Electronic invoicing: What is the impact?
Jun 09, 2006
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- We continue to look at the variation in document management markets and opportunities in Europe. This issue we investigate electronic invoicing and asked for opinion as to why there are differences? Our questions to the people in the know were:
- Is the UK lagging behind the rest of Europe when it comes to electronic invoice processing? For example, in Denmark suppliers MUST send electronic invoices in order to get paid.
- Do you believe that electronic invoice processing should be a high priority market for resellers in the UK?
- The premise as always in our special features is to discover the viability for resellers to target the markets under investigation.
Doug Miles, marketing director, AIIM Europe, the association for users and suppliers of enterprise content management
- There have always been differences across Europe concerning invoice and payment conventions. For example, in the UK average outstanding payment days can be as high as 90 days. In Germany this is unheard of. There are also differences in trading patterns between ad-hoc supply networks and dedicated supply chains in, say, automotive or retail. The adoption of electronic invoice processing is crucially dependent on return-on-investment calculations based on staff savings, and will vary according to local market rates for book-keeping staff.
- All UK businesses process invoices. In most cases this involves a tedious, error-prone mechanism of manual matching and physical circulation for approvals. Inevitably, this represents a commercial opportunity for IT resellers in the UK.
- There are three different ways of applying IT to improve productivity in invoice processing. The first and most elegant is the EDI mechanism used for direct exchange between financial systems, which is found most commonly in automotive and retail supply chains. These systems have evolved over time to provide robust mechanisms of order exchange and billing, particularly for regular orders and call-offs. In recent years EDI messages have moved away from expensive VAN dedicated networks onto broader internet exchange, and flat ASCII coding has been replaced by more robust XML formats.
- Although generic standards of EDI are developing as part of e-business in general, EDI formats are still largely embedded in specific vertical markets. They are complex to set up and are only cost effective between long-term trading partners.
- The second mode of potentially paperless invoicing retains the familiar invoice document, but prints it to a PDF electronic file and transmits it by e-mail. Manual keying is required upon receipt to match invoices with orders and payments, and frequently the PDF is printed in order to drive this process, giving the reassurance of a paper file copy for audit purposes.
- The third mechanism accepts that most companies deal with many different trading partners. Small value invoices are highest in number and take just as long to process as high value ones.
- Accepting that most invoices arrive in paper form, the process involves scanning all incoming invoices and capturing key fields (account number, PO reference, line-item values, etc.) using intelligent recognition software. The captured data is transferred to financial or ERP systems and matched against the original purchase orders. The invoice approval process can then be an electronic workflow to the approval authority, with the scanned document attached. The process is concluded faster and the progress of the sign-off can be tracked.
- With widespread availability of multi-function scanner/copiers and the increased effectiveness of capture software, invoice processing solutions can now produce savings across much smaller numbers of daily transactions, making them attractive within the SME business sector.
- Whilst there are reseller opportunities in the UK across all three mechanisms outlined above, the scanning of conventional paper invoices has potential in all types of business. For the reseller, some integration knowledge is required in order to interface to financial systems, but the complexities of end-to-end EDI formats are avoided. Both technical and business process consultancy services will be needed by the client, and there may also be an element of hardware for the scanning device.
Colin Baterip, managing director of e-docs UK Ltd
- The UK is lagging behind other parts of Europe when it comes to the electronic processing of invoices as businesses have been slow to embrace change and new technologies. The top two products are Scandinavian and they work very well in their native markets but they have not proved to be so easy to adopt here in the UK. The reasons for this are cultural, a lack of investment, an aversion to taking risks and a lack of standards
- The fact that there is no single system or accepted standard causes problems when processing from client-to-client and, as a result, the majority of invoices are still paper based. Some companies offer a full EDI service and they charge a fee to the client and a fee to their suppliers for using the systema bit like a club charging a transaction fee. However, there is massive user resistance to paying fees to invoice processing companies for the privilege of doing business. For example, smaller companies are typically asked to pay fees of around 1200 to send even just a handful of invoices each year.
- Automated processing of invoices is something that is done to take out the costs associated with manual handling yet all it does for suppliers is to add cost. This is ultimately self defeating as all it will do is to limit the number of suppliers able to meet the invoice processing requirements of their clients, price smaller companies out of business and drive up costs which will be eventually be passed on to the customer. Do organisations really think that all their suppliers such as the milkman, taxi firm and cleaner will be able to afford to send their invoices electronically?
- The software vendor approach has been to provide a product that integrates with document management and ERP systems, or put electronic data into ERP and do the accounts processing there. However, the cost for achieving this integration can be staggeringly high and there are only a limited number of companies servicing this market with the resources to meet these requirements.
- The alternative approach, and one where resellers can play a significant role, is to develop a hybrid model where invoices will continue to be printed for some clients and whilst others are provided with this information electronically. The lack of standards means that there may be several different electronic formats that have to be used. This is one area where e-docs UK Ltd differentiates its service from others operating in this market. It is one of the only companies with the ability to offer clients the ability to have the whole invoice run to be sent out in different electronic formats as well as print and post hard copy invoices to those companies that cannot receive electronically.
- But electronic invoice processing is not just about automating the accounts payable and receivable processes, it involves a whole chain of events affecting customers as well as suppliers. Traditional document management and workflow solutions have in the past failed to address some essential processes such as invoice approval and budget allocation. Of course, invoices relating to accounts payable and receivable present different challenges and any company wishing to work effectively in this marketplace must have the ability to handle both. In addition, resellers must offer the ability to host images, which must by law be stored for seven years. These documents must be retrievable by clients over this period as well.
- A major stumbling block for resellers in the electronic invoice processing market is that companies are unwilling to commit the resources required for an effective solution to be achieved. When they do, it can be extremely effective as experienced by one well-known supplier of building products for whom an acquisition resulted in an additional 400,000 invoices per year. It was able to process an expanded total of more than 1 million invoices, reduce the number of staff handling them by more than half and reduce the backlog from six weeks to just one day.
Colin Kaye, VP sales and marketing worldwide, ReadSoft
- This is a controversial subject. But the short answer is yes we are behind. But there are reasons why we are behind. Generally take up of technology tends to be quicker in other parts of Europe than the UK anyway. One reason for this is how quickly governments pick up on a technology. For example, the Danish government is driving electronic invoice processing, which then spreads throughout commerce in general.
- Is there a lack of vision? Do we need to win over the UK government to accept the concept so that it spreads here too? There are lots of questions that we can raise about the UK market.
- We do, however, need to take into account that the adoption of new technology can be much easier in other countries due to scale.
- Scandinavia is a rapid adopter region and is quick to embrace automation. The region is able to leapfrog technology and methods and rapidly develop best practices. Here we see smaller companies and as such making and managing change is much easier.
- The UK, however, is a more difficult environment in which to run pilots. UK companies traditionally dont like to take risks. The UK likes to think of themselves being on the leading edge and not the bleeding edge of technology.
- If we look at image enabling, for example, we could say that the UK is an adopter but the overall percentage of the total number of documents being digitised is still relatively small.
- Larger UK companies are investigating the benefits of shared service centres and this is generating interest in adopting best practice methods and, therefore, reducing the cost of processing invoices is very prominent on their agenda.
- Many estimates have been made, both by companies and by research institutes, and although the results differ the figures are always surprisingly high. Quoting the Aberdeen Group: the average cost is $34.8 down to 12.51 with electronic invoice processing. A Swedish study showed that invoices cost from EURO 20 to EURO 60 each to process. Invoice approval can be for many companies an expensive process. The surprising thing with many companies is that they do not know how expensive this is to them as a business. With an automated solution, such as the ones supplied by ReadSoft, this can make a dramatic impact typically making a saving of around 50 per cent.
- ReadSoft is however experiencing an increase in interest with regards to EDI and automated invoice processing within the UK. It has become apparent latterly that there are many companies now reviewing best practice models within this arena and have found ReadSoft offerings to be of interest with regards to their invoice processing strategies. In particular we are finding a high level within the SAP and Oracle user base.