The Order to Cash business case for e-invoicing
The business case for e-invoicing is normally measured from the perspective of the accounts payable process in the buying organization. Indeed, it is often said that most if not all of the benefits are stacked in the buyers favor – it’s the buyers that get to automate and eliminate process whereas for the supplier they only seem to incur costs.
It’s time suppliers woke up. Take a simplistic view and you can barely make a business case for e-invoicing but take a closer look and the benefits can be astonishing.
It can be difficult to match up process efficiency improvements with dollar savings. Saving time or making things easier doesn’t generate cash so how do you go about building a business case for e-invoicing in Accounts Receivable (AR) based on process improvement? A good place to start is benchmarking. If you can look at what top performers do and how much their operations cost, you can extrapolate potential saving to your own organization.
The APQC report “Accounts Receivable Performance – doing OK is no longer good enough” published June 2012, give some examples of how businesses can makes significant AR improvements.
Top performers, they say “cut away the number of invoices they send to customers on paper” and “automate core AP workflows by investing in a solution that offers the ability to automatically present bills in formats that the customer prefers”. They “liberate staff by having them work on value added tasks” and “look for ways to reduce invoice dispute times”.
This all sounds very worthy, but what are the actual benefits?
According to the report, an AR department operating at 12 FTE’s per $billion of revenue (a median figure according to APQC’s research) could reduces its headcount by more than half. Using an average cost per FTE of $56,000, that represents a saving of $397,000 per $billion of revenue.
But that’s only half of it. Take a closer look at the potential effect on DSO.
According to the report, a median performer can improve their cycle times by 2 days by adopting best practice. That delivers the equivalent of a $273,000 improvement to accounts receivable per $billion of revenue.
Taking a cursory glance at the benefits case for e-invoicing, you will only see cost and hassle. Take a little longer to examine the situation and you’ll see opportunities for efficiencies but take a detailed look and the case become compelling.
You can download the APQC report here.