By Mike Faden
Switching to electronic invoicing can save businesses a significant amount of money: $4 to $8 per invoice, the same Fed study estimates. Furthermore, e-invoicing tends to increase adoption of other efficiency-enhancing technologies and global business services, such as global payment networks. It can thus pave the way to fully automated invoice and payment processing, known as straight-through processing.
For companies that do business with the U.S. government, e-invoicing will become mandatory during 2018, which could spur wider industry adoption of the technology.2 But companies may face challenges in moving to e-invoicing for all their business transactions, including a lack of industry standards and the need to work with multiple e-invoicing global business services.
An e-invoice is usually defined as a document in a structured electronic format that allows information to be imported into other systems and automatically processed.3 Various forms of e-invoicing exist. Companies have been exchanging invoices since the 1970s using Electronic Data Interchange (EDI), which in pre-Internet days typically involved direct connections between customers and suppliers. However, the cost of implementing EDI typically restricted its use to large companies.
Today, many companies download and pay invoices via online portals operated by third-party suppliers or larger trading partners. E-invoicing solutions may operate in several models, each of which can be on-premises or cloud-based solutions. The Fed study defines several approaches: seller direct solutions are systems used by a supplier to bill its customers; buyer direct solutions are used by a company to accept invoices from its suppliers; and e-invoicing networks are online networks that typically connect thousands of suppliers and customers. Worldwide, scores of suppliers operate e-invoicing networks as domestic or global business services; these solutions usually include some ability to exchange invoice information with business applications.
E-invoicing can provide a variety of benefits, especially when it acts as a springboard that propels broader automation of procurement, payment processes and adoption of global business services. Such benefits include reducing operating costs by eliminating paper and enabling automated invoice routing and approval, optimizing cash management by accelerating invoice processing, and minimizing the risk of payment and other data errors by eliminating re-keying. E-invoicing can improve visibility into all invoice-related documents, because the information is online and available in real time.4
E-invoicing can also be the first step toward broader automation and adoption of global business services, including the use of global payment services. This automation can culminate in straight-through processing, which involves much broader automation of the entire procurement and payment cycle and can deliver correspondingly greater benefits. A 2016 global survey by Ardent Partners found that best-in-class enterprises achieve straight-through processing for nearly 60 percent of invoices, compared with 16 percent in other organizations, and as a result are able to process invoices at 81 percent lower cost while doing so 77 percent faster. Not surprisingly, the survey found that improving the way invoices are received and processed is the top priority for more than 50 percent of participants.5
The U.S. federal government, the country’s largest single purchaser of goods and services, has mandated that all agencies use e-invoicing to bill contractors by the end of the government’s 2018 fiscal year (September 30, 2018). Billers must either employ the government’s own e-invoicing platform or another approved solution. The government already uses e-invoicing for 40 percent of the 19 million invoices it processes each year.6
The e-invoicing environment is diverse and complex, with many suppliers and a lack of generally accepted standards. This can create a number of challenges, particularly for smaller companies that lack extensive IT resources.
Companies may need to participate in several e-invoicing networks to communicate with all their customers and suppliers. This can be particularly problematic for smaller companies, for whom the shift to e-invoicing and the choice of platform or network may be dictated by their larger trading partners. Instead of improving efficiency, this can actually add to a small business’s workload and cost versus the effort required to mail paper invoices.7 Further complicating the issue, the accounts receivable and accounts payable departments within the same company may use different e-invoicing models and providers to communicate with trading partners.
No single global standard exists for an e-invoicing data format, although a variety of standards are used in different geographies, including ANSI X.12 in the U.S. and OASIS Universal Business Language (UBL) in Europe and elsewhere. The global picture is further complicated by national variations in taxation and e-invoicing compliance requirements. Some solution providers, notably SAP Ariba, EDICOM and Basware, operate internationally and therefore bring experience in navigating the invoicing complexities of the international business environment, including global payment networks.
The shift from paper to electronic invoices can deliver cost benefits and other advantages in its own right. Those benefits multiply when e-invoicing is used to enable global business services such as straight-through processing.
Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups and established corporations. Mike also is a principal at Content Marketing Partners.
1. U.S. Adoption of Electronic Invoicing: Challenges and Opportunities, Federal Reserve Bank of Minneapolis; https://fedpaymentsimprovement.org/wp-content/uploads/e-invoicing-white-paper.pdf.
2. "Improving Government Efficiency and Saving Taxpayer Dollars Through Electronic Invoicing", US Government Office of Management and Budget; https://www.whitehouse.gov/sites/default/files/omb/memoranda/2015/m-15-19.pdf
3. U.S. Adoption of Electronic Invoicing: Challenges and Opportunities, Federal Reserve Bank of Minneapolis;https://fedpaymentsimprovement.org/wp-content/uploads/e-invoicing-white-paper.pdf
4. U.S. Adoption of Electronic Invoicing: Challenges and Opportunities, Federal Reserve Bank of Minneapolis; https://fedpaymentsimprovement.org/wp-content/uploads/e-invoicing-white-paper.pdf
5. ePayables 2016: Eyes on the prize, Ardent Partners; http://www.invocus.com/Resources/Research-Report/INVOCUS_Ardent percent20Partners_ePayables-2016-Eyes-on-the-Prize.pdf
6. "Improving Government Efficiency and Saving Taxpayer Dollars Through Electronic Invoicing", US Government Office of Management and Budget; https://www.whitehouse.gov/sites/default/files/omb/memoranda/2015/m-15-19.pdf
7. U.S. Adoption of Electronic Invoicing: Challenges and Opportunities, Federal Reserve Bank of Minneapolis; https://fedpaymentsimprovement.org/wp-content/uploads/e-invoicing-white-paper.pdf