This issue’s question

“I’ve recently heard talk about e-invoicing being integrated into supply chain finance platforms. Is this really happening? Also, what other developments in the e-invoicing space should treasurers be aware of?”

Matthew Stammers

European Marketing Director

Taulia

There is a revolution starting to happen in supply chain finance (SCF). What was previously an elitist programme between businesses, global banks and the very largest suppliers, is shortly to become a democratised process between a business and all of their suppliers because of what e-invoicing brings to the party.

Initially, SCF was a bank-led initiative that was developed in order to help large multinational corporations improve their working capital KPIs. For these large companies, it worked well within this narrow remit. However, the solution has always promised so much more, and in this format the benefits were limited, in so far as that it would only work for a company’s top 25 to 100 suppliers. This was primarily due to the regulatory constraints on the banks – as the providers of the SCF programme – surrounding KYC, anti-money laundering and also in more recent times Basel III. The on-boarding process with suppliers was therefore very arduous, and the costs outweighed the benefits when companies were looking to on-board all but the very largest suppliers onto their SCF programme.

The new generation of SaaS based e-invoicing platforms, however, are game changers as they approach the subject from a very different perspective. These providers approach SCF and e-invoicing from a supplier-adoption approach, where the most important aspect is getting as many suppliers on the platform as possible. This is vital because without a critical mass of suppliers using an e-invoicing platform to send, receive, and process invoices, a business doesn’t have a viable project. The ‘DNA’ of these SaaS-based vendors is therefore driven by this supplier adoption approach.

Traditionally the benefits of using an e-invoicing solution include increased automation, accuracy and efficiency. It is a useful tool to improve a business’s accounts payable processes. However, it is not a game changer in this guise. Where e-invoicing starts to get really exciting is when it’s used to enable and underpin a dynamic and electronic trading relationship between a business and its suppliers. The core feature of e-invoicing is that it connects a business with the majority or all of its suppliers. This network can then be used to offer early payments to these suppliers.

How so? This can either be through utilising excess liquidity or, if the working capital position is sensitive, through the injection of third-party financing – what was previously known as Supply Chain Finance. And because the goal of an e-invoicing network is to connect a business with all of its suppliers, financing opportunities are now available to the whole supply chain, not just the top 25-100 largest suppliers.

The primary benefit, therefore, from such a solution is that it resets the relationship between a company and its suppliers, allowing corporates to strategically approach the management of their supply chain. For example, a company can utilise the strength of its credit rating to offer third-party affordable financing to all its suppliers, thereby strengthening the health of a supply chain. Or the treasury function can utilise excess liquidity to fund early payment in exchange for a discount, reducing a company’s Cost of Goods Sold (COGS). From a treasury perspective, this offers an opportunity to step beyond its usual remit and be involved more deeply in the strategic goals of the organisation. Of course, using a SaaS service offers corporates other operational benefits through using the cloud, including: full visibility, real-time information, quick on-boarding and set-up, enhanced security, cost savings on resources and continually updated software.

The SCF and e-invoicing space is one that is constantly evolving and the current incarnation of SaaS providers have removed all of the barriers that have historically prevented widespread adoption. There are other exciting developments in this space that providers like ourselves are beginning to realise surrounding the use of big data. There are now years of supplier trading history on a provider’s servers and by using analytical tools built into the platforms this can be analysed, looking at areas such as risk and credit worthiness. This creates a powerful analytics suite that can allow corporates to model scenarios based on what suppliers have been doing and are likely to do.

All in all, the benefits of e-invoicing and SCF are becoming increasingly strategic and vital to corporates – creating a very attractive solution.

Venkatesh Somanathan

Asia Pacific Head of Trade Finance Product Management, Global Transaction Banking

Deutsche Bank

The trends that we are currently seeing around invoicing, and e-invoicing in particular, are dovetailed into a wider trend surrounding what corporates expect from their banking partners. Corporates now look to banks to offer more than their ‘traditional’ payments and financing functions and expect them to address some of the challenges that they face in other areas. It is here that an opportunity lies for banks to reinforce and ‘retool’ in order to meet the developing needs of corporates.

It is as a result of these new requirements that developments such as integrating e-invoicing solutions into supply chain finance (SFC) platforms take place. This integration is part of a greater effort to ensure that corporates can have an automated end-to-end solution across their supply chain. At the heart of this is the auto-matching capability that automatically reconciles a corporate’s purchase order with a supplier’s shipment documents. Once this reconciliation has taken place, a payment file will then be generated on the electronic platform used for supplier financing.

E-invoicing can also be introduced into this process so that when a purchase is made, all parties can reconcile the various documents and generate an invoice to the buyer, which can then be matched against the order and shipment details. Once this automated process is completed, corporates can quickly and seamlessly conduct the next phase of payment and financing.

This solution can offer corporates numerous benefits, primarily due to its integrated nature, which means that treasurers will not have to duplicate work and enter the same information multiple times on various platforms, thus offering greater efficiency and also reducing errors. Another benefit is the increased visibility and control over the transaction across its life span that a treasurer can have. Finally, with a greater number of companies using shared service centres (SSCs), electronic solutions are becoming increasingly vital as they allow for cost savings through reduced investment in resources, infrastructure, software and technology.

Currently, we have a number of clients using this solution. These are the most advanced multinationals with very large supplier bases. Yet, I believe it is possible that one day this solution could be adopted by smaller corporates. There are, however, a number of challenges that must be solved before this can become a reality. The first challenge is that any corporate wishing to utilise this type of solution must have the technical capabilities, as must the suppliers in their supply chain. Secondly, there are still some markets – such as China and India — where local regulations limit the use of such solutions, although there are steps being taken to change this. Finally, current e-invoicing and supply chain finance solutions are primarily bundled in with a bank’s propriety platform. However, corporates have multiple banking partners. Therefore, there needs to be a bank agnostic platform. It is my belief that going forward, BPO transactions will help to facilitate and develop the external requirements for e-invoicing, creating a universal bank agnostic platform.