Putting Procurement in Plain English: E-Invoicing and P2P
We got a great response a couple of weeks back from a Friday post I wrote that tried to explain procurement in a simplified manner. After writing this essay, I realized the importance of truly distilling – not necessarily dumbing down – what the solutions and processes we write about all the time at Spend Matters actually do for the business.
Note, when I refer to the business, the term encompasses customers both internal (i.e., constituents, stakeholders, front-line users, etc.) and external (i.e., those that pay us!), rather than the organization (procurement, finance, supply chain, etc.) implementing a given solution or approach in the first place.
I’ll continue the analysis today by looking at e-invoicing, hopefully in as plain an English as possible!
What problems does e-invoicing solve? What is e-invoicing?
Electronic invoicing represents not only the sending of invoices from suppliers electronically, but also the sending of information, ideally in a machine-to-machine manner that allows buyer and supplier systems to “talk to each other.”
E-invoicing enables suppliers to submit invoices electronically and for A/P organizations to receive them electronically, which in turn can greatly speed up the approvals process. Note: this does not necessarily mean paying suppliers early!
Not only does e-invoicing reduce paper-based processes through this automation, it also serves as a foundation for transforming the Accounts Payable (A/P) function by bringing new levels of operating efficiency to procurement and finance organizations.
E-Invoicing can create material labor efficiencies for both accounts receivable and accounts payable organizations, while also enabling other programs to work effectively for the first time (e.g., early payment discounting).
Effective e-invoicing drives overall spending compliance through matching invoices and other documentation to buying and receiving records. It eliminates the potential for cash and savings leakage (e.g., duplicate payments to suppliers, payments based on only partially delivered orders/services).
E-invoicing can help companies overcome regulatory compliance requirements in specific countries and regions (e.g., Brazil, Argentina, Mexico, Nordics, etc.).
What challenges and opportunities do companies face without e-invoicing?
Without effective e-invoicing covering all of a company’s suppliers (not just the largest ones based on the number of invoices received or by dollar volume), the only way organizations can systematically reduce accounts payable costs is through labor cost reduction and shared services models based on Six Sigma/lean approaches. These other approaches provide only incremental gains in operating efficiency. They neither provide step change benefits, nor enable breakthrough program results.
Shared-services and lean programs focused on A/P efficiency and procurement/treasury integration will be that much more effective with an e-invoicing approach at the core.
Procurement and supply chain organizations also open themselves up to creating additional risk if they don’t have an effective e-invoicing approach that can provide suppliers with specific payment information (e.g., dates) for cash management planning, as well as a means of leveraging invoice confirmation (electronically) to identify various means of receivables financing opportunities at a reasonable APR.
What problems are typically not well addressed today by these solutions?
E-invoicing does not necessarily introduce automated and compliant shopping and purchasing programs for companies based on approved vendor lists, approved SKUs, budgets, or internal policies (e.g., spending levels based on function, employee classification, etc.).
E-invoicing alone does not provide a means of funding or enabling early payment discounting programs, either using a company’s own balance sheet or that of a third-party to facilitate payment before the original maturity date.
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