The biggest blocker to e-invoicing: It doesn’t make sense

The biggest blocker to e-invoicing: It doesn’t make sense

Posted by Pete Loughlin in Electronic Invoicing, The Rest 03 Mar 2011

Purchasing InsightElectronic Invoicing has for over a decade promised to deliver a fundamental change in the way accounts payable operates. “We will be able to eliminate the non-value add activities.”; “AP will move from being a cost centre to a profit centre.”; “It will evolve from an administration function to a strategic commercial operation.” Promises all made in good faith but promises that were not delivered. The challenges of the numerous tax and legal regulations across the world as well as the reluctance of suppliers to play ball have both been significant blockers. But there’s another blocker: e-invoicing doesn’t make sense.

Until now!

In the 1990s, when e-invoicing wasn’t a practical option, the theory made a great deal of sense. Replacing large accounts payable departments with small team that would only deal with exceptions was attractive proposition. Before the internet became secure enough for business and prior to it’s ubiquity as a business tool, purchasing cards were seen, for a time, as the tool that could eliminate the paper invoice and deliver elements of AP automation that we see today. But something else was emerging at this time that made even more sense – business process outsourcing.

Outsourcing AP destroys the e-invoicing business case

For many organisation today, building a business case for e-invoicing is quite a challenge. You can only get a small proportion of suppliers to send invoices electronically and even though this may represent a relatively large volume, you’re left with a long tail that will still deliver paper. And if your accounts payable team is outsourced to a low cost country it is difficult to build a benefits case based on cost saving from headcount reduction.  The fact is that a manual process operated by low cost resource can be cheaper than an automated process that requires technology and relatively expensive resources to manage it. The only way you can build a successful business case for e-invoicing is if you can get 100% electronic invoices. Five years ago, that would have been an impossible dream but in 2011, I think we can dare to aspire to this.

e-invoicing – getting to 100% electronic

Generally, when we think of an electronic invoice we mean an EDI or XML message. We need to just take a second look at this.  We used to believe that for one computer to talk to another, they needed to speak in computer language.  That’s why the true electronic invoice was an electronic message – it needs to meet a strict and exact standard with predefined fields and structure. But today intelligent data capture technology is so sophisticated, you only need to wave a handwritten restaurant receipt at a good scanning set up and it will perform a 3 way match with your GRN and P.O. in an instant.  I exaggerate a little, but actually, not that much.

The goal is AP automation. e-invoicing is a means to that end. Today, there is simply no need to generate an electronic invoice message. As long as we have the right data capture tools, all that’s needed is an image of a traditional paper invoice whether that’s scanned from a paper original or never rendered in paper in the first place. This means that we can now, for the purposes of AP automation, consider invoice images, scanned or otherwise, as electronic invoices. And can we get to 100% with this revised interpretation? Yes we can!

This is going to make a very big difference.  By using a range of invoice types – pure electronic such as EDI and XML together with PDF invoices and scanned paper we can very rapidly automate the input and matching process. The number of invoices that each FTE can handle will increase dramatically. (There is one retailer in Europe who, without mass use of EDI, has a 1 million invoice per FTE ratio using this approach. This is exceptional but it demonstrates what can be done.)

And what of the BPO players? There’s already concern about the limited mileage left in labour arbitrage models, wage inflation and rising attrition rates in established outsourcing locations not to mention the significant geopolitical risks high-lighted not too long ago in Mumbai and more recently in Egypt. Now, as far as AP outsourcing is concerned at least, there may be nothing left to outsource.

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  • Jim Clawson March 15, 2011 at 9:55 pm /

    Very interesting commentary about e-invoicing and where it is headed. Great Post!

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