Opening Speech on Why UK Government Should Adopt e-Invoicing Now

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Editor Coda
Dec 16, 2013

On December 9th, Susie West, CEO at sharedserviceslink moderated a roundtable discussion on e-invoicing in the UK public sector, ‘Creating an Interoperable Ecosystem for Government & Business.’

The event aimed to identify a pragmatic way forward on interoperability to deliver real benefits to business and the wider public sector through the adoption of e-invoicing.

Heading the roundtable, and chair of the UK e-Invoicing forum (UKNeF), Nigel Taylor opened the day with an inspiring and informative speech, which we are making available on sharedserviceslink.com.

To gain a better understanding of why government bodies should be adopting e-invoicing, you can read Nigel’s full speech here:

My name is Nigel Taylor and I am hosting today’s meeting as Chair of the UK National e-Invoicing Forum, a group of motivated individuals advocating the use of electronic invoicing across the UK public sector, and who represent the UK at the European Commission’s forum on electronic invoicing.

Back in April of this year, the Minister of State for Business, Michael Fallon, tasked our group with organising this meeting specifically to discuss how government and business can work together to create an interoperable infrastructure for e-invoicing with the idea of creating a UK public sector strategy.

However, at the very outset we realised that the scope of this meeting was beyond electronic invoicing.       

Ever since the Gershon review the public sector has recognised the benefits of back-office efficiencies and has endeavoured to implement electronic procurement. But even where successful, this has not been linked to the transactional process of sending and receiving purchase orders, shipping notices and invoices. For public sector finance teams, payables have remained a largely manual process.

Our group has been advocating the e-invoicing agenda. But, with a new European Commission procurement directive being passed through the European Parliament, which includes e-invoicing as part of the procurement process, we feel this is a clear indication of what many of us in the industry understand - that successful electronic invoicing programmes between trading partners require the engagement of both procurement and payables.

Her Majesty’s government is tied to the deadlines set by the European Commission, making e-invoicing in procurement mandatory from 2016 with an objective of making it the predominant method by 2020.

However, the UK should not be reactive in this process. We are here today to set the agenda and define a way forward.

So, when we talk about a ‘UK interoperable ecosystem’ what exactly do we mean? Simply, Inclusive of e-procurement, e-invoicing and supply chain finance, interoperability is the sharing of business data across different networks and systems.

For the UK government to implement a strategy that ensures an optimal outcome, the question is, can they work with private companies and capitalise on existing networks, or should they build their own network themselves, from the ground up?

The UK is slightly behind the curve in this thinking. In the Netherlands businesses and government have come together in the ‘simpler invoicing’ project. In Belgium the banks have created ‘zoomit’ based on the Isabel infrastructure. The German national forum are currently working with their government and in Portugal we have seen the first ‘South American’ style compulsory e-invoicing programme mandated. Austria, Spain, Italy…all have some form of programme in place

The Nordic countries are often cited as the European leaders in the adoption of electronic invoicing. Since the 1st February 2005, all government institutions in Denmark are required to only accept invoices from suppliers in electronic?format.

All public sector entities converted their systems and administrative processes from physical to digital handling of invoices, credit notes and other transactions. This system applies to the entire public sector from government ministries to nursery schools.

It is estimated that in Denmark, each minute saved in invoice handling of the public sectors’ 15 million invoices equals 12 million Euros saved a year.                       

So, if 10 minutes are saved in the handling of each invoice, this results in savings of €120m per year and is equivalent to potential savings of more than 2,000 man-years of work per year.

There is a pressing need for the UK public sector to engage in electronic commerce and it is true to say that Her Majesty’s Government’s policy priorities of economic growth, deficit reduction and financial transparency are aligned with all the benefits promised by electronic invoicing, offering; efficiencies, cost savings, oversight, working capital opportunities and providing a platform for growth.

The UK e-Invoicing Forum has calculated that the end-to-end cost savings for the entire UK public sector, inclusive of procurement, invoicing, fraud reduction and supply chain finance is between £4-6bn annually.

We also know that end-to-end e-procurement and e-invoicing doesn’t just offer benefits to the large buyer.

Small and Medium Enterprises are a major source of entrepreneurial skills, innovation and employment. Within the United Kingdom some 4.9 million SME businesses employ an estimated 24.3 million people and have a combined turnover of over £3tr.

Electronic invoicing offers many benefits to SMEs, from reduced printing and postage costs, improved customer relations and increased visibility on payment dates to earlier payment through supply chain finance or dynamic discounting.

However, Eurostat statistical data shows SME e-invoicing adoption as low, which is surprising considering the current economic conditions and pressures UK small and medium businesses are under.      

The research report on Payment Culture found that close to 266,000 SME businesses in the United Kingdom claimed late payment to be a major problem. The same report highlighted that 16% of respondents also claimed their company was almost put out of business and 41% were forced to pay their own suppliers late, due to their customers paying late.

This is ironic, as late payment practises have a negative effect for the payers’ Accounts Payable departments and the majority of SME respondents cited ‘regular and continuous calling’ as the most effective method to minimise late payment.

The annual European Payment Index survey showed that bad debt losses incurred by European companies reached an unprecedented high of €350bn, directly due to late and non-payment behaviour.

In today’s tough economic climate, once again, cash is?king. Accurate and punctual payment is becoming a fundamental business process. In the UK, business and government cannot afford to deal with late payments and poor trading relationships.

Lack of access to credit continues to challenge SMEs. The ‘Boosting Finance Options for Business’ report revealed that 33% of UK SMEs applying for loans had been rejected and this data is supported by the SME Finance Monitor that stated loan rejection rates were higher than historical norms.

These issues are compounded by the rise in the number of their customers extending their payment terms. By far the majority, 65% of respondents saw their customers extend payment terms without notice or consultation while 27% saw unilateral changes to payment terms.

Some commentators have defined this as the return of the ‘Macmillan gap’, a scenario where SMEs are disadvantaged financially compared to their larger customers. The government is addressing this through the business bank, placing an emphasis on supply chain finance to inject liquidity into UK SMEs balance sheets.

With SMEs having difficulties obtaining capital or credit, particularly in the early start-up phase, they consequently have restricted resources which in turn reduces access to new technologies or innovation.

Simple to use systems are also an issue. The research firm Billentis suggests that “the vast majority of suppliers and customers are SMEs with a highly fragmented IT landscape and limited capability for the importing or exporting of structured invoice content and electronic archiving. In addition, these counterparties can be located in various countries with different legal constraints regarding tax compliant invoices, archiving, language and cultural behaviour.”

It is apparent SMEs are confronted with multiple market imperfections. This disadvantaged ecosystem has stalled adoption, where, even with many economic drivers to do so, the adoption of e-invoicing across UK SMEs is classified as ‘early majority’ and not yet mass market.

There are still challenges around standards, connectivity, tax compliance, data protection, cultural and language issues both at domestic and European level. These have been persistent problems and while there are UK initiatives designed to address them, there is a need to ‘embrace the complexity’ in the short term, and to align the different initiatives to halt the ‘proliferation of complexity’ in the long term. Only varied services and solutions can remove the complexity from SMEs, as no one solution meets the needs of different sized companies across varied industry sectors.

If these market imperfections are addressed and SMEs are incentivised, e-invoicing will become the norm. As an example, the adoption of emailing PDF invoices within the UK SME community is a clear indicator that if e-invoicing is a simple business practise and cost effective, it will be adopted by SMEs and become de-facto.

Business efficiencies such as e-invoicing between companies also builds a platform for growth. By combining business and supply chain activities and ‘doing business electronically’ UK companies will make themselves ‘easier to do business with’ as future supply and demand fluxes, both domestically and overseas.                        

If you examine the existing e-commerce marketplace, UK companies are already creating a business network as a platform for growth. This ‘networked economy’ across both public and private sector supply chains currently has many different definitions and multiple networks.

So, can   business-to-business e-Commerce help UK companies provide a competitive advantage in the global market, and how will public sector adoption help?

By including SMEs in the public procurement process, specifically by mandating electronic invoicing, the public sector will essentially impose the stated benefits on its SME supplier population.

On average between 15-18% of all national procurement is attributed to the public sector. By mandating e-invoicing themselves and by creating appropriate initiatives such as prompt or early payment, the public sector will alter market dynamics. By default, public sector suppliers will make themselves ‘easy to do business with’ and give themselves a platform for growth into new markets.

The ‘networked economy’ is already starting to become a competitive advantage for British companies.

I recently visited the headquarters of an international shoe manufacturer and retailer, which is increasing its expansion overseas. When discussing electronic invoicing for their customers we discussed the business reasons, efficiencies and cost savings, but they stated that their primary driver was that they wanted to be ‘easier to do business with’.

One major British multinational retailer initiated a business-led B2B program as part of a long-term growth strategy. This strategy affects every area of their business, including merchandise, food, supply chain, stock planning, allocation and replenishments.                             

They combined procurement, purchase ordering, shipping and invoicing into a single B2B process, streamlining all their business interactions with their domestic and overseas trading partners.They now process over 2 million invoices a year, with some invoices containing hundreds of line items matching to purchase order and goods receipts with a first-time pass rate of 97%. Their strategy is to continue to grow internationally, enabled by improved B2B processes.

Another leading UK SME supplies beauty products to high street brands, with well established distribution channels across Europe, the Middle East, Australasia, Africa and the Americas. They have experienced impressive growth and one major factor has been the creation of a US hub, allowing rapid penetration of the North American market.

Expansion into the US dramatically increased focus on the company’s B2B capabilities. Where the UK market required a limited number of business documents to be exchanged, US retailers exchange 5 to 6 times more electronic messages. By advancing its capabilities, the beauty-product supplier made itself easy to do business with and has been very successful in meeting their US customer’s market demands.

A large, British multinational automotive company is seeing unprecedented levels of interest from car buyers around the world and has had to expand production shifts, invest in new production facilities and joint ventures to meet demand. They now produce one vehicle every 77 seconds, placing pressure on both its own production lines, but every one of the suppliers providing components.

The ability to scale up or scale down production is a common requirement across today’s automotive supply chains. By implementing a comprehensive business to business e-commerce programme,  the automotive company is now well positioned to meet the changing demands that the global economy will place on its shoulders. Put simply, they are now able to focus on core business and strategy, the manufacture of quality luxury vehicles and expand or extract into markets as required.

Expansion outside of the Eurozone is key for British business. The ‘BRIC’ economies contain 40% of the world’s population and a quarter of the globe’s land mass. It remains an obvious area of focus for British companies, not only for outward expansion, but increasingly, working with foreign companies looking to invest into the UK market.

Despite recent challenges in China, Goldman Sachs suggests the BRIC countries will represent 41% of the world’s market capitalisation by 2030, becoming four of the six largest economies by 2050. We are facing a tough climate for UK businesses to flourish.

However it is not all bad news. The nation’s trade statistics are showing growth in both the existing and emerging economies.

The UK’s largest single trading partner for some time has been the United States which continues to be a net positive relationship and just recently the UK became Germany’s largest EU trading partner.                               

Our export growth is up in double digits for China, India, Russia and Poland and overall the value of non-EU overseas trade has increased by 25%, a rate of growth larger than any of our European Union counterparts. As supply and demand fluxes geographically over the next twenty years, by being able to fully trade electronically, British companies will make themselves ‘easier to do business with’.

The inclusion of the UK public sector and the creation of a UK Plc. supply chain that is ‘connected’ through web-based and integrated solutions, improves visibility, collaboration and agility across all business sectors.

The linking-up of procurement, finance and treasury departments to suppliers and customers through the supply chain will provide immediate cost savings and efficiencies, and the aggregation and analysis of UK supply chain data will be a key differentiator in the future, helping to create a more resilient and stable UK supply chain. It is the combination of government, business and supply chain activities that are the future of UK e-Commerce.

According to Her Majesty’s Treasury’s ‘plan for growth’ Britain has lost ground in the world’s economy and needs to catch up. It is clear then, that as each of the new economies emerge and progress towards consumerism, Britain must respond and be prepared to trade.

Today we are going to hear presentations from different stakeholders describing why it is important and entirely feasible for business and government to work together to create this interoperable ecosystem, and also how this could possibly be achieved. We will then break into round-table groups and discuss today’s presentations, with the intention of deciding our next steps; can we do this? How will it work? Must we create a working group?

Don’t be mistaken. This is happening with or without us. The UK public sector requires a strategy on e-procurement and e-invoicing, and I would ask everyone in this room to get involved and help to define the best way forward.

So, thank you for your attention, I hope you enjoy today’s roundtable and would encourage you all to contribute.

I am delighted that Susie West from sharedserviceslink is here today as compere. Susie has been involved in the electronic invoicing and shared services world for some time and she is an internationally recognised expert on this subject who will guide us through today’s proceedings.

And now, with great pleasure, I would like to introduce Matthew Hancock, Minister of State for Skills and Innovation.

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