Why supplier charging damages the accounts payable process
Avoid charging your suppliers to send e-invoices
Recently I received an email from a supplier who had been sent a request from a customer which demanded all further invoices be sent via the ‘leading global e-invoice network’. Let’s just say the tone of the email was not positive…
The supplier proceeded to outline the problem…
“It’s not the physical act of sending the invoices that’s the problem – although the submission options don’t provide us with much choice which in the long run is going to run up costs – it’s the fact that they are asking us to pay to send the invoices. Not only are we being asked to pay, the charges are more than the standard postal service…”
I requested to see the charges and they make an interesting read.
So the supplier had been presented with two options….
Option 1 - Use the service provider’s portal to create and submit an invoice
For the supplier in question, as invoices were raised within a finance application, they weren’t keen to duplicate effort and add operating costs inherent with using invoicing portals (as well as the charges being imposed by the e-invoicing service provider).
More concerns were raised about the risk of data entry errors. The supplier believed there was a risk that invoices entered via a portal would not be an accurate reflection of what was created in their finance application. (This was not a far-fetched fear, this form of e-invoice processing does carry such risks.)
Option 2 - Adapt to fit the service providers technology
So this would ultimately entail the supplier changing their applications and infrastructure to send invoices directly from their billing application. The invoices are then processed by the e-invoicing service provider and sent on to the customer.
Oh and then there were the charges…
£750 annual membership
£0.67 invoice (for those suppliers sending up to 20 invoices / month)
As the supplier in question sent on average 10 invoices a month to the customer, the annual charge would be: £830.40 for 120 invoices. In other words, £6.92 per invoice. Ouch!
This is by no means the worst example of supplier charges - in comparison to others, some might say this is actually moderate and, to be fair, the costs would reduce if they sent more invoices to more customers on the network. Nevertheless, the costs are real and it should come as no surprise that many suppliers balk at being asked to pay them.
Based on 15 years’ experience, sitting on both sides of the fence, I believe supplier charging is a false economy. There are certain service providers that offer free or discounted e-invoicing to buying organisations, as they aim to secure fees by charging suppliers to submit invoices. This is a great sales message and unfortunately one that gets bought into too many times. I write this based on first-hand experience of working with a number of organisations who were won over by the sales message, only to terminate the service with their selected service provider after they discovered suppliers weren’t coming on board in the droves they were promised.
There are five main consequences for the accounts payable process of a ‘supplier pays’ model
1. Low supplier adoption: Most will simply refuse and remain on paper
2. Slow adoption of suppliers: For the few suppliers who are willing to pay, it can take an age to get them on board as a budget holder needs to approve the spend
3. Costly supplier adoption: Getting money out of suppliers can be like squeezing blood out of a stone. The customer and/or the e-invoicing service provider will need to invest considerable time and effort liaising with the supplier to agree to the terms and pay for the privilege of sending their own invoices to you. This time and effort has to be paid for somewhere
4. Noise and distraction within the buying organisation: Most suppliers will push back on paying. As a result, this disquiet usually ripples through to the procurement and finance contacts the supplier has with the buyer, questioning ‘do I have to do this?’, ‘are you really trying to charge me?’, ‘can’t I stay on paper?’
5. Hidden costs: Those suppliers that are forced to do this often pass the cost of the service back to their customers via price rises
In order to guarantee high supplier adoption and a successful e-invoicing project, you’ve got to make it as easy as possible for the supplier to join the party:
Let them use their existing systems, work with their current processes and ensure your service is free to use.
Want to know more about removing the barriers for e-invoicing?