Trade & Supply Chain

A long time coming

Published: Nov 2015
Vintage pocket watch

Adopting e-invoicing could bring great benefits not only to treasuries in terms of improved working capital metrics but in greater efficiencies right across the corporate organisation too. Onboarding suppliers is no walk in the park, however. To make it work, all internal stakeholders – and the procurement team especially – need to be onside.

Already, some industry commentators are billing 2016 as a watershed year for e-invoicing in Europe. Perhaps we shouldn’t be too surprised. Last year was also predicted to be the year that sending electronic invoices became mainstream; as was 2014 and, well, nearly every year all the way back to 1997 when the EU and the OECD launched the very first initiatives aimed at eliminating barriers for e-invoicing.

History therefore tells us that it might be sensible, this time around, to avoid bold, hyperbolic predictions about 2016 being ‘a seminal year’ for e-invoicing. But even if universal acceptance remains some way off, there are a number of compelling reasons why e-invoicing should see increased uptake in the year ahead – providing, it should be added, that corporate buyers can finally overcome that thorny issue of supplier onboarding.

Unbelievably, this is the issue that, despite years of attention, corporates continue to cite as their greatest impediment to rolling out e-invoicing. A study conducted earlier in 2015 by Tradeshift is but the latest addition to a growing list of evidence supporting this point. The research found that while 76% of businesses had e-invoicing or were making plans to implement it, only 19% said that more than half of their suppliers were using it.

It stands to reason that if corporates cannot encourage a greater percentage of their supplier base to use e-invoicing, the paper invoice will continue to prevail. Going on estimates from e-billing and payments specialists Billentis, an organisation could save 1-2% of its turnover by replacing paper invoices with electronic invoices and optimising the related processes: the missed cost and efficiency savings that failure would represent for corporates could be very significant indeed. The good news, at least, is that there are no shortage of ideas – from both treasurers and solutions providers – on what can be done to make greater supplier uptake a reality.

Because it’s the law

We will talk more about those in a moment. Before we do, let’s turn our attention to the principal macro-level driver now for e-invoicing uptake across Europe: legislation. These regulatory drivers for e-invoicing broadly fall into two categories: direct and indirect.

Firstly, e-invoicing has been directly addressed both by national regulators (Norway, Denmark, Sweden and Portugal, for instance) and, more recently, at the supranational level by the European Commission (EC). The EC Directive, which was approved by the European Council in 2014, follows the example set by the aforementioned national regulators, by requiring public authorities in Europe to support e-invoices sent to them, on the condition that they comply with common standards also set out in the legislation.

“Many countries now mandate electronic invoicing,” says Markus Ament, Chief Product Officer at cloud-based supply chain finance and e-invoicing providers Taulia. “Global companies come to us and tell us that they now have to comply with e-invoicing legislation in various countries. So compliance is a very big driver at the moment.”

Legislation mandating e-invoicing in public procurement has been complemented by the work being done by the OpenPEPPOL Association, an international non-profit body whose purpose is to solve interoperability issues for public procurement. As Richard Manson, Director and co-founder of e-invoicing providers CloudTrade explains, e-procurement processes have traditionally tended to be based on a three corner model in which buyers and their suppliers needed to enter into a relationship with the same solution provider.

“That made interoperability a challenge,” Manson says. Under the four corner model established by OpenPEPPOL, suppliers have a relationship with access points, the aim of which is to establish something much like a telephone network, where the existence of different phone networks does not prevent telephone calls being made between networks. “That is what PEPPOL is really all about; it is allowing suppliers to send to buyers that are on the PEPPOL network, irrespective of what service provider they are with. And it is allowing buyers to receive invoices from buyers on the PEPPOL network, irrespective of what service provider they are with.”

PEPPOL has already been successfully applied to public procurement with a number of Scandinavian countries, and it now looks as though other countries – including the UK – will soon follow suit. When the Department of Health (DoH) announced its eProcurement strategy in May 2014, for example, a recommendation was made for the adoption of PEPPOL specifications throughout the healthcare sector for e-ordering, e-invoicing and advanced shipping notes. Alongside legislation to make e-invoicing mandatory for public procurement, this development might just propel the use of electronic invoices to the same levels we see in Scandinavia. “By mandating this in the public sector and getting suppliers to send and receive electronic documents, they will by implication create an infrastructure that can be used in the private sector as well,” Manson says. “That is the strategy, and in my view, it is a sensible strategy.”

In the indirect category, attention is being given by a growing number of regulatory bodies to the issue of small companies whose clients fail to pay on time (a practice which has been on the receiving end of much censure in the mainstream press of late).

Already there are a number of schemes in place in different countries. We have the Prompt Payment Code in the UK, the EU Late Payment Directive and the SupplierPay initiative in the US, all aimed at creating a culture of reasonable – and responsible – payment terms amongst corporates. And there could be further measures moving forward; as it stands, participation in the UK’s Prompt Payment Code is voluntary, but the idea of making it compulsory for all companies has been recently mooted by ministers.

Naturally, using e-invoices sent instantly via the internet, and often with payment options embedded in the file, would be very likely to help suppliers to retrieve money more quickly from their buyers. And that is even before taking into account the additional services that some Fintech vendors (Taulia among them) are now offering as part of their e-invoicing solutions to clients.

Persuading suppliers

The key ideas taken up by some of the new providers that have entered into the e-invoicing space in recent years is relatively simple, yet it has the potential to help both corporates meet their obligations vis-à-vis on time payments and, smaller suppliers in terms of alleviating pressure on their working capital metrics. They could also, by virtue of that, play a critical role in tempting those still reticent suppliers to start invoicing electronically.

One explanation frequently used to explain why onboarding has in the past been difficult is that some SME suppliers simply do not enjoy any significant benefit from e-invoicing, at least in the way it has traditionally been practised. It often comes down to the frequency by which an SME sends invoices to a corporate customer. When invoices are being sent at a very low frequency – say one or two each month – very little efficiency is to be gained by moving from manual to electronic. So when the first e-invoicing platforms began to appear in the late 1990s with business models predicated on charging suppliers for a service that was of ultimately little value, interest was, understandably, muted at some companies.

Even when explicit charges are not a factor, many providers still require invoices to be produced and sent as an XML or EDI file that, for some suppliers, would entail costly and difficult changes to billing applications and infrastructure that their budget and invoice volumes simply cannot justify.

New vendors that have emerged in recent years, such as CloudTrade, for example, have experienced some success (in 2014 they were reported to have doubled in size for the second consecutive year), simply by offering such suppliers a “cheap and undemanding” alternative. CloudTrade requires PDF invoices to be sent via a technology even the smallest and least sophisticated business should have access to: email. When a PDF is created by an application – for example, finance or accounting package – in almost all instances it will be a text PDF with the invoice data embedded within the layers of the PDF. The data is mapped by CloudTrade and delivered to the buyer in the format that is required by their system. “If you remove those barriers then you will see higher adoption, because ultimately you want to make it as simple and as non-disruptive as possible for suppliers to join the party,” says Manson.

If making e-invoicing easier and less expensive solves part of the problem, offering suppliers stronger incentives for sending e-invoices is perhaps the next step. If the e-invoicing service is provided free of charge and, critically, is offered as a means by which suppliers can gain better access to financing, then the reasons for suppliers not choosing to move away from paper are suddenly all but non-existent. After all, supply chain finance (SCF) and e-invoicing would seem to be mutually reinforcing.

“Quite frankly, many new clients today come to e-invoicing through SCF solutions,” says Taulia’s Ament. “They look at the market for SCF solutions and see that their approval cycles are not ready yet. So why not do electronic invoicing at the same time? That way they can get the approval cycles down and have a successful SCF programme.”

So now, even suppliers for whom e-invoicing does not offer, in itself, greater cost savings or efficiencies, by serving as the foundation for a supplier financing or dynamic discounting programme it can still be an enabler to greater cost savings and efficiencies. If SCF continues to gain momentum globally – it is now growing at 30% annually according to a 2015 report by BCR Publishing – then we may just see greater uptake of e-invoicing too, especially now there are free-at-the-point-of-use solutions available on the market for suppliers. But, as we will see, treasurers have an important role to play in ensuring suppliers are aware of such solutions and understand the benefits. This is where cross-functional collaboration becomes important.

Working with procurement

Often the decision to roll out an e-invoicing programme comes from the area of the business that most obviously stands to benefit from it: the treasury function. But the success of the supplier onboarding process will, to an extent, be determined by the level of support it receives from other business units (procurement in particular). Treasurers that are not able to get other relevant departments involved at an early stage are likely to struggle.

In a webinar hosted in early 2015 by Shared Services Link and the Tungsten Corporation, Mark Boswell, a Procurement Business Process Manager at confectionary giants Mondelez International explained why this is the case, and what steps treasurers can take to bring other departments like procurement onside.

“Why should you involve procurement?” asks Boswell. The answer, of course, is that they are the department which can be of most assistance when it comes to supplier onboarding. “In most organisations, procurement is the commercial link to the supplier base. So they are the ones that can nominate and convince vendors to sign up.”

That buyers will be automatically receptive is not guaranteed though. “Don’t bother me with invoice issues,” buyers are often heard to say, “just pay my vendors on time.” Even those who were prepared to listen would still lament the long list of other priorities in their in-trays that must take precedence. What Boswell soon began to appreciate was that for the procurement departments to be recruited as an ally in the roll-out of e-invoicing, programmes need to be articulated to them in a language they understand.

“You need to listen to procurement’s needs,” Boswell says. “They need to know where they can be expected to be involved. I’ve often gone to our buyers across the community and asked, what do you want and what are your issues?”

What procurement needs, above all, is a compelling reason to be involved. There are no shortage of these, says Boswell. For instance, e-invoicing can cut days or even weeks off the time that it takes to deliver an invoice cross-border to a remote location, eliminating the need for procurement to scan paper invoices and attend to the instant errors that might crop up. Even more beneficial to procurement, perhaps, is that their suppliers are given instant feedback on the status of any invoices that they send. “We tell them not only if we have received it,” says Boswell, “but if there are errors we articulate back to them through the portal what those errors are. Then we guide them to take proactive action if those errors are to do with the presentation of their invoice, for example.”

Paper-free supplier-invoicing may not be universal yet, but it will be one day.

Ensuring that these advantages are understood within the procurement department’s senior leadership team is a first step but is not usually sufficient in itself. In order for procurement to become an effective partner in supplier onboarding, the message needs to cascade down until it is embedded in the company’s various sourcing teams. “I think one of the key things is that we have sourcing teams that are e-invoicing champions and who are able to drive that change and be the catalyst of change throughout the procurement organisation,” Boswell says.

Also found to be beneficial was segregating the different sourcing areas, including ‘direct’ suppliers where they source packaging, raw materials, commodities, and those which fall under the indirect category such as marketing, manufacturing, and IT. Doing this allowed the company to get targets defined that were specific to those teams. “We get the buy-in at the top, we set targets aligned through the organisation. Ultimately that makes the implementation a lot easier with the teams at the bottom of the pyramid,” adds Boswell.

Bold predictions

What we have, then, are a host of factors that would suggest that e-invoicing should see greater take-up in the year ahead, even amongst suppliers who would in the past have proved difficult to onboard. Governments in Europe and beyond are taking a much more active role in encouraging firms to explore electronic alternatives to the paper invoice, in some instances going so far as to legislate to this effect. And all of this is happening right at the time when (thanks to both the launch of new solutions and the lessons treasurers are increasingly learning around the importance of cross-functional collaboration) supplier onboarding does not present quite the same obstacle it did once in the not too distant past.

Taking all of this into account, do those bold predictions referred to at the beginning of this article make any more sense than in previous years? Will 2016 be the seminal year in which businesses completely dispose of all paper-based invoices for good? Most probably not. But, realistically it should, like the past several years, be one in which the electronic invoice continues to win over more of those previously hard-to-onboard suppliers that have so long been a blight on corporates looking to optimise their invoice-to-pay (I2P) processes. Paper-free supplier-invoicing may not be universal yet, but it will be one day.

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