Despite the long-acknowledged advantages of electronic processing of invoices and payments, companies have been slow to let go of paper. The Web is changing all that.
The advent of the Internet changed that, promising ubiquitous connectivity and a more cost effective alternative for companies that could not afford the upfront investment in EDI. Electronic bill presentment and payment (EBPP), in which consumers visited a single website or individual sites to pay bills, was one of the earliest examples of how the Web could be used to eliminate the costs and inefficiencies associated with processing paper. According to a joint survey conducted by electronic payments association NACHA and TowerGroup, from 1996 to 2001 the number of consumer bill payments initiated online quadrupled from 113 million payments valued at $26.9 billion to more than 400 million bill payments worth $120.9 billion.
Although Web-based services such as electronic invoice presentment and payment (EIPP) demonstrated promise in automating the order-to-pay process, B2B presented more challenges than the consumer world. “[The EIPP market] has been relatively slow to take off, due to both the complexity of implementing change in the B2B transaction environment and the prevalence of products oriented to biller/suppliers,” explains TowerGroup’s Robertson.
TowerGroup’s research indicates that less than 1% of the 15.3 billion invoices issued annually in the US and the 12.2 billion invoices issued in the EU are generated electronically. In the consumer world, the relationship between biller/supplier and payer is less complex; B2B e-commerce encompasses more sophisticated business processes including procurement, fulfillment, financing, order matching, payment authorization and accounting.
As these captive companies have retained more risk, they have become a natural focus for corporate risk management, according to Clark. “The advantages of captives were historically largely tax related,” he says, “but in recent years they have become a mechanism for efficient risk management.”
A Citigroup-sponsored online working capital survey conducted in September 2003 found that 49% of companies reported that less than 25% of their revenues were processed electronically. Only 8% received between 51% and 75% of their account receivables electronically. “There are various challenges depending on the type of organization looking to deploy EIPP,” says Dyfan Williams, commercial director, Accountis, a UK-based provider of payment and financial document solutions. “If they are a large company, they are more likely to have the resources to put behind it.” Williams says the challenge for smaller companies is that they may not have the purchasing power to convince suppliers to send invoices electronically, “whereas larger companies can say, ‘If you want to do business with me, you have got to send me invoices in this format,’” he explains.
Cavano says the companies that get the most value from its platform have 80% of their suppliers on board. “It doesn’t make sense to do it with one vendor unless they are your main supplier. So once you get critical mass, you start to reap the benefits,” he says.
The US currently leads Europe in terms of adoption of EIPP solutions. But a convergence of factors is expected to drive wider adoption on both sides of the Atlantic. The EU Electronic Invoicing Directive, implemented in January 2004, paved the way for EU member states to ascribe the same legal status to electronic invoices as paper invoices provided that authenticity of origin and content integrity could be guaranteed.
While the directive is expected to remove some of the barriers, Williams of Accountis believes most companies are still two to three years away from full-scale adoption of EIPP. However, he anticipates that additional regulatory imperatives such as Sarbanes-Oxley will add further impetus. “With Sarbanes-Oxley, companies need to ensure that the systems behind financial information are valid and reliable,” he says. EIPP solutions are also becoming more sophisticated, easing the pain for many companies that found previous technologies disruptive. Platforms such as OB10 and TradeCard can be accessed via a Web browser, and invoices can be filled in online. For more sophisticated companies, the EIPP vendor can interface with ERP or accounting systems. Accountis’s electronic business printer allows companies to send invoices directly from their accounting systems. Accountis and OB10 also act as “translation engines,” converting the invoice issued by the supplier into a format accepted by the buyer, which Williams says is one of the biggest challenges around EIPP.
By automating the process, companies can eliminate the costs—anywhere from £2 to £30 ($3.70-$56)—of processing paper invoices. “Receiving paper invoices and processing them is slow,” says OBE’s Falys, adding that by using its network, invoices can be received within hours as opposed to days. As the invoice is issued more quickly, suppliers can also expect to be paid sooner. “One of the single biggest factors for adoption of EIPP by customers is the ability for suppliers to get paid earlier,” Falys continues.