e-invoicing connects tradition with innovation in Supply
Chain Finance. Duygu Tavan looks at trends in the electronification
of the supply chain, asking where it adds value and offers return
on investment, for both corporates and banks

 

Too manual, too cumbersome, too expensive… The
fundamentals of trade – issuing purchase orders, receiving
invoices, authorising payment – are costly on all levels.
e-invoicing can speed up and improve cash management cycles – but
the migration towards an e-invoicing platform is also a costly and
time-consuming one. As legacy systems become obsolete over time,
corporates of all sizes are realising the benefits of e-invoicing
technology. The adoption rates are not going through the roof just
yet – about 85% of international trade and 64% of trade within the
US is still dominated by paper. But there is steady growth in
acceptance, a fact demonstrated by a number of recent surveys.

Andre Casterman, SWIFT’s head of banking and
trade solutions, says the many steps involved in invoicing,
including matching and authorising, executing payments, can take
seconds with e-invoicing.

“e-invoicing is already very successful on
domestic level and more and more so cross-border,” he says.

 

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Gaining momentum

According to the latest e-invoicing
Adoption Survey
by PayStream Advisors, automated payments (AP)
are gaining momentum among US corporates. Automated payments are
said to enhance efficiency by eliminating paper, improving process
visibility, and increasing productivity.

The 2011 e-invoicing Adoption Survey
found that 83% of organisations in the US have opted for automated
payments already, and that 42% of the respondents are currently
evaluating electronic invoicing solutions. Yet, the adoption of
e-invoicing went up only 1% in 2011, compared to 2010.

The research, published annually, surveyed
more than 300 accounts payable and procurement professionals with
organisations based in the US.

Healthcare, insurance, financial services,
automotive, telecommunications, defence, manufacturing, consumer
products, and utilities, are among the industries covered by the
survey.

The number of participants in the survey who
do not use e-invoicing and have no plans to implement the solution
fell from 32% to 29% in the same period.

The lack of a budget is still a barrier to the
adoption of e-invoicing, according to PayStream Advisors. But the
indicator for this fell from 27% to 18%, and the study concluded
that this decline shows recognition of the cost-reducing benefits
provided by e-invoicing solutions.

Reduction of processing costs, acceleration of
approval cycles, and increase on-time payments are other benefits
brought by e-invoicing adoption, the report argued.

Paper is still used for 64% of all methods of
invoicing, PayStream Advisors found. But a third of the survey
respondents said that over half of the purchase orders they submit
to suppliers are done electronically.

For Henry Ijams, PayStream Advisors managing
director of PayStream Advisors, e-invoicing is “no longer just a
best practice, but it is rapidly becoming a driver of dramatic
efficiency gains”.

 

Calculating the cost

Another survey, by Billentis and GXS,
calculated the cost benefits of an e-invoicing solution. The
E-Invoicing/E-Billing: Opportunities in a challenging market
environment
report published in April shows that a company
with a headcount of 5,000 employees whose individual staff cost are
€60 per hour could save 57% of the costs it incurs for every 1.5
pages of paper invoices it issues. This calculation was based on an
actual customer profile and was broken down into four cost
categories:

Printing a 1.5 page invoice, enveloping it and
sending it off typically cost the company around €4; a payment
reminder incurs a further €0.50; remittance and cash management
cost €4.50, while archiving 1.5 pages of invoices incur €2.20,
taking the total paper invoice issuing cost to just over €11.

Conversely, in automated and electronic
invoicing, there are no printing, enveloping and posting costs
involved. Payment reminders are just marginally lower at €0.40;
remittance and cash management are €3.00 and archiving costs are
almost a third cheaper at €0.8. The total cost in this case is
€4.70, which includes €0.5 processing cost by third party service
provider.

On the receiving side, cost savings for a
company of the same profile are higher at 62%.

Receiving a paper invoice can cost €1.10,
while an electronic one costs nothing. Entering codification,
validating and matching an 1.5 page invoice incurs €7, as opposed
to nothing for the entry of codification and €1.20 for validation
and matching. Dispute management on paper invoices costs €2.50,
slightly higher than on electronic invoices (€2.00). Payment, cash
management for an invoice recipient costs €2.00 on an electronic
platform and €4.80 if the invoice is paper-based. Archiving costs
are the same as for the invoice issuer and the full cost for
paper-based invoice receipts is just under €18, as opposed to about
€7 for e-invoices, which include a €0.70 processing fee by third
party service provider.

GXS and Billentis emphasise that this
calculation invoicing costs is “relatively simple” and that “in
most organisations, the invoices are more complex and the savings
higher”.

Although the report does not calculate a
return on investment (ROI), GXS and Billentis argue that companies
can see a ROI in usually six months.

e-invoicing can thus enable a simpler yet more
efficient service from which trade relations will benefit.

 

Following the chain

As invoice discounting is such a core service
in banks’ trade finance solutions, offering an electronic service
that is more efficient than the traditional paper could be the key
to client onboarding as banks look to acquire their corporate
customers’ supplier base as customers as well.

One potential way banks could add value to the
supply chain as a whole would be to automate discounting structures
such as 2/10 Net 30.

2/10 Net 30 is a mechanism through which
suppliers agree to a 2% discount on the invoice if they receive the
payment in 10 instead of 30 days. Of course, systematicising such
agreements would add significant value up and down the chain.

In 2012, 15 billion e-invoices will be
processed worldwide, of which 30% will take place in Europe,
Billentis forecasts.

“Electronic trade finance is maturing – and it
is maturing as fast as B2B communications, such as e-invoicing.
These are really the drivers for banks’ trade finance solution,”
says Nigel Taylor, head of e-invoicing at GXS.

“Some of the largest companies in the world
have implemented e-invoicing years ago.”

As the worlds of traditional trade finance and
treasury services continue to merge, e-invoicing becomes another
link banks can make to offer Supply Chain Financing solutions to
corporates.

“In this area, banks act as consultants for
its corporate clients. We spend energy and time to discuss the
client’s working capital needs to understand where we can add value
with our products and solutions,” says Claudia Hussy, head of
working capital solutions, Germany, at Deutsche Bank.

“The demand for SCF solutions has accelerated
in the recent years for a variety of reasons. It is partly to do
with risk, freeing up liquidity, closer relations with trading
partners, greater visibility and developing a tool for creating a
better way to manage liquidity and risk for all parties in the
process and ensuring stability of the supply base.”

e-invoicing can be a sure way of achieving
this.

“Some banks approached e-invoicing as another
form of Corporate-to-Bank transaction banking, whereas others have
seen it as an enabler for financing opportunities. e-invoicing has
the potential to bring together cash and trade for banks’ Global
Transaction Services customers,” GXS’s Taylor sums up.