The current state of the global e-invoicing market. The Paypers interviews Susie West
First published on The Paypers
First of all, I would like to ask you to provide our readers with a brief insight into your company’s activity as a specialist in the fields of e-invoicing and shared finance services. What is the business model that stays behind your motto: “the community for leaders in finance shared services”?
We act as the place our members go to when they want to improve their finance shared services performance. Our members access the best-practice information we have to offer through a number of means. They may attend one of our boutique round table events to problem-solve and knowledge share with peers. Or they may tune into one of our radio programmes or webinars or log in to our website. Our website covers news in finance shared services and outsourcing, and is a first class repository for articles and reports. We have a central aim in mind which is to help the finance shared services market mature. And to do this we make sure the information delivered to this market is credible, largely practitioner-based and of a very high quality.
As the CEO of sharedserviceslink.com, you are ideally placed to have a comprehensive view of the current state of the global e-invoicing market. In your opinion, where is e-invoicing headed at the moment? Will it deliver on its promise of lowering transaction costs and taking paper out of the payment equation?
e-Invoicing is a central topic for our community. If a company isn’t doing e-invoicing today, it probably will in the next five years. So e-invoicing represents a common direction that nearly all our members are heading in.
The direction that e-invoicing is taking is driven by a number of groups: firstly, the vendors like Ariba, OB10, Tradeshift, Basware; secondly policy determined in Europe by the European Commission; and thirdly by the users – both the suppliers and the buyers.
Looking at one possible development that may transpire in each group that could determine the direction e-invoicing takes:
1/ The vendors: unification
I mean a few things when I say ‘unification’. Firstly there is a fair bit of M&A happening in this market. For example the Ariba purchase of Quadrem last year. Secondly there is collaboration happening in the form of interoperability. Interop is the darling of more mature regions, like Scandinavia. It’s no surprise that Basware (born out of Finland) sees 30% of its electronic invoices appear through partner feeds rather than directly from the supplier. The network has actively sought inter-op arrangements with c 120 partners. This is the approach of other providers like Tieto (again, another Scandinavian born company).
There are e-invoicing networks that don’t have interoperating at the heart of their growth strategies and look to own the feed from end to end (from supplier to the network, and from the network to the buyer). This seems to be a great short-to-medium term approach for companies like Ariba and OB10. But both companies are aware that in the longer term it may serve them to be proactive about garnering interop arrangements. OB10 says today that 0.4% of its transaction volume comes from interop partners. So for OB10 to invest time into promoting this delivery model fails to make sense currently.
In the long term we could see interoperability as defacto, with service providers owning the buyer side relationship and plugging into a single network that owns the supplier community. So the battle for vendors in the coming years may not be so singularly focused on buyer engagement, but on owning the supplier network.
2/ European Policy: simplification
The European Commission is interested in electronic invoicing. Especially as each of the member states it legislates for has a government that claims substantial revenues from invoices via the sales tax or VAT element. Some governments receive 40% of their income through VAT and rely on corporates to compliantly collect this tax on their behalf. A sense of paranoia can kick in when governments realise the handling of these transactions will change and therefore the visibility, tracking and auditability of the VAT piece of the transaction may be affected.
The European Commission is however very much behind the e-invoicing cause and realises the huge cost savings that can come from implementation. According to Charles Bryant, Senior Advisor to the Euro Banking Association, and member of the sharedserviceslink.com Advisory Board, the Commission wants to see e-invoicing predominant by 2020.
The Commission is looking to make e-invoicing easier for SMEs to participate in. Three routes they are looking at as possibilities to make this happen is to: support interoperability; seek a consistent legal environment across the region; and promote, at a certain level, the idea of an invoice ‘standard’.
e-Invoicing vendors are more connected than they were with the direction of European policy. Various groups of providers, like the European e-Invoicing Service Provider Association (EESPA) have been established to better understand the drivers influencing European policy and to educate the Commission on factors that may influence final policy.
However, what e-invoicing vendors are keen to avoid is the regulation of the market. Other markets that are perhaps considered as pre-cursors to the e-invoicing market have seen the regulation of their market. The mobile phone industry being the nearest example. For the time being regulation does not present an immediate concern, and it’s not clear how regulating this space would impact the actual end-user.
3/ The users: money
The users represent the engine room of the e-invoicing ship. Their hunger to cut out significant cost from their invoice process drives them to invest in e-invoicing technologies and get involved in supplier on-boarding programmes.
Buyer companies that want to convert their accounts payables invoices to electronic see a healthy business case for e-invoicing. But the realisation of their case is dependent on how many suppliers onboard. E-Invoicing providers have recognised the secret is in the supplier participation so most have focused on lowering the ‘barriers to entry’ in the last few years by either giving the service away free to suppliers, ensuring that the network takes any file format a supplier can transmit, or using inter-operability as they way to ease supplier engagement.
However there has been a further development in business cases recently which has hooked the interest of a fourth group in this market; the banks. Corporates are realising that electronic receipt of invoices means a potentially different treatment of managing your outgoings, but also financing your suppliers. With e-invoicing, requests for payments are processed immediately, opening up the ability for the transaction to be paid immediately. By working with a bank, corporates can entertain the factoring model on a wider scale. Retailers engaged in this during the 2008/2009 recession when there was a need to keep their suppliers in business by supporting their cashflow. Keeping them in business meant the retailers kept stock on their shelves.
Some cash rich companies don’t need the banks to service this supplier financing function. Their coffers of capital mean they have less need to collaborate with a bank and they can choose to engage in dynamic discounting. Either way, companies are beginning to include the supply chain financing piece into their business case.
To summarise, the future looks bright for e-invoicing. Collaborations are taking place between key bodies which is helping the pace and direction of this market and help with supplier adoption. Simplification at a top level is geared to help companies engage in e-invoicing, especially on the supplier side. And buyer companies have seen their business cases mushroom because of the supply chain financing aspect, but have also realised the value of the supply chain financing element for suppliers. All this confirms my message which is that e-invoicing only works for buyers if the suppliers engage. And it’s apparent that the key market groups are very aware of this today.