E-invoicing is the solution to unlock early-payment discounts, but many businesses are stuck in the past, according to Roger Hatfield, vice president of North America for CloudTrade.
Earlier this year, interesting news came in from across the pond with the publication of the first edition of the U. K. government’s new „name and 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 U. S. in e-invoicing initiatives, the figures shows that only 25% of the companies offer e-Invoicing. What happened to the rest? Why aren’t they taking advantage of e-invoicing to manage their supplier payments?
While many organizations 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 to help erase late payments. This is a global problem.
It’s clear that the U. K. and U. S. markets are different in their approach to supplier’s payments — the U. K. uses more traditional „direct“ banking methods to pay their suppliers while many U. S. organizations still use checks. But a host of payment providers that provide solutions from invoice receipt/processing to online vendor/supplier payment portals and invoice automation to help manage the payment process.
But I wonder how many organizations are able to take advantage of the hard-earned, and hard-negotiated, early-payment discounts (EPDs) from their suppliers? Many of the payment solutions on offer in the U. S. allow organizations to keep their existing bank relationships and pay suppliers by ACH, check, virtual cards and credit cards faster than they would 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?
In comparison to the U. K., the U. S. is far ahead when it comes to paying suppliers. The Paystream Advisors 2016 Data Capture and Mailroom Technology Insight Report stated that nearly 92% of invoices received electronically are paid on time, versus only 45% when invoices are received in paper form.
This is where the problem lies. The Federal Reserve says that only 25% of U. S. invoices are electronic, so that’s 75% of all U. S. invoices being processed by other means, which is a huge opportunity for efficiency and EPD gains.
We know that reducing your days payment outstanding 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?
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 OK, 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 two- or three-way match.
This is where the costs mount up, because every processed invoice will need to be reviewed manually since the suppliers „standard“ invoice format changes dynamically with the addition of multiple lines and pages.
An alternative approach that the majority of organizations 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?
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 important, the supplier doesn’t have to pay or log in to 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 store, 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 one to five 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.
