Supplier Charging – a False Economy

Supplier Charging – a False Economy

Posted by Richard Manson in e-invoicing, Electronic Invoicing 11 Jul 2014

Today, a post from Richard Manson from CloudTrade

I recently received an email from a disgruntled supplier, unhappy at the request they had received from a customer asking them to submit their invoice via the ‘leading global e-invoice network’.

Their frame of mind wasn’t a reaction to the physical act of submitting electronic invoices – though they did say they weren’t impressed by the limited submission options available, and were concerned about the impact it would have on their business. Their dismay was that they were being asked to pay for the privilege of sending their own invoices to their customer – and pay far more than it would cost them to use the standard postal service!

Purchasing Insight logoThe disgruntled supplier very kindly shared with me the information they had received form the e-invoicing service provider, including the charges.

The supplier had been presented with two options:

1)     The first option was to use the service provider’s portal to create and submit their invoice. As all invoices are raised in their finance application, they weren’t keen to duplicate effort and add operating costs inherent with using invoicing portals (as well as the charges being imposed by the e-invoicing service provider!). Additionally, concerns were raised about the risk of data entry errors which would result in invoices that are entered via a portal, not being an accurate reflection of what was created in their finance application.

2)     The second option was to change their applications and infrastructure to send their invoice direct from their billing application, through the e-invoicing service provider to their customer. However, this was even more expensive:

–        £750 annual membership

–        £0.67 invoice (for those suppliers sending up to 20 invoices / month)

As the organisation in question sent on average 10 invoices a month to the customer, their annual charge would be: £830.40 for 120 invoices. In other words, £6.92 per invoice. Ouch!

This is by no means the worst example of supplier charges – in comparison to others, some might say this is actually moderate and, to be fair, the costs would reduce if they sent more invoices to more customers on the network. Nevertheless, the costs are real and it should come as no surprise that many suppliers balk at being asked to pay them.

Based on 15 years’ experience, sitting on both sides of the fence, I believe supplier charging is a false economy. There are certain service providers that offer free or discounted e-invoicing to buying organisations, as they aim to secure fees by charging suppliers to submit invoices. This is a great sales message and unfortunately one that gets bought into too many times. I write this based on first-hand experience of working with a number of organisations who were won over by the sales message, only to terminate the service with their selected service provider after they discovered suppliers weren’t coming on board in the droves they were promised.

There are five main consequences of a ‘supplier pays’ model:

1)     Low supplier adoption. Most will simply refuse and remain on paper

2)     Slow adoption of suppliers. For the few suppliers who are willing to pay, it can take an age to get them on board as a budget holder needs to approve the spend

3)     Costly supplier adoption.  Getting money out of suppliers can be like squeezing blood out of a stone.  The customer and/or the e-invoicing service provider will need to invest considerable time and effort liaising with the supplier to agree to the terms and pay for the privilege of sending their own invoices to you.  This time and effort has to be paid for somewhere

4)     Noise and distraction within the buying organisation.  Most suppliers will push back on paying.  As a result, this disquiet usually ripples through to the procurement and finance contacts the supplier has with the buyer, questioning ‘do I have to do this?’, ‘are you really trying to charge me?’, ‘can’t I stay on paper?’

5)     Hidden costs.  Those suppliers that are forced to do this often pass the cost of the service back to their customers via price rises

In order to guarantee high supplier adoption and a successful e-invoicing project, you’ve got to make it as easy as possible for the supplier to join the party. CloudTrade removes the three main barriers to supplier adoption:

1)     No technical change. We don’t ask suppliers to change their systems or infrastructure to send EDI or XML

2)     No process change. We don’t ask suppliers to duplicate effort by logging on to a portal to submit their invoice

3)     Free to use. We don’t charge suppliers for the privilege of sending their own invoices

By removing these barriers more suppliers can be moved away from paper and onto e-invoicing in a shorter time frame than any other approach. Guaranteed.

CloudTrade can be found on twitter @CloudeTradeNet

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