29 Aug 2011 How do you go about building an effective business case for e-invoicing?
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
Reducing 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.