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E-invoicing: Ready for Prime Time
Louella Fernandes By: Louella Fernandes, Principal Analyst, Quocirca
Published: 19th July 2011
Copyright Quocirca © 2011
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It is hard to believe that, in the 21st century digital age, one of the most business-critical documents—the invoice—is still created and sent mostly in paper format. In 2010, of the 30 billion invoices sent in Europe, only 10% were done so electronically. In a global economy where many other processes are being automated, a reliance on any paper-based business process seems archaic. But so far, attempts to move to true 100% electronic invoicing have been hindered by market fragmentation, cost and concerns around legal standards and interoperability. However, the emergence of managed services which provide a hybrid approach to total invoice management promise to help businesses make a gradual transition to electronic invoicing, by processing both paper and electronic invoices based on buyer and supplier preferences.

A recent Ricoh study [1] shows that, on average, 42.5 per cent of all business critical information is still in hard copy format. There is no doubt that invoicing contributes to this figure, as it remains one of the last bastions of manual processing and is labour-intensive, inefficient, costly and error prone. Quocirca estimates that the cost of processing paper invoices through manual means can range anywhere from €8 to €10 per invoice, which is significant when applied across the mountain of paper such that many businesses process on a daily basis.

Manual processes can also result in slow invoice reconciliation making it difficult to secure early-payment discounts, which in turn can result in poor supplier relationships. Furthermore, companies that continue to rely on paper-based invoicing methods may have difficulty preparing audit trails for closing books and meeting the requirements for European VAT audits. Ricoh’s study also indicates that only 39% of companies have the ability to follow an audit trail for all their business critical documents. A high reliance on paper also comes at an environmental cost—not only in paper waste but also in the associated energy costs of transporting the physical invoices.

It is unsurprising therefore that more businesses want to implement electronic invoicing (e-invoicing) to remove manual processes, speed up invoicing cycles and eliminate non-value add activities for accounts departments. Benefits of e-invoicing are far-reaching. Quocirca estimates that e-invoicing can enhance business efficiency through reducing the costs of handling invoices by up to 70%. The most obvious benefits are the direct cost savings for sending the invoice (paper, postage and printing) and in processing (accepting the invoice, processing and approving it) for the recipient.

These compelling drivers are now set to broaden e-invoicing adoption, enabling more organisations to begin the transition to electronic invoicing. In 2011, approximately 5 million European businesses are expected to send or receive electronic invoices. Initiatives such as the European Commission’s plans to revise the E-Signatures Directive in 2011 are a bid to encourage businesses to make more use of electronic invoices. Electronic invoicing is also part of the European Commission’s flagship “A Digital Agenda for Europe” which wants to see e-invoicing to be the predominant form of invoicing by 2020.

 Today the market is categorised by a mix of software products deployed on-premise and hosted services, most of which offer integration to enterprise resource planning (ERP) systems, compliance with varying country regulations and supplier on-boarding. E-invoicing networks are becoming more popular as invoices, regardless of data standards, are interchanged via a third party service providers or invoice portals. Once enrolled in a network, which may charge an upfront fee as well as an on-going fee, a supplier can send electronic invoices to any customer on the network. However such networks rely on full supplier and buyer participation, and generally appeal to larger businesses. Smaller suppliers may have little incentive to participate in networks and may not be able to justify the joining fee. But in a competitive environment they can feel under pressure to comply in order to retain the business. Meanwhile, as businesses move to electronic invoicing at a different pace, they will find themselves operating disparate processes for handling paper and electronic invoices. Poor integration of these processes is costly and inefficient.

As full e-invoicing requires buy-in along the whole supply chain, a big-bang approach to e-invoicing is not realistic. Consequently, some leading businesses are adopting a hybrid approach which provides a phased transition to e-invoicing, whilst enabling them to retain paper-processes for some suppliers and buyers where appropriate. A managed service provider (MSP) takes full control of the invoice process—including the manual capture of paper invoices and document scanning, the handling of a diverse range of invoice receipt formats (e.g. xml, CSV, EDI, fax, email or paper) and the sending of invoices in a buyer’s preferred format. Software is developed, maintained and operated by the MSP, with customers paying a “fee per transaction”, enabling lower costs.

Those businesses in the e-invoicing vanguard are already reaping the benefits. Ricoh, an MSP that provides such services, cites the example of a sportswear manufacturer who operated an expensive and inefficient invoicing process. Mailing 4.5 million paper invoices and statements a year, they outsourced their entire invoice process, planning to transition from paper to electronic invoicing over three years. Using Ricoh’s i-Invoicing service, according to customer preference, invoices are either uploaded to a web portal for online viewing, or printed and dispatched by conventional means. Customers are able to download and pay bills by logging on to the secure web portal. The number of paper-based transactional documents distributed by Ricoh on the manufacturer’s behalf is expected to reduce by 3.6 million per annum, saving €3 million.

By not restricting the format of invoices, a managed service ensures that the benefits of e-invoicing are not limited to just large enterprises, but also extended to SMEs who will gain access to a wider market of potential customers and suppliers, especially larger organisations who may prefer working with e-capable trading partners. E-invoicing will be a major factor in making business process more efficient for many businesses in the future. Those that start now will be ahead of the game as the e-invoicing market steadily builds towards critical mass.

Read Quocirca's report at: Electronic Invoicing: Ready for Prime Time

[1] Ricoh Process Efficiency Index, June 2011.


Published by: IT Analysis Communications Ltd.
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