The Electronic Invoicing Renaissance

The phone rings and John answers, “Accounts payable, how may I help you?” It’s the fourth call John has received from ABC Supply this week. Why? ABC Supply wants payment for an invoice that was sent more than 60 days ago. How is this possible? Actually, it isn’t surprising. There is tremendous variability with regard to the purchase to pay (P2P) cycle. Just think of the typical steps required to pay an invoice.

First, ABC Supply prints a batch of roughly 150 paper invoices. After sorting, stuffing and metering, one to two days have already passed. Then there is typically a two-day transit time in the mail. It’s day five before the buyer, John’s company, even receives the invoice in the mailroom. (By the way, John also received an invoice in error that was supposed to go to another ABC Supply customer. Yikes!) There is a day of interoffice mail and then, on day six, John finally sees the envelope. John puts the invoice in the stack of invoices on his desk and, about three days later, he finally begins to process the invoice.

On day nine or 10 (there goes the early pay discount), John bursts open the invoice and gets ready to key it into his A/P system. Uh oh, this invoice doesn’t have a PO (purchase order) number on it. John calls ABC Supply and leaves a message. On day 12 he gets a returned call and is informed of the PO number. I could go on and on — but you get the picture. We’re on day 12 and we haven’t entered the invoice into the system, routed the invoice through the appropriate approval workflow, or even thought about making a payment. Inbound paper invoices are a real pain for A/P departments.

Generally speaking, A/P departments are responsible for paying valid claims to vendors in a timely and accurate manner. A/P departments have — or at least would like to have — service level agreements (SLAs) with their internal supply chain stakeholders and their vendors.

Companies that have earned good credit would like to dictate favorable terms with their vendors. Finally, A/P departments want to accomplish all of these things at the least total cost. However, none of these goals can be achieved with manual based paper processes. Paper results in slow, unpredictable processes, fraught with errors and dispute resolution with vendors.

Some Pitfalls

Electronic invoicing is a way to alleviate the above challenges. However, the traditional approaches to electronic invoicing have met resistance. While buyers receive a ton of benefit from electronic invoicing, they are typically unable to get a significant portion of their vendor community to participate when deploying historical solutions. So, the projects are unsuccessful. After all, electronic invoicing requires two parties for success. Before we talk about the innovation in the market today that is driving an electronic invoicing renaissance, let’s examine the failures of the past:

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  1. Electronic data interchange (EDI) and global e-invoicing networks. For our purposes, we’ll group EDI with e-invoicing networks. They are essentially the same. They are fairly technical implementations at the buyer side. Buyers then ask their vendors to undergo a couple of months of data integration with their billing system, or worse, type invoices into a Web portal for electronic submission. (Focus on the integration option because vendors universally reject the double work, portal option.)

    Maybe it’s a little harsh to say EDI has failed. In fact, it hasn’t. For buyers and a small portion of their vendors — the largest ones — it works well. It’s just that the bulk of the vendor populations is unable to afford the upfront cost and complexity of such solutions. Furthermore, once the relationship has been established, there are high maintenance costs.

    EDI is also a fragile process. Each time one party makes a change to a system or document, the connection breaks down and must be corrected. It is unrealistic for a buyer to implement EDI across the board. A buyer with 1,000 vendors may be able to convince the largest 50 vendors to send invoices via EDI, but the remaining 950 vendors are relegated to sending paper invoices.

  2. Optical character recognition (OCR). Some firms have looked at OCR as a way to reach down to the smallest of vendors. The idea is to receive paper invoices from vendors, scan them in with large teams of “inexpensive” labor, and then use OCR technology to read the invoices and convert to XML or another suitable data format. OCR relieves some of the pain of traditional paper processing, but in the end OCR is still just a form of what we’re all trying to get away from: paper processing. Further, while improvements in the technology have been made, there is still quite a high error rate. So double- and triple-blind checking manual processes remain a reality.

Driving Rebirth

Virtual printer technology is driving an electronic invoicing rebirth within many industries. It’s a new, innovative approach to on-boarding vendors. Vendors simply download the virtual printer off the Web. This takes about 30 minutes. Unlike EDI, there is no upfront cost or IT resource requirement. Then, without changing billing systems or invoice formats, vendors print invoices through the virtual printer and the invoices are delivered securely over the Internet to the buyer.

Companies interested in this approach should investigate electronic invoicing service providers that have created electronic invoicing communities by leveraging virtual printer technology. The value is that vendors and buyers can achieve EDI benefits without going through the hassle of EDI.

If your company is experiencing paper pain from A/P invoices, electronic invoicing is gaining momentum for a reason. CFOs, shared services executives and purchasing managers would be wise to investigate virtual printer approaches to electronic invoicing.

Shan Haq is vice president of product management for Transcepta, a hosted electronic invoicing solutions provider.

1 Comment

  • I had to laugh as I read this article. Rarely do I see someone accurately reflect on the pain that goes on in many accounts payable departments across the country. The author hit the nail on the head along with providing an accurate solution. Well – done.

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