How do you go about building an effective business case for e-invoicing?

How do you go about building an effective business case for e-invoicing?

Posted by Pete Loughlin in e-invoicing, Electronic Invoicing 29 Aug 2011

There is a difficulty in building a business case for e-invoicing. The natural starting point is a traditional paper process and there is an irresistible temptation to begin to count the savings offered by the counting the cost of paper. A sheet of A4,  an envelope and a stamp. Well it’s a starting point I suppose.

And then there’s the general efficiency saving because it’s quicker and easier to deal with electronic invoices compared to paper. This is true of course but having 7 hours of work to do per day instead of 8 doesn’t save anything. It just makes like easier.

The fact is, if you approach electronic invoicing from the point of view of simply automating a paper process, then it won’t save you a penny. So how do you go about building an effective business case for e-invoicing?

Examining the cost components of the invoice process

There are a set of savings associated with the elimination of paper:

  • Cost of stationery – paper invoice and envelopes
  • Cost of postage
  • Environmental impact of using paper

And then there is the cost savings associated with efficiency

  • Automation and elimination of re-keying data
  • Reduction in errors and rework because of imperfect manual processes
  • Payment on time and reduction in late penalties and supplier hold

Purchasing Insight logoReducing the stationery budget is hardly world changing stuff – it’s trivial. The environmental impact is an important benefit but it is difficult to put a financial saving next to it. This benefit is best kept separate from a financial based business case.

The savings through efficiencies are real but they really only materialise with scale. A 10% reduction in workload only delivers a saving when there is more than 10 people doing the work. You can’t save half a person.

Late payments and supplier holds is an interesting one. In my experience, poor payment performance is as much about poor supplier relationship management as anything else and a more efficient AP process won’t fix this.

The real savings that electronic invoicing and AP automation introduce are not the basic efficiencies, it’s delivered through the new ways of working that become possible. Instead of measuring the time saved by automation, consider the benefit to the supplier of prompt or early payment – that could be inordinately beneficial to a supplier. What discount could you negotiate for that? Or consider your ability to manage cash flow once your payables are truly under control. Even a few days increased DPO can have make a serious commercial impact.

When developing a benefits case for e-invoicing or AP automation, it’s a mistake to start with the paper process. The new AP model is fundamentally different and a much more effective way to envision the benefits is to imagine there was never paper in the first place.

  • Hugh Chatfield August 29, 2011 at 3:10 pm /

    This seems bang on. It is indeed – not so much the ability to generate an e-invoice (this is almost trivial), or even having anyone you do business with be able to process it in it’s electronic form without massive changes and expense (this is a lot harder). However, once the e-invoicing infrastructure is in place – it is the ability to generate add-on innovations, apps, etc. that will be the huge benefit generators. It is however, sometimes very difficult to have the vision to see what these might be. How many could have guessed that a smart phone would revolutionize the music industry?

    It is what Christensen called a disruptive innovation – an innovation with the potential of “allowing a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill”

    I alude to this in my IBM developerWorks article – UBL and Disruptive Innovation.
    http://www.ibm.com/developerworks/industry/library/ind-disrubl/index.html

    The above article says “Reducing the stationery budget is hardly world changing stuff”.

    I’m not I totally agree – but you have to enough vision to see the bigger picture. I have read that approximately 10% of our trees are chopped down to produce paper that invoices are printed on. Hence reducing the stationery budget for 1 corporation might be a small number – but on a global scale that is a lot more oxygen to keep the population of the planet alive.

  • Jim Clawson September 9, 2011 at 10:15 pm /

    It really doesn’t take much to develope a true business case for AP Automation. I agree with Hugh saving a tree and the environment today is a lot more critical than it was say 30 year ago. Each day our world is changing if we like it or not. With close scrutiny and more environmental changes in this world will make our own work place a better place to labor!

Post a comment