Can electronic invoicing reduce late payments?

According to current research, there is a global pandemic of overdue invoices (Walker, 2017). In 2016 in the US, clients settled their invoices an average of 34 days late, or 55 days from the date of invoicing. According to surveys, 92% of suppliers were paid late between 2015 and 2016. 21% of all B2B invoices in developed and emerging markets are paid 60 days past due. In the USA and many other countries, unpaid invoices lead to constricted cash flow, and cause thousands of businesses to file for bankruptcy.

One important component in the fight against late payment is e-invoicing. 56 countries have made or are in the process of making e-invoicing mandatory to some degree. For example, in Brazil, the implementation of e-invoicing nationwide has reduced invoice processing times by an average of 5 days, and reduced the number of businesses that fail because of cash flow difficulties. The transparency afforded by e-invoicing has also reduced the incidence of large clients deliberately withholding payments and otherwise exploiting small suppliers.

That isn’t to suggest that most payment delays are deliberate. A 2013 study discovered that 49% of invoices 30 days past due resulted from errors or missing information. Another study found that 16% of businesses sent invoices to the wrong recipient, or had difficulty identifying the correct recipient. E-invoicing makes these problems and their associated delays disappear. Invoice management solutions that provide built-in online payment options also reduce cash and check payments, which are the most susceptible to errors.

Do these successes mean that electronic invoicing is the answer to payment delays and its associated woes? Not on its own. However, when combined with government regulation, dynamic discounting for early payments, and other process improvements, e-invoicing is an essential tool that improves business practices, makes transactions more transparent, and enhances market efficiency. So in addition to the immense cost savings on offer, implementing an automated invoice solution also offers wide-ranging societal and economic benefits. To discover more about how to deploy electronic invoicing in your own organization, please contact Visionet Systems.

References
Walker, A. (2017). A hoard of unpaid invoices: Dissecting economies & private market forces to solve B2B late payments (Thesis). Rochester Institute of Technology. Retrieved from http://scholarworks.rit.edu/

How Prepared are You for Electronic Invoicing?

According to various research firms like Forrester Research and Sterling Commerce, switching from manual invoice processing to an invoice automation solution typically results in major savings. Conservative estimates for manual invoice processing costs hover around $12 to $15 per invoice, whereas fully automated invoice management solutions offer a unit cost of approximately $3.50. So even businesses that only process five invoices per day stand to save $1,000 each month. That’s why I found it so shocking to discover that B2B adoption of e-invoicing solutions in most developed countries remains as low as five percent! Why would companies pass up on such a clear opportunity to improve their margins?

The reasons that researchers cite include lack of awareness and lack of a business strategy for implementing a digital invoice processing system. At least some of the difficulty in formulating a solid strategy comes from the absence of a clear framework for determining where an organization currently stands with respect to implementing electronic invoicing capabilities. Thankfully, information management researchers have recently outlined a maturity model for electronic invoice processes (Cuylen, Kosch, and Breitner, 2016). Using their Electronic Invoice Process Maturity Model (EIPMM), businesses can gain a much clearer understanding of which parts of their invoicing procedures require the most immediate attention, and how large an ROI they can expect from adopting e-invoicing.

The EIPMM covers four categories: Strategy, Acceptance, Processes & Organization, and Technology, each of which are further divided into between three and five subcategories. Against these subcategories, evaluators can award between zero and four points, depending on the current state of their invoicing procedures. Assuming you weight each subcategory equally, your organization’s final maturity score will range from zero to sixty.

The Strategy category reflects an organization’s preparedness in terms of how well-aligned its business strategy is with implementing invoice management software, how willing stakeholders are to adopt new technology, whether detailed cost-benefit analysis has been performed, and so on. Since factors listed in the Strategy category are critically important for successful implementation, improving their maturity scores will help e-invoicing proponents secure internal acceptance and executive buy-in.

The Acceptance category details the degree to which internal groups, business partners, and external entities agree to adopt or support electronic invoicing. This involves ensuring that employees (especially management and accounting) understand the benefits of e-invoicing, how willing partner organizations are to adopt or otherwise facilitate electronic invoicing, and how mature the external environment is for supporting e-invoicing, including communication with regulatory bodies, invoice management service providers, and government revenue agencies. In the same way that a clear strategy makes implementation much easier, high levels of acceptance indicate that the time is right for adopting an invoice management solution.

The Processes & Organization category outlines how clearly electronic invoicing processes have been designed, and how proactively legal matters and internal policies have been addressed. Businesses that have practices in place that are well-suited to e-invoicing will have an easier time transitioning to invoice management software. Similarly, businesses that have ensured that their internal practices already align with government regulations on electronic invoicing will be able to adopt fully automated invoicing with fewer complications.

Finally, the Technology category measures how prepared an organization’s IT infrastructure is for the paperless processing of invoices. Companies that can reduce manual effort more effectively receive a higher maturity score, as do companies that apply technical standards more consistently. Businesses with well-integrated IT operations also score higher. Companies that already manage most documents electronically will transition to e-invoicing more smoothly, and so will companies with strong information security standards.

Using the EIPMM or a similar method for evaluating your organization’s readiness for electronic invoicing is a great way to address various implementation challenges in a systematic way and convince decision makers of the value of investing in a digital invoice processing solution. For more information on how your organization can improve profitability by adopting e-invoicing, please contact Visionet Systems.

If you already use ERP and e-commerce, is integration worth it?

Most companies that use ERP technologies also operate an online store for consumers, or use a web portal for B2B sales. However, many of these companies that use both types of digital technology have yet to unify them. Should they? If they did, what should they expect to gain? To what degree would such an investment yield tangible benefits?

Thanks to the rise of cloud technologies, digital products that were once out of reach for most small and medium businesses have become affordable web services. Probably the most valuable among these is ERP, which combines an organization’s various internal business processes into a tightly integrated and highly efficient whole. Companies that use ERP suites tend to spend less time managing business documents, customer information, and other internal data, and more time achieving their primary business objectives. As a result, productivity and profitability increase.

However, the effects of implementing a traditional ERP solution are almost exclusively felt within the organization, with only indirect benefits spilling over to inter-business processes like procurement and sales. ERP platforms are designed to make information sharing easier amongst company departments and personnel, but not with partner companies or other external stakeholders.

That’s where e-business technologies come in. These web-based (and increasingly cloud-based) technologies are designed with extra-organizational coordination in mind, and help companies securely and efficiently share critical business information across the supply chain. Procurement platforms help with bidding and RFQs, vendor management tools simplify replenishment and supplier relations, and e-commerce platforms provide an easier and more effective way to engage and do business with customers. The first two examples of e-business technologies share information ‘up’ the supply chain with suppliers, while the third communicates ‘down’ the supply chain with customers.

Even if you just went on instinct, you’d probably agree that transferring relevant information throughout the entire supply chain would be more efficient than operating your external upstream, internal, and external downstream information systems separately. For example, real-time information on customer transactions (downstream) could be sent directly to suppliers (upstream), which would provide much more accurate demand forecasting and mitigate the bullwhip effect. That sounds much easier than receiving a stand-alone report on online sales, manually calculating changes in demand, and then firing off an email to your supplier. With more accurate information on consumer demand, businesses can decrease their inventory levels without any adverse effects, and can also respond to unforeseen spikes in demand with greater agility. These improvements in business processes are only possible when both e-commerce and partner communication platforms are integrated with internal ERP systems.

Thankfully, you don’t have to rely on instinct. According to recent research (Hsu, 2013), the value created by integrating ERP and e-business technologies is real, and is significantly greater than the value of operating both platforms separately. The study involved 150 firms that use ERP platforms, and analyzed survey responses as well as objective accounting data to determine changes in cost efficiency, differentiation, and the intangible benefits of ERP, e-business technologies, and their integration. Hsu and other researchers (Srinivasan and Dey, 2014) have found ERP and e-business technologies to exhibit a high degree of complementarity. Not only were the benefits of integration found to be greater than the benefits resulting from the mere co-occurrence of these technologies, but the benefits of integration were also longer-lasting. While ERP platforms also yield greatest gains between years 2 to 5 since deployment, platform integration produces steady returns over a much longer period.

Now that we have evidence that integration makes a real difference, we can move on to address the question posed earlier: is integration worth it? In other words, do the returns justify the investment? Simply put, the answer is “yes”. With enterprise application integration (EAI), there isn’t any need to replace two separate platforms with a single, comprehensive (and often prohibitively expensive) replacement. Instead, EAI service providers securely connect the information systems that you already have in place to form a much more affordable unified system… one that your employees are already familiar with. Taken a step further, pre-built solutions exist that are designed to connect specific pairs of digital platforms. These platform connectors deploy even more quickly, cost less than custom EAI services, and make ERP-to-e-commerce integration a highly attractive path to achieving serious competitive advantage.

Researchers have, however, raised a caveat. While the benefits of integration are real, it isn’t enough to simply get different software packages talking to each other. Organizations that secure the greatest competitive advantage from integration are the ones that emphasize operational coordination of business functions across the supply chain. Software integration is necessary for this to occur, but is not sufficient on its own. To maximize ROI from platform integration, businesses must pay close attention to improving their inter-organizational processes alongside enhancements to their technology infrastructure. Whereas any organization can purchase and deploy the same ERP and e-commerce software, the competitive advantage gained from process optimization is firm-specific, and therefore harder to replicate. An experienced technology implementation partner is a major asset in this regard.

Please contact Visionet Systems for more information on how our CommerceLink integration solutioncan help you achieve the benefits of a unified supply chain.

References

HSU, P. F. (2013). Integrating ERP and e-business: Resource complementarity in business value creation. Decision support systems, 56, 334-347.

Srinivasan, M., & Dey, A. (2014). Linking ERP and e-Business to a Framework of an Integrated e-Supply Chain. In Handbook of Strategic e-Business Management (pp. 281-305). Springer Berlin Heidelberg.

The Hidden Benefits of Electronic Invoicing

For virtually any business, invoicing is a fact of life. The advantages of quick, cost-effective invoicing practices can spell the difference between turning a profit and merely breaking even. The advantages of electronic invoicing (e-invoicing) are well-known, including lower average processing cost per invoice, shorter invoice processing cycle time, and improved processing accuracy. However, there are several less obvious reasons why switching to an invoice management system can produce significant rewards.
It’s clear that e-invoicing leads to improved margins, since it eliminates the need stationery and shipping costs, reduces manual labor, and helps fewer workers process more invoices in a day. These savings from process efficiency are dwarfed by the amount most businesses capture in the form of soft savings. For every $1,000 that a business saves from processing efficiency, they can look forward to saving an additional $2,000 in early payment discounts, $3,000 in working capital, and prevent a whopping $4,000 in contract leakage. In other words, the overall monetary benefit of using invoice management solutions is ten times what you might expect.
Of course, not all benefits are measured directly in dollars. Businesses that adopt e-invoicing also reduce the risk of noncompliance, whether that takes the form of late payments, incorrectly calculating taxes, line item mismatches, or using the wrong accounting codes. Invoice automation solutions bring these mistakes down from 30 percent to under 2 percent.
Finally, another underreported advantage of using an invoice processing system arises from operating entirely in the digital realm. When an organization’s invoicing is performed digitally, it becomes extremely easy to compile detailed analytics on each line item in each invoice. This simplifies cash flow forecasting and improves visibility of your expenditures. You can also improve accountability and information security, since digital systems are much easier for organizations to monitor and audit.
So if you’re thinking about moving your business over to a vendor invoice management system, you can rest assured that these subtle advantages, combined with more obvious cost savings, offer tremendous return on investment. To learn more about our invoice management solution, please contact Visionet Systems.