| by Thayer Stewart
A Greening Technology
In the current drive by companies and individuals to reduce their effect on the environment, e-invoicing is worth a look.
Using standard calculations based on each invoice consuming three pieces of paper, one average tree will produce approximately 2,778 invoices. Based on the billions of invoices moving between suppliers and buyers each year, it’s easy to see that as many as a million trees could be saved if most of those invoices could be transmitted electronically.
If a million trees could be saved, there would be other annual savings as well. We’d save 83,000 barrels of oil and 171 million kilowatts of electricity needed to produce the paper, avoid 2.5 million pounds of air pollutants, and keep 138,000 cubic yards of paper from eventually ending up in landfills.
Sources: www.conservatree.com/learn/EnviroIssues/TreeStats.shtml and
www.bcua.org/SolidWaste_Recycling.htm
The History of
E-Invoicing
Efforts to minimize the amount of paper involved in invoicing and to reduce the need to re-enter invoice data actually started during the 1960s with electronic data interchange (EDI) technology.
Driving EDI was the concept that if customers and suppliers could agree on a format for invoices, all purchasing and invoice processing could be done electronically. This required that each company establish a system that entered data into a fixed invoice format, which was provided to the buyer. The supplier, in turn, received purchasing data from the buyer in a similar, fixed-format purchase order.
Although EDI was an effective solution for large trading partners, it was less practical for suppliers that might submit only 50 invoices annually to a customer. It simply wasn’t cost-effective for a supplier to invest time in redesigning its invoice format for one or more lower-volume buyers. Thus, the bulk of suppliers resisted migration to EDI unless compelled by a powerful customer.
The issue of EDI’s rigid format motivated the search for more flexible solutions, particularly a way to extend e-invoicing benefits across a large supplier base. Today, it’s possible for suppliers to take part in e-invoicing with their buyers with virtually no need to change their invoice formatting.
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Eliminating errors from administrative processes is an important objective for any organization. For those involved in e-commerce, the same meticulous attention to quality applies, whether it’s in manufacturing, product handling, customer service, Web site functionality, or service delivery. When it comes to receiving and handling invoices from suppliers, electronic invoicing technology, itself a form of e-commerce, now offers the means to virtually eradicate errors.
In the many steps of the accounts payable (AP) process, there are countless opportunities for error, from a printed invoice being lost in the mail to its getting buried on someone’s desk. Data from the invoice may be entered incorrectly, resulting in an incorrect payment to a supplier. Any of these unfortunate occurrences may mean that a company misses deadlines, incurs late-payment penalties, misses out on early-payment discounts, or has to reissue a corrected payment.
The two factors at work here are human error, which will always be with us, and the nature of the invoice itself. A paper invoice requires a high level of human involvement, from opening the mail to scanning the invoice to entering data to physically transporting it from office to office.
As a means of eliminating errors and achieving a higher level of payment accuracy--as well as to reduce AP staff costs--companies are turning to electronic invoicing, which is now easy to implement for both customers and suppliers. As a result, the trend is quickly finding its way to accounting offices around the globe.
Invoices that remain electronic from the time the supplier generates them until they’re paid move more quickly and efficiently through a company’s enterprise resource planning (ERP) and workflow systems. Only a small percentage of e-invoices that may trigger an exception (such as a purchase order/invoice disagreement) ever require staff attention.
As a result, companies that receive e-invoices have a real-time window into their financial obligations and cash flow. They can choose to leverage prompt-payment discounts, ensure that invoices are paid before late-payment penalties are imposed, capture available volume discounts, and effectively manage the financial aspects of ongoing contracts. In addition, they can pay their suppliers more quickly and accurately.
An e-commerce company, of course, is just as likely to be a supplier to a large customer as it is a buyer from other suppliers. From a supplier’s standpoint, then, how does e-invoicing enhance quality?
Although the initial reaction of many suppliers to a buyer’s e-invoice initiative tends to be negative -- due to a groundless fear that significant changes to its business processes will be necessary -- suppliers quickly discover the benefits of the technology.
With electronic transmission of invoice data, there’s never a chance that an invoice will become lost in the mail or mired in the customer’s office. Buyers report that with e-invoicing they’re able to cut as much as two weeks from their overall invoice processing cycle. In most cases, suppliers are paid several days sooner than they might have been otherwise.
In the event that there’s a mismatch between an invoice and purchase order, the problem can be caught instantly and flagged, and the supplier can be notified early in the process. Payments are also consistently accurate, so the supplier doesn’t have to spend time badgering its customers to make corrections.
Suppliers are a critical element in the e-invoice scenario. For a customer to truly benefit from the process, it needs a critical mass of suppliers. The more a buyer and supplier can unite to push paper out of the process, the greater the efficiency gains for both parties.
This is where the technological advances in e-invoicing can be most beneficial. The flexible submission capabilities make it easy for suppliers to join their customers in adopting the system because it doesn’t require major internal changes either in processes or the way data are handled.
Companies across the commercial spectrum that switch to e-invoicing and integrate it with their workflow and other business-process automation tools typically reap a number of measurable benefits. Among them are:
• Reduced processing costs. Organizations that move to electronic invoicing find that their processing costs fall exponentially. Fewer AP employees are required, allowing the organization to reassign them to higher value-added positions. Also, less time is spent in looking up and analyzing invoice data, because the electronic information is always accessible within seconds.
• Improved supplier satisfaction. The reduced invoice cycle times resulting from electronic delivery typically mean timelier and more accurate payments for suppliers. Also, invoice/purchase order disconnects can be spotted immediately, and as a result a supplier can be informed early in the process instead of experiencing delays. These advantages work to strengthen the organization’s relationships with suppliers and improves supplier cooperation.
• Increased visibility. Organizations gain a global, end-to-end view of the business process. They are able to determine at any point in time what their liabilities are, what invoices are in process, and where any process bottlenecks may be occurring. An organization’s ability to measure the performance of suppliers is also improved. This ensures that it is receiving, and will continue to receive, the agreed-upon contract pricing from suppliers.
• Strengthened internal controls. Automated enforcement of internal controls ensures the validity of each transaction. This both allows and encourages organizations to establish, maintain, and document improved internal processes.
• Improved cash management. This is a positive result of the organization’s enhanced visibility into its liabilities relative to its cash flow. Electronic data delivery makes it possible to capitalize on any available early-payment discounts, for instance. The improved cash management also lets an organization move to reduce late payment penalties, duplicates and overpayments, and trim audit recovery fees.
• Better use of staff. An organization can benefit by the elimination of nonvalue-added procedures such as invoice data entry and the optimization of redesigned processes. Manually intensive tasks, such as routine invoice data entry or invoice scanning, are curtailed, and the individuals formerly in those positions can be moved to positions with a higher level of responsibility and with greater benefit to the organization.
• Electronic audit trail. This speeds up dispute resolution and makes periodic audits less cumbersome and consequently less expensive. Tracking Sarbanes-Oxley compliance for public companies, or value-added tax (VAT) accounting for international organizations, is also significantly enhanced because the invoice data are always completely up to date.
• Automation. Invoices are automatically routed for coding, approval, and hold resolution, based on data contained in the transaction and workflow mapping. This not only eliminates the delays inherent in interoffice or regular mail, but also prevents document loss.
It’s useful to take a look at one company that’s benefited from using e-invoices. Mohawk Industries Inc., based in Calhoun, Georgia, is one of the world’s largest floor-covering manufacturers and has been using an e-invoice solution from OB10, a global e-invoicing network, for more than a year.
Reducing keying errors and guaranteeing consistent accruing to comply with Sarbanes-Oxley requirements were among the primary goals for Mohawk as it began the migration from paper to electronic invoices. The company receives a million invoices annually from some 8,000 suppliers, and by the end of its first year of e-invoicing, it had cut the number of paper invoices in half.
Mohawk’s suppliers submit their invoices electronically to a network operated by OB10, which maps and reformats the data and delivers the invoices in Mohawk’s desired format. These go directly into Mohawk’s JD Edwards Financials accounting system. They require no staff intervention, and consequently data-keying errors are eliminated.
The company now achieves same-day processing with nearly all of its invoices and has improved its relationships with suppliers as a result. The company has eliminated delays in posting expenses, increased its visibility into its payables data, and has reduced its AP headcount, reassigning employees to more value-added job positions.
Mohawk achieved a return on its e-invoicing investment within three months and continues to add to the savings as it moves more of its suppliers from paper to electronic submission.
The company implemented innovative technology that improved its business processes while simultaneously reducing operating expenses. The company retains direct control over its invoice processing and supplier relationships, and generates accurate accrual data--essential for
Sarbanes-Oxley reporting--and has streamlined its processing.
When Mohawk moved to e-invoicing, the top 1,000 of its more than 8,000 suppliers--accounting for more than half of the annual invoice total--were targeted first, and within five months, 76 percent of them had enrolled in the program. By the end of its first year of going electronic, and a half-million e-invoices later, Mohawk celebrated its arrival at the halfway point in the long-term objective of eliminating paper invoices.
E-invoicing is clearly a powerful tool for improving the efficiency and accuracy of an organization’s AP process. Eliminating process bottlenecks and achieving a high level of accuracy in payments are important elements in a company’s pursuit of quality. It’s reasonable to expect that e-commerce organizations would benefit from this technology-based solution because it extends their electronic foundations in a logical and cost-
effective way.
Combining an e-invoicing network with a business-process automation solution integrated with an ERP system yields a streamlined, end-to-end AP process that eliminates any need to re-key or recapture data. As The Aberdeen Group observed, “E-invoicing has emerged as the essential tool for integrating multiple electronic means over paper-based methods. This is the best way to significantly reduce costs and capture valuable business information.”
Thayer Stewart is vice president of Americas Business Development and Marketing for OB10, a global electronic-invoicing solution provider. He has more than 15 years of industry experience, including 12 years with American Express. The company Web site can be found at www.ob10.com.
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