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Early payment discounts and the invoicing solution

Reading Time: 4 minutes

In early spring of 2018, interesting news came in from across the pond with the publication of the first edition of the UK Government’s new ‘name & shame’ report on late supplier payments. The good news is that just under half of all the invoices that were reported on, were paid within 30 days, but there were serial offenders, who made their suppliers hang on for 31+ days and longer.

While Europe is ahead of the USA with their e-invoicing initiatives, the figures shows that only 25% of the companies, who were reported on, offered e-Invoicing. What happened to the rest? Why aren’t they taking advantage of e-invoicing to manage their supplier payments? And what lessons can we learn for us here in the US?

My view is that while many organisations appreciate the problem of late payments, and the knock-on effects it can have on their supply chain they cannot change their modus operandi: they are hamstrung by their current systems, practices and processes and cannot make any change in the short or medium term due to help erase late payments. This is a global problem.

Missed Early Payment Discounts

It’s clear that the UK and US markets are different in their approach to supplier’s payments; with the UK using more traditional ‘direct’ banking methods to pay their suppliers. Whilst, in the USA, a lot of organizations still use cheques but there is also a wealth of payment providers who provide a multitude of solutions from invoice receipt/processing, online vendor/supplier payment portals and invoice automation to help manage the payment process.

But I do wonder how many organizations are able to take advantage of the hard earned, and negotiated, early payment discounts (EPDs) from their suppliers?  Many of the payment solutions on offer in the US allow organizations to keep their existing bank relationships and pay suppliers by ACH, check, virtual cards and credit cards in a faster time frame than would normally be achieved by processing in-house. Using a payment provider can slash processing costs by up to 50% or more and gives a business’s accounts payment function full visibility into payment status and approvals. But what about those EPDs?

An opportunity for EPD gains

In comparison to the UK, the USA is streets ahead when it comes to paying suppliers – The Paystream Advisors 2016 Data Capture and Mailroom Technology Insight Report stated that nearly 92 percent of invoices received electronically are paid on time, compared to only 45 percent when invoices are received in paper form.

In my view this is where the problem lies – the Federal Reserve states that currently only 25% of US invoices are electronic, so that’s 75% of all US invoices being processed by other means – a huge opportunity for efficiency and EPD gains.

We know that reducing your Days Payment Outstanding (DPO) helps support your supply chain partners, and that shortening your DPO could provide additional margin to your bottom-line and improve your cashflow – so where is the problem?

The cost of OCR

Well, let’s consider the 75% of invoices that aren’t electronic – these will include, paper, PDF and other electronic forms, outside the traditional EDI or network-based channels.  A proportion of these invoices will have been outsourced for processing by an optical character recognition (OCR), mailroom or payments provider, who will provide invoice capture, management, and integration services to give users an end-to-end payables solution.

The attraction of this approach is that it gives organizations one solution for all their AP processing needs – no matter what format invoices are received. The service provider will typically process the documents using OCR, which means that every electronic document received is converted into an image for OCR processing.

We know that OCR is normally okay, when every invoice we receive is in the same format, size and the data fields remain in the same places on the image. But, suppliers tend to send complex documents, across multiple pages and with specific line item detail, which you need to process into your back-office systems to manually or automatically perform the 2/3 three-way match. This is where the costs mount up, as it is very likely that every processed invoice will need to be reviewed manually because the suppliers ‘standard’ invoice format changes dynamically with the addition of multiple lines and pages. An alternative approach that the majority of organisations use  is just to capture the header level and totals from the invoice, without the requisite line level detail, but this doesn’t help you understand your spend at a granular level and is exactly the data that you need for financial/supplier reporting purposes and to be able to claim those ‘hard negotiated’ early payment discounts.

Remember that every time your OCR or mailroom provider looks at, and corrects, an invoice, it is likely to cost you money – if the document is already electronic why convert it in the first place? 

Could ‘true’ e-invoicing be the answer?

With the latest e-invoicing technology suppliers don’t have to do anything different. It allows them to simply create their invoice, convert it to a PDF and email it to a named email address. The technology uses the original invoice and extracts the data (100%) from the PDF and puts it straight into the buyer’s finance package. Simple.

More importantly, the supplier doesn’t have to pay or log into a portal. All they need to do is ensure their invoice is produced as a PDF (which their own finance package is able to do for them) and then email it over. For the buyer, the time-consuming process of keying and rekeying and matching line level detail in data is removed. There are no more paper invoices to hold on to, or potentially lose. The data is all held electronically.

As well as saving money on accounts payable processing costs, this simple approach means the invoice data is presented back to the payments system in real time. Immediately after it has been processed successfully, it will be in the payments systems, typically within 1-5 minutes of receipt, including full line level detail. 

The latest e-invoicing technology can also apply validation against key data provided by the users and business rules can be applied against other key data fields on the invoice – such as rejecting invoices that don’t contain a PO number.

There is no doubt that e-invoicing provides the foundations that allow organisations, of all shapes and sizes, to put automation and controls around their invoice to payment function. Increasing their ability to pay on time, understanding what they are spending at a granular level and helping them reap the rewards of those EPDs.

Isn’t it about time you thought about how this could affect your organisation and the bottom line?

This article was published by EBN Online.

Unique 100% accurate data capture for invoice automation.

A review of electronic invoicing methods

Reading Time: 3 minutes

There are different types of e-invoicing methods to choose from and to realise maximum benefit it is important to select the right one for your business.

We all know a move to e-invoicing makes good business sense – slicker processing, reduction of errors, cost savings, it’s better for the environment… The benefits are numerous.

In this review we outline the three main types of electronic invoicing methods (EDI/XML, Portal and PDF) and consider the strengths of each. We will consider the ease of installation, the on-boarding rates, data accuracy, and the costs involved to your business and your suppliers.

XML or EDI invoicing

The traditional e-invoicing approach asked a supplier to send an XML or EDI file. Conceptually it is simple: the billing system of the supplier sends (often via a service provider) an XML or EDI invoice document to the finance application of their buyer.
But for suppliers it is less simple. In the majority of cases, the supplier needs to change their billing application and infrastructure in order to send XML or EDI documents.

If the supplier is sending a thousand invoices a year to the buyer, they may be able to justify the effort and cost to do this (assuming they also have the skills available to make the change). But if they are only sending hundreds of invoices a year, it is far less likely they will be willing to make the changes and meet the costs to support this method of invoicing. As a result, on-boarding rates remain low and paper invoicing remains. However, no manual data input is required so data accuracy is very good.

Summary:

  • High level of IT changes required
  • Slow to implement
  • High data accuracy
  • High cost so appropriate only for very large suppliers (1,000 invoices/year plus)
  • Low on-boarding rate

Invoice Portals

Portals were supposed to remove the barriers to e-invoicing which exist with XML and EDI. And they do, but only for a minority of suppliers. The problem for all except the very smallest, micro business, is that to use an invoice portal creates duplication and operational inefficiencies. If an organisation already raises their invoice in an accounting application, why would they want to do it all over again in a third party portal? Duplicate time, duplicate effort and duplicate cost. They also add risk that the invoice details recorded in the supplier’s finance application are different to that in the portal. This is because portals require manual data entry from the original invoice by the supplier, with the result of natural errors transferring through. So, portals may help the very smallest of suppliers who don’t use an accounting package, but for everyone else it makes no business sense. As a result, on-boarding rates remain low and paper invoicing remains.

Summary:

• Low level of IT changes required
• Quick to implement
• Some errors due to manual data entry
• Appropriate only for very small suppliers (1-3 invoices/year)
• Low on-boarding rate

PDF E-Invoicing

PDF e-invoicing is the second most popular way to invoice after paper today. It simply requires the supplier to create their invoice as normal within their own accounting package and send as a PDF file via email. Almost every billing application can generate an invoice as a PDF, with all the invoice data items embedded in the document and visible to the right technology. PDF e-invoicing then takes the data from the electronic document (as put there by the suppliers billing system), so 100% data accuracy is guaranteed.

This type of e-invoicing is accessible to all suppliers irrespective of size. Suppliers are not required to change their processes, or incur any technology or infrastructure changes or costs – as a result on-boarding rates are extremely high.

Summary:

• Low level of IT changes required
• Quick to implement
• High data accuracy
• Appropriate for all sizes of companies (high or low invoice numbers)
• High on-boarding rate

Review

Review of Electronic invoicing e-invoicing methods table.png

In conclusion, as a general rule of thumb, the easier it is for the supplier, the higher the on-boarding rates, the greater the impact will be to your business. Focusing on your largest suppliers first will bring the greatest benefits to you more quickly; also take in to account the time taken to get the solution in place and the time to on-board your suppliers – the longer it takes to become functional, the longer it will take to realise the business case.

Do you want to implement e-invoicing?