E-Invoicing: Where Now and What Next?
Electronic, or paperless invoicing, is a rapidly evolving technology that is in various stages of adoption around the world. Denmark decreed in 2005 that all government suppliers must submit invoices electronically and Finland issued the same ultimatum in 2009 (a move that has so far saved them €3.2billion). Alongside the Nordics, Latin America’s Brazil, Chile and Mexico are also ahead of the curve. In the US, e-billing has been gaining traction since the 1990s, although until recently this has been mainly focussed on the B2C market. Countries like China and Russia are still at the earlier end of the cycle.
In Europe the progress of cross-border e-invoicing, which is also known as EIPP (Electronic Invoice Presentment & Payments), has been fraught with a host of regulatory challenges like paperless archiving restrictions, different VAT and other taxation regimes and the legalities of electronic signatures. There have also been numerous technology hurdles in developing the straight-through automation from presentment to delivery, payment, clearing and settlement. In fact, only something like two per cent of invoice traffic is cross-border; the majority is domestic. But that said, the long-term possibilities of cross-border e-invoicing may have a huge impact on the financial supply chain, particularly for multinationals. To achieve this, a standard platform is necessary which involves standardised data formats, messaging protocols and network platforms, all of which are still in development. The good news is that many governments are now realising the massive savings and efficiencies that e-invoicing can deliver and are beginning to demand their suppliers submit invoices in an electronic format only.
What is an e-invoice?
So, what actually is an electronic invoice? At its most basic, this is any bill or statement that can be transported and viewed on a computer or online. PDFs are the simplest form of e-invoice and are attractive because they are simple to create and easy to email or post online, which makes them a popular option with SMEs for B2C and B2G applications. The drawback is that PDFs are static documents. Data from a PDF cannot be extracted, transformed or streamed into accounting, ERP, inventory, data analytics, marketing or other enterprise systems, and so are not suitable for real-time accounting or the automated financial supply chain. For large corporate B2B environments, XML is the industry standard format for building e-invoices based on dynamic, or structured data that can be integrated into a wide range of supply chain and payment/clearing systems.
Comparing the costs
According to the 2013 ‘E-Invoicing/E-Billing’ White Paper produced by Billentis, a Swiss-based e-invoicing solution and service provider, manual invoices cost somewhere between €20 to €50 apiece to process if one factors in all the print, paper and postage costs, along with Accounts Receivable (AR) and Accounts Payable (AP) overheads including generating invoices, issuing payment reminders and payment reconciliation. With an e-invoice, on the other hand, it can cost as little as €1 to generate and deliver a document, and depending on the ERP (Enterprise Resource Planning) and/or AP/AR systems in use, the entire present-to-pay cycle can be handled automatically which dramatically reduces staff time. Billentis reports that overall, invoicing costs Europe (including the UK) something in the region of €250 billion a year. It points out that Germany alone could save €54 billion by adopting e-invoicing.
But e-invoicing isn’t just about automating EP/ER and the financial supply chain. One of the main jobs of the CFO or corporate treasury is to manage cash flow so that at any given time the optimum amount of working capital can be deployed to new projects. With hundreds of invoices (or hundreds of thousands in the case of very large organisations) in various stages of the payment cycle, this represents millions of pounds of frozen cash. One way to monetise invoices instantly is to sell on the debt on to a third party: treasury gets upfront cash while the buyer gets a discount on the value of the invoice portfolio which represents their profit margin. Traditionally a complex and labour-intensive activity, electronic invoicing makes managing these invoice portfolios a far more straightforward process.
Automating the presentment-to-pay cycle
Utilities, telecommunications, credit card issuers and other high-volume suppliers operating within the B2C market recognise the potential of e-billing not just to speed cashflow and reduce processing costs, but even more importantly to be seen to offer services that increase customer convenience. The case for B2B is equally compelling since it promises potentially even more far-reaching benefits such as automated accounting – a facilitation that is not just limited to the invoice issuer, but provides efficiencies across the entire buyer/suppler chain. In the case of a multinational with hundreds or even thousands of trading partners, this can add up to exponentially large savings. Even the banks benefit since, because their corporate customers represent both buyers and sellers, they are in a perfect position to intermediate the financial supply chain.
The many faces of the e-invoicing provider
Some organisations – typically large, high-volume billers – choose to build their own EIPP platform. In-house development can, however, be a complex and costly process, particularly if there is a disparate collection of standalone legacy billing, printing and accounting systems already in place that need to be integrated into the new platform. Building a modern, enterprise EIPP/EBPP system typically calls for a professional level of integration, document design, data transformation, networking and other skills. This makes e-invoicing an application with huge potential for outsourcers, the range and variety of which is legion.
Today’s e-invoicing service providers have begun life from a variety of different places. Some as traditional print shops or document management bureaux and others as credit collection services, EDI clearing centres and even postal service, like Deutsche Post and Canada Post, which looked at their future and saw the potential of electronic document delivery. Then there are the EIPP software and service providers, such as Ariba and ebpSource, and consultancies like Logica/CGI which offers e-invoicing system integration expertise. There are global e-invoicing networks like OB10 and on the payment side there are specialist solution providers like Fundtech and payment clearing houses like Voca which part owns e-bill consolidator, OneVu.
Finding the sweet spot
For many outsourcers the sweet spot is to be one of the large, purpose-built e-invoice providers who host the EIPP systems for high volume B2C and B2B organisations. According to Billentis there are over 550 of these network operators in Europe, 90 of which have global coverage. Some e-invoicing providers operate as a white labelled service, generating and hosting invoices at the back end, which are then accessed from the biller’s website. Then there are the bill consolidators or aggregators who bring together a collection of bills, invoices and statements from different issuers (utilities, credit cards, insurance companies, car leases, etc.), which can be viewed and paid from a single centralised site, rather than payers having to log into each issuer’s portal separately. Banks are also making inroads into this area. Because they already have B2C and B2B payers as customers, by offering their own consolidation service as part of the e-banking portfolio, can view, query and pay many of their bills/invoices from their own trusted bank website. That said, in Europe the lion’s share of e-invoicing growth to date is among non-bank service providers.
E-invoicing and trade finance
Where banks do have the edge is as intermediaries in the trade finance chain – a role much facilitated by the advent of e-invoicing. Indeed, in some regions like South and East Asia electronic trade finance is one of the most important e-invoice applications. Because of their broad network of interbank relationships banks are uniquely positioned to handle the end-to-end financial transaction cycle. Here’s how it works: a supplier sends to their bank an e-invoice and transaction data concerning goods to be shipped and paid for upon delivery according to specified terms. The bank then generates a letter of credit/financing proposal and sends it with the e-invoice to the buyer’s bank, and any number of other correspondent banks in various countries depending on the number and location of other players in the trade finance chain.
For financial institutions faced with low interest rates and revenue challenges, e-invoicing is empowering a new range of high-value services. However, because for many banks this are not their core competency, they are more than not likely to turn to dedicated EIPP outsourcers to white label these services – which is another potential market for the EIPP service provider.
Servicing the supply chain
In an ideal world the way to seamless, straight-through automation is universal interoperability. If all issuers and payers are using the same service provider, then it is a reasonably straightforward bilateral arrangement. However, in the case of large organisations with a complex web of commercial partners, this is unlikely. Complexities increase as additional trade partners and their e-invoice service providers (each with their own proprietary platform) come on board. If we then add the payment providers into the chain, the complexity extends even further. On top of all this, many service providers – particularly the large ones – are understandably reluctant to switch to a standardised platform for fear of losing the exclusive relationship they enjoy with their customers.
Another complication is that the majority of suppliers in the chain are likely to be SMEs, most of whom are not outsourcing their e-invoicing and who are using a disparate range of AP/AR systems from manual bookkeeping to Excel spread sheets and PDFs. There is little incentive for big providers to service these smaller, low-volume players, just as it is hard to make a business case for most SMEs to use these high-cost EIPP specialists. Banks can fill this gap as they already have low-cost e-banking platforms in place. Alternatively, e-invoicing bureaux that focus specifically on SMEs are now on the rise.
The future for EIPP
Whatever the remaining technology and legislation challenges, at whatever stage various regions are in the adoption cycle, and however many pros and cons there are in the business case of implementing or outsourcing e-invoicing, one thing has become increasingly clear to both the global corporate community and governments over the last decade: EIPP/EBPP is one of the most important strategies going forward for improving productivity and preserving the environment, given the billions of tons of paper invoices generated globally each year. Perhaps everyone needs to do what the Danish government is already doing: simply refuse to accept paper invoices.
This article originally appeared in Outsource magazine Issue #33 Autumn 2013.
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