E-invoicing: The Ticket to A/P Efficiency

In recent decades, companies have devoted significant time and resources to improving the efficiency and effectiveness of their accounts payable (A/P) organisation. And in the current economic environment, where cash is king and companies are looking for any and all ways to free up and maximise it, many are stepping up their efforts. But few are succeeding.

With the large-scale implementation of enterprise resource planning (ERP) and electronic data interchange (EDI) systems, A/P has certainly become more efficient. Yet most finance executives remain unsatisfied with where things stand. Why? There’s still too much paper and manual processing, filing and matching involved to achieve the kinds of efficiencies and savings that they seek – and need – to weather these volatile times.

To remedy the situation, many are warming to the concept of electronic invoicing (e-invoicing). And with increasing frequency, they are leveraging a new breed of solutions that enable them to execute it. Such solutions attack the inefficiencies that exist between companies – such as sending and receiving invoices and payments – to enable more effective collaboration. Delivered in the cloud, they can be easily shared and accessed among trading partners, allowing for common business processes in areas such as billing, treasury, and A/P.

And they’re delivering results across several fronts. The bottom-line impact of leveraging such solutions comes through efficiency gains in A/P processing. It simply takes fewer staff to process invoices with technology in place. There are also strategic gains driven through more on-time payments, shorter approval cycle times, early payment discount capture and the maintenance or extension of days payable outstanding (DPO), among other things.

Yet the A/P process remains highly inefficient. According to industry analysts, more than 80% of business-to-business (B2B) commerce transactions are completed manually. And companies still send 85% of invoices and payments on paper.

What’s Holding Companies Back from Automation?

Supplier participation is a key driver of success in any e-invoicing initiative. And many companies fail to invest the time and resources necessary to target, on-board and maintain their partners. The legacy of EDI costs and complexities may also be a detriment to what are now much simpler methods for submitting electronic invoices.

In addition, country-specific regulations in the EU have resulted in leaders and laggards. This is primarily driven by different levels and treatment of VAT and requirements related to the storage of paper invoices. For those companies able to overcome these challenges, the benefits of e-invoicing are substantial.

When done right, e-invoicing can deliver process efficiency gains, typically measured in terms of the number of invoices processed per full time equivalent (FTE) staff. Organisations with over 10 full-time employees dedicated to processing invoices have reported as much as 70% cost take out. Other hard-dollar savings can be generated through the capture of early payment discounts. Many companies simply cannot process their paper invoices fast enough to capture early payment discount savings – which can be significant. With e-invoicing, they can not only capture these discounts, but ensure they materialise.

Effective e-invoicing initiatives can also enhance working capital management. With improved visibility and control, finance organisations can pay invoices on time and ultimately stretch their payables to term, which has a positive impact on DPO. Many companies are able to use the cash freed up from invoice efficiency gains to fund discount programmes and the cash savings they generate to drive operational improvements and strategic capital investments. This strategy also helps provide needed liquidity to supply chains that are struggling under today’s tight lending practices.

Taking Efficiency to the Next Level

Without question, e-invoicing can help A/P organisations take their performance and efficiency to the next level. But identifying the right solution is absolutely essential to success.

When evaluating an e-invoicing solution, companies should ensure that it:

  • Eliminates (not automates) errors at the source.
  • Permits suppliers of all sizes to easily and inexpensively connect.
  • Dramatically reduces the quantity of paper handled, stored and matched.
  • Improves supplier collaboration.
  • Matches purchase orders, receipts, and contracts to invoices.
  • Accommodates varying degrees of supplier sophistication.
  • Allows 100% capture of invoice volume.
  • Improves compliance across many dimensions, including contracts, preferred suppliers, and global e-invoice tax regulations.
  • Provides earlier visibility into cash requirements.
  • Removes latency in invoice and payment processing
  • Reduces the volume of supplier inquiries.
  • Offers multi-lingual, multi-currency capabilities.
  • Provides global, localised support for your company and its suppliers.

It should also deliver measurable and sustainable results that positively impact your operations and, ultimately, your bottom line, including:

  • Compliance with negotiated vendor contracts to drive savings and eliminate fraud related to disbursements.
  • Opportunities for dynamic discounting, which helps buying companies reduce spend by maximising discount savings and earning high-yield (i.e. 18%+) risk-free returns.
  • Detailed remittance statements to help suppliers reconcile payments, eliminate inbound inquiry calls and drive down cost per transaction.

With the right e-invoicing solution and partner, companies can fundamentally improve a corebusiness role and achieve new levels of A/P efficiencies and cost savings.

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