Pure E Invoicing – Perceived and Real Obstacles Uncovered
By Susie West.
Why is it companies are still failing to embrace electronic invoicing? From large polls to mini polls, survey results continue to tell the same story. At the Purchase to Pay conference in London last week a subset of attendees participated in a benchmarking survey. The maddening thing was this: all these P2P organisations surveyed were running shared services and have done so for 2 to 10 years. They were processing between 100,000 and 1,000,000 invoices per annum and 70% of respondents were handling these invoices on behalf of one country only. With all this information, you would begin to assume that these companies were ‘ripe’ for electronic invoicing.
The startling thing was that the penetration was dramatically low. 67% of respondents still process 90% or more as paper invoices. When I started selling e invoicing in my previous life in 2002, I was convinced that the ‘market would catch up with the technology’ and the first couple of years would require hard graft, but at some point, in the near future, my phone heat up from orders from customers calling me. Fast forward to 2009 and this is still a laggard’s market. Early adopters of e invoicing are rare beasts. Out of say, 750 companies ready for e invoicing, only 10% will buy and deploy over the next 12 months. And these 750 have to be fairly sophisticated in their processes in order to even evaluate e invoicing as an option. So why is there such a gap between ‘desire’ and ‘do’? It can only be obstacles. But which obstacles are real and which are perceived?
Obstacle No. 1 - Perceived
VAT. This area I believe positions itself as much more of a mystery than it really is. We need to comply with the VAT requirements country by country so we can reclaim the correct VAT that is owed to us. If we don’t comply with certain rules, then we risk losing the reclaim amount. This is a risk. But tell me one company that has lost their VAT reclaim because of this. If I were signing up to e-invoicing today I would look at the hundreds of companies who had ‘jumped’ before me and rolled out e invoicing, and take a sense of comfort that they had kept themselves out of the courts. To me the VAT risk is similar to the risk of me being hit by a lorry on Shaftsbury Avenue. It won’t stop me going to the theatre and having a good time. VAT should be a box to tick off, rather than a show stopper in your pursuit to realise a business case.
Obstacle No.2 - Perceived
Suppliers. This can prove to be more of a real issue than VAT but still perceived. Some SSCs may take comfort from the excuse that their suppliers are ‘unique’. ‘They just won’t do e invoicing’ is a sentence you often hear. Let’s not be fooled, the benefits of e invoicing are much more compelling for the Buyer than they are for the majority of suppliers. But with the right messaging Suppliers will engage in your e invoicing programme. Look at Kelloggs – they are reaching well over 80% in pure e invoice conversion, and over 70% of their total invoice volume is touchless. They and many others have had great success in rolling out e invoicing. Their suppliers are as complex and diverse as everyone else’s. The difference with them is they just got on with it. Suppliers, especially today, want your business. If that means paying an admin fee to sign up to using a network, so be it. Until 1 month ago, sharedserviceslink.com only took Visa and Mastercard. One company said they would only pay for our services with AMEX, and if we couldn’t take AMEX we would l lose the business. What do you think I did? Paid the £150 to take AMEX.
Obstacle No. 3 - Real
Immature Processes. This can be genuine. And this can be a real reason to delay the implementation of e invoicing. Technology like e invoicing will only expose the severity of your problems if you deploy in an environment that has low PO penetration and a low first time match rate. You can argue that it might make sense to use technology to force change in a low PO organisation, but if you do this it’s an idea to push out your return to years instead of months. If you look at your invoice volume and over 50,000 are straight through (ie match first time), then you have a scope which will make the investment in e invoicing justifiable. To fix the invoices which are bouncing, the solution required is people based, ie educating users in the process what the rules are, and why the rules are there. I was speaking at a conference this morning and one of the fellow speakers said ‘Maverick Buyers should be called Costly Fools, the former sounds too glamorous and as they foolishly cost the business so much, the latter is much more appropriate’.
To really leverage an e invoicing implementation, it is useful to have an automatching component, and a workflow facility in place. With automatching, the invoices that arrive electronically and match first time in the automatching module, can post, unseen, in your ERP. These transactions really are touchless.
Obstacle No. 4 - Real
No Business Case. Sophisticated P2P environments offer a double edged sword to e invoicing providers. From a process maturity standpoint they are ready. And chances are they will deploy quickly. But the flip side is that they are already operating at a very low cost. So the business case maybe too marginal to excite senior management to lift the ‘Go!’ sign. A business case should consider two tiers of savings. Firstly there are the headcount savings that come with the elimination of paper: mail room sorting, loading to scanners, keying or correcting/checking OCR data, and the general cost that comes with touching paper (archiving, workflowing if you are still moving paper (some companies still are!!) or shipping invoices back to the country of origin).
But then you have the massive Tier Two savings which are too often over looked. Europe is slower than North America when it comes to early payment discounting (EPD), or dynamic discounting. But now is the perfect time to roll out an EPD programme as suppliers want your cash now. 71% of the companies that faell into administration last year did so because they ran out of cash… ironically they were profitable. So suppliers are willing to lose a little off the price in order to see the funds in 10 days. If you are cash rich then it may make more sense today, when interest rates are nominal, to realise a cost opportunity through exercising EPDs. Another is inflating your cash ownership. Companies are currently reviewing the terms they have with suppliers, and extending them. One view is to state that the consequence of not doing e invoicing is to have payment terms extended. And this should be included in the business case. It may even pay for your e invoicing project through the interest accrued. By extending payment terms from 30 to 45 days your cash ownership inflates and finance could be contributing sizeable interest to the bottom line. You might argue that Suppliers will increase their prices if payment terms increase, but we all know Procurement’s good at looking out for those kinds of increases.
Obstacle No 5 - Real
Procurement Not Engaged. Finance and Procurement have historically operated as silos. This has never really made sense to me. All this means is that one trading transactions (made up of a series of instructions messaged from one entity to another) which starts life in Purchasing and finishes life in Accounts Payable, is broken. For any initiative to work in AP, Procurement need to be bought in. This is absolutely the case for e invoicing. A utilities company came up to me last month and said ‘Your conference has made me realise Finance can’t do e invoicing on its own’. E invoicing benefits Finance from a process transaction stand point, but for it to be a success, Procurement needs to be behind you and be the voice that messages suppliers. If you aren’t on talking terms with Procurement then expecting e invoicing to work for you may be a little ambitious.
If: you get on with Procurement; enough of your invoices pass first time; and there is a business case, then ask yourself “Why am I waiting?”. To roll out pure e invoicing may take 18 to 24 months to convert 70% or so, but what were you doing July 2007? See, two years go in a flash.
