What is e-invoicing?
Let’s start by defining e-invoicing. What does e-invoicing mean?
E-invoicing is the transmission of a structured data file, rather than an unstructured file.
e-invoicing is more than just a digitized invoice. Sending a PDF by email is NOT e-invoicing.
This structured data file (typically in a .xml format) is transmitted directly from the supplier’s system to the buyer’s system.
During this transmission the data is never touched by a human, never printed, and never converted into an unstructured file.
e-invoicing is used to automate the invoicing process. To automate invoice processing, buying organizations ask their suppliers to send their invoices through their e-invoicing channels.
The data could be transported through
a) a closed, point-to-point channel (EDI) which connects the supplier directly to the buyer
b) an open e-invoicing network that connects many suppliers to many buyers, or
c) a supplier portal.
Historically, EDI was quite expensive to set up as essentially a portal between buyers and suppliers. It has become cheaper and easier to do in recent years, however it is still mainly done amongst top, strategic suppliers, or in certain industries. EDI a point-to- point (closed) connection, and a link can’t be repurposed for a second or third buyer requesting an EDI link.
Another way of getting invoices into your system digitally is through scanning, OCR or ICR. Scanning is a lot more sophisticated than it used to be, more easily reading emailed PDF invoices, and learning on the job rather than relying on templates.
EDI, e-invoicing and ICR all have a part to play in any AP automation strategy, as do Pards, ERS and supplier portals. However, understanding each tool’s limitations, benefits, role and contribution is key. And realizing that e-invoicing should sit, more often than not, at the core of a strategy is fundamental to the further maturing of your P2P process.
Who are the key providers of e-invoicing?
For guidance on choosing and EDI provider we recommend analyzing providers who specialize in your industry. There are reviews of EDI providers on G2
A non-exhaustive list of e-invoicing networks include
E-invoicing is essential technology to stop large enterprises processing large amounts of paper. It also helps improve the efficiently and effectiveness of the invoice processing and can help you build better analytics in finance.
What is the business case for e-invoicing?
Here are just 7 elements that should be considered part of your business case for e-invoicing.
Transactional cost savings. Implementing e-invoicing means you’ll move from a mainly paper process to an electronic process. This not only speeds up the process, it saves money in ways you may not have initially consider. Here is an illustration of how much can be saved though e-invoicing, breaking down the savings that can be achieved through receiving, entering codification, validating and matching, dispute management, paper and cash management and archiving.
Improving efficiency, reducing cycle times. When receiving invoices electronically, you can process them in hours or days, compared to weeks on paper.
Improving scalability. To handle an extra 100,000 paper invoices, you need to hire more AP staff. To do so electronically requires no additional headcount.
Visibility of more real-time data. As data enters your system electronically, it opens the door for better analytics and insight for your finance team.
Giving suppliers visibility of their invoice process so they don’t call your AP team
This is a huge benefit that e-invoicing networks provide. Calls from suppliers into your AP’s team about routine invoice queries can take an enormous amount of time and energy, as well as being a pain for your suppliers.
Having the option to negotiate early payment discounts or dynamic discounting
Being able to capitalize on early payment discounts can have a real impact on your company’s bottom line. We see top performers in early payment discounting capture about $1m per billion of spend. However early payment discounting at any kind of scale becomes much easier with electronic invoicing. Having the invoices in your system instantly, and the ability to pay within the correct time frame and communicate with the supplier is crucial to capture these savings.
Ensuring VAT compliance. Established e-invoicing networks have compliance frameworks globally and can help you deal with the complexities of international tax legislation, you save time, effort, and cost by offering a legally compliant archive for storage of all invoices.
How do you select a provider?
All providers have different strengths and will come from different backgrounds (some will be stronger in procurement, others in payables. Some have great track records with early payment discounts, others pride themselves on high levels of supplier adoption. They all have different strengths and weaknesses. Here are some questions to ask yourself as you are choosing.
1. What are your goals? Whether your aim is to: improve the process, reduce the paper, or explore discounting opportunities, etc., it is useful to set out clear objectives from the get-go. These objectives will help you define the project’s scope, and determine the level of investment required.
2. Are you handling invoices from multiple overseas jurisdictions? Ensuring your e-invoicing provider of choice complies with VAT regulations and rules in each jurisdiction you have in scope is key.
3. What systems do you need the solution to integrate with? Most e-invoicing solutions today are SaaS based. Work with IT early to make sure integration between your future e-invoicing tool and your incumbent ERP and technology enabling tools is clean. IT will want to look into security, access rights, and whether configuration is required.
4. What support do you need? Who will on-board all of your in-scope suppliers? Do you have the resource internally, and if so, do you have the skills? Onboarding skills and processes are very nuanced. Find out how much of the onboarding process can be owned by your e-invoicing provider.
5. Do you want to offer your suppliers different ways to send invoices? For some suppliers e-invoicing can be impractical. You might want to entertain other options, like supplier portals, p-cards, or continuing to accept paper and converting this to data via an OCR process. It’s important to understand your current supplier landscape and how the solutions you are examining cater for varying levels of supplier capabilities.
6. Which additional finance services might complement the process? Look beyond the immediate goals of the project and consider how add-ons might drive organizational objectives. Solutions like dynamic discounting, for instance, can improve your business case by a number of multiples.
How can we ensure e-invoicing is a success?
E-invoicing for large enterprises requires an investment in the technology, effort cleaning up data to ensure implementation is successful and communication campaigns to ensure your team and your suppliers follow the correct processes and procedures.
How will e-invoicing make their work simpler and more satisfying, and allow them to focus on more value-adding activities? Here are 4 ways to emphasise these benefits and secure sponsorship for your e-invoicing initiative.
Give your e-invoicing project a name. Try for something short/quirky/memorable. For example, global pharmaceutical Novartis called its e-invoicing programme eLink. It's snappy and it implies a central benefit of e-invoicing: that it links parties and creates a connected network. Avoid long, dry names that fail to excite.
Build the value. Know who your different stakeholder groups are and then tweak your broader messaging accordingly. Each stakeholder needs to hear a slightly different version of your pitch based on what they care about and how e-invoicing will change their working lives.
Outline the measurable benefits of your e-invoicing project. Sometimes people might not understand how their actions impact downstream activities and the cost of these actions. Ensuring everyone understands the process end-to- end will not only help drive compliance, but makes it clear where in the process an e-invoicing solution is going to fix the problems most relevant to them. Provide specific details on what the potential benefits are and exactly how they will be achieved through your particular e-invoicing project. Measure your current invoicing KPIs and compare how they will be affected by e-invoicing.
Link the aims of the e-invoicing project into the wider business objectives. If these objectives are not aligned, you will be swimming against the tide. Your e-invoicing project should be helping to achieve the company’s broader targets, such as cost reduction and continuous improvement.
Outline how it will affect or involve other departments within the organization. E-invoicing can significantly strengthen procurement’s supplier relationships, for example. Also consider the level of involvement you will need from departments - will IT be able to support the implementation of the new software, for example? Strengthen your argument with voices from IT, procurement, and other functions that will be affected.
Engage early with your suppliers, buyers, IT, and procurement department. Anyone who has direct contact with suppliers should be able to reinforce the fact that e-invoicing is coming. All your key stakeholders should be well-versed in the benefits of enrolling in e-invoicing.
Secure strong internal project management, ensuring people understand the drivers and goals of your e-invoicing project. You’ll want Strong top-down management support
Bring in suppliers to discuss the business case and understand the risks. The utility shared their business case with e-invoicing providers to make them prove they could deliver value and reduce risks.
Tailor your supplier communications. Communication methods could include webinars, supplier relationship meetings, phone calls, letters and emails. You might opt to sit down face to face with your top 5 suppliers, explaining that e-invoicing is coming, while mapping the process and its benefits.
Motivate your AP team. They had a team who were process-focused, cared about development plans, drove compliance, understood the process and made it work.
Quality master data. Good quality data can make or break your project. Master data should not be overlooked, and if you are implementing a tool with poor quality data in place, you might not see your return on investment in the desired timescale.
Read more: 10 Ways to increase e-invoicing adoption
What are some e-invoicing KPIs?
Here are 5 KPIs to check your e-invoicing project is on track post-deployment.
Number of invoices processed per FTE. Once you’ve implemented e-invoicing, you should expect to see this number increase as system usage increases. If it doesn’t, you know there is an issue with either staff training or the system itself.
Number of invoice exceptions. If you have successfully communicated with your supply base and prepared them for your e-invoicing initiative, the number of exception invoices should slowly decrease with those suppliers who have on-boarded onto the system. If this doesn’t happen, then extra training might be necessary.
Process compliance. If this metric is low then it is likely that your shared services staff find the new e-invoicing system difficult to use. In this case, hold refresher sessions to recap training they received before go-live. Send out the message that non-compliance will not be tolerated, while ensuring that your staff feel they can be open about specific issues they have with the system.
Percentage of invoices paid every 10 and 30 days. By increasing your organization’s automation levels, your invoices should be processed and ready for payment quicker. If this metric doesn’t increase, identify the problem by analysing the e-invoicing system for potential issues, and speaking with staff who approve the invoices after they’ve been processed.
Contract compliance. If the number of e-invoicing contracts with preferred suppliers is not as high as you’d like it to be, then this could due to a) an issue with supplier on-boarding, and/or b) procurement requiring further training on why some suppliers are preferred (for instance, they already use the same or similar e-invoicing technology).
Should you mandate e-invoicing?
The company has not mandated that its suppliers transition to e-invoicing as it depends heavily on their goods and services, however, the project team has set itself a stretching target of 75% conversion by the end of this year. Roland accepts that this will be a challenge but also knows they have the right elements in place:
To maximize ROI on your e-invoicing investment, ideally you want as many suppliers as possible onboarding to your e-invoicing platform and sending invoices electronically. However, as we’ve seen over the years, there are a number of factors that will influence the success of your e-invoicing onboarding rates. A crucial consideration is whether or not to mandate e-invoicing and how you communicate your policy to your suppliers.
What are the risks of having a mandatory e-invoicing message?
Some organizations may feel they have no choice but to mandate e-invoicing if they want to make progress on their e-invoicing project and see ROI as quickly as possible. But could this put the business relationship with your suppliers in jeopardy?
It will be more difficult to mandate e-invoicing for suppliers with a more powerful bargaining position, unless they can see the benefits for their business. So before you send your messages think about how you can tailor communications to emphasize the benefits of e-invoicing particular to their business. For instance, if you’re dealing with a major supermarket, you might want to emphasize that e-invoicing means faster processing of invoices, meaning stock can be on shelves quicker and ready to be sold sooner.
Considering benefits beyond cost savings are still a key factor in e-invoicing negotiations with your suppliers, especially given the large financial investment they may have to make to implement the necessary technology.
What is the cost of not having a mandatory message?
Some organizations vary their e-invoicing policies depending on the supplier. For suppliers without the technological or economic resources to immediately onboard to an e-invoicing platform, some organizations might offer the option to send invoices via non-electronic formats. But at the very least you want to encourage e-invoicing as the preferred method, again emphasizing how it will be beneficial to their particular operations. Failure to encourage e-invoicing with your suppliers could slow down ROI on the investment and make processes less efficient and effective.
Which suppliers can you afford to have a mandatory message with?
Following the 20/80 rule (i.e. where 20% of your suppliers provide 80% of your invoices), there are some categories of spend where it just makes more sense to use e-invoicing.
By strategically segmenting your supplier base and rolling out your mandated approach in stages, you can slice up a large obstacle into bitesize chunks. Using this approach, it’s possible to roll out e-invoicing within a relatively short space of time, setting realistic deadlines by dealing with issues specific to the type of supplier in each segment.
Your high-volume suppliers will be the most obvious category of suppliers to first approach with an e-invoicing project, as the business case for them will level out any financial investment they have to make in implementation. The more they are reliant on your company for business, the less likely they will want to risk this.
Why do e-invoicing projects fail?
1. Supplier network fees
If your preferred e-invoicing provider charges fees, this will typically come in the form of one of the following (or a combination):
• A fixed-price membership subscription
• A cost per transaction
• A fee based on the percentage of the value of the invoice.
Fees notwithstanding, the key to on-boarding is to show the supplier how they will benefit from these services. Emphasize their ROI, outlining how e-invoicing can offer them faster payments, guaranteed delivery of an invoice, and a reduction in Days Sales Outstanding (DSO).
Ask your chosen provider to demonstrate a) the specific benefits their services offer suppliers, and b) how they can help with onboarding – providers regularly deal with resistant suppliers and should be knowledgeable on how to onboard them.
For more strategic suppliers that you must onboard to secure the volume, you might want to give them influence in choosing a network if you work with two providers (increasingly the case). This could make for happier suppliers.
Not all providers charge suppliers, so weigh up the impact of this on your e-invoicing process.
2. Difficult adoption and usability
Suppliers resistant to “complicated” new systems and processes need be shown the usability of your chosen e-invoicing solution.
Providers are aware of these concerns, and, increasingly, they focus development and marketing on the “intuitiveness” of their solution. Some providers even offer suppliers the chance to customize interfaces to suit their needs.
For the less technology-savvy among us, many providers include training resources within the tool, like clearly marked help prompts on entry fields, and self-service support. Likewise, providers’ websites are equipped with handy, go-to training resources, such as FAQs, educational infographics, and demonstration-videos. Larger providers might also offer 24/7 helpline services.
Your provider might go even further – you should feel free to ask them what training they offer, what case-studies and testimonials illustrate the user-friendliness of their e-invoicing solution, and if they can physically demonstrate usability to your chosen supplier.
3. Suppliers simply can’t or won’t adopt
Some suppliers just aren’t going to onboard. This might be out of sheer resistance to new technology and to change, or simply that their size or systems make e-invoicing impractical to their business, or their future relationship with the buying customer is uncertain.
Until e-invoicing becomes the industry norm, there are short-term alternatives that will at least move these suppliers towards digitalization. Emailed, scanned and faxed invoices can all be converted into a standardized electronic data file using a front-end data capture tool. Here are some options:
1. OCR data capture: In-house scanners – These convert the scanned image into a digitalized invoice, which can be routed directly to an online mailbox for data capture. The data file is then cross-referenced with the original invoice to check for capture quality.
2. OCR data capture: Mailroom services – This is where you outsource the receipt of paper invoices to a processing center where invoices are opened and scanned and data-captured, and the data and invoice are linked with the organization’s ERP and workflow.
3. OCR data capture: Email extraction – PDF attachments are routed to online mailboxes where data is extracted from the PDF and converted into a data file.
4. Online Portals – A supplier (typically low volume) keys in their invoice online and submits it to the customer.
Read more: e-invoicing 10 Mistakes to Avoid
Watch more. Webinar about e-invoicing
E-invoicing case studies
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