolves beyond EDI, and at a lower cost per invoice.
It is easy to see the business case for e-invoicing, since for a typical company it can shrink the average accounts payable department cost of handling by more than 50 percent. Not only that, but it reduces invoice cycle time by nearly two-thirds, improves on-time payments by nearly 60 percent, and generally improves cash flow management.
While it is usually the “buyer” company, or the “customer”, that adopts an e-invoicing program and encourages its many suppliers to participate, there are also benefits for the suppliers.
The biggest benefit is quicker payment. Suppliers find that when their customers handle invoices electronically, the lag time between sending an invoice and getting paid is greatly reduced. This is especially true if the customer can take a discount for quick payment, since the electronic process affords better control over cash flow.
In addition, there are efficiencies gained by not having to print out and mail invoices. Electronic transfers are instantaneous, compared with mailed invoices, which may take several days to arrive. The supplier company doesn’t have to worry that an Accounts Payable clerk might make a data entry error that results in an incorrect payment. Problems with invoices can be spotted quickly, and a supplier can resubmit it easily.
Limitations of Standards-Based Approaches
To achieve these savings and benefits requires standardization, so the customer company will typically mandate a certain electronic format for its invoices, most often EDI or XML. Otherwise, they would receive invoices in a mix of formats that would require customized data conversion for each of their suppliers, which in the past has been cost prohibitive.
Unfortunately, when companies restrict the option for sending invoices to one standard, it limits the number of suppliers that can participate. If an e-invoicing initiative allows flexibility for suppliers, it increases the level of participation among trading partners.
The latest step in the evolution of e-invoicing is the emergence of third-party clearinghouses or service bureaus, which allow suppliers to submit their invoices in any electronic format, yet have the customer company receive them in the precise format that it desires. While this seems simple from both the customer and supplier company viewpoints, these third-party e-invoicing providers require sophisticated capabilities to support complex mapping of the invoice data on a “many to many” basis. These services stand apart from both the customer and the supplier companies, yet act as filters or automatic translators for submitted invoices.
Such systems eliminate the “hassle factor” for supplier companies, who do not need to make any changes in their internal systems in order to accommodate the customer’s e-invoicing preferences. The format-agnostic systems can receive data output from sophisticated ERP systems for larger companies all the way down to QuickBooks programs for small suppliers.
Improving Workflow and Visibility
When a company implements e-invoicing, it enables touch-free, straight–through processing. The invoices are fed directly into an enterprise resource planning (ERP) system, or into an automated workflow system, which determines the appropriate routing of the invoice so it can be coded and approved by the person who received the goods or services, thereby removing accounts payable staff interaction from the process.
As part of their end-to-end view of the business process, companies that implement e-invoicing want to know at any given time what liabilities are due, what invoices are in process, and where any process bottlenecks may be occurring. They can achieve improved cash management through these procedures:
- Capturing early payment discounts;
- Reducing late payment penalties, duplicates, and overpayments;
- Reducing audit recovery fees; and
- Improving payment terms.
E-invoicing also creates an electronic audit trail, which not only speeds up dispute resolution but also makes auditing much simpler and less expensive. For instance, depending on the company’s location, tracking Sarbanes-Oxley compliance or VAT accounting is also much more accurate, with data kept fully up to date.
A recent survey showed that one out of five companies with 4,000 to 8,000 employees use e-invoicing, compared with 47 percent of companies with 8,000 to 5,000 employees. Clearly, there is a tremendous opportunity for mid-size organizations to take advantage of this technology, and for global organizations to streamline their processes with further automation of this historically paper-based process.
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Thayer Stewart is Vice President of Americas Business Development and Global Marketing for OB10, the global electronic invoicing solution provider. He has 15 years of industry experience, including 12 years with American Express. The company website is www.ob10.com.
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