eInvoicing and Supply Chain Finance – Has Their Time Finally Come?

Hot Topic

Our Hot Topic this month is eInvoicing and Supply Chain Finance (SCF). It does appear that the time has finally come for these two linked issues, after many years during which there was probably more discussion of those topics than real implemented programmes across the business world.

That does appear to have changed, and the legislative environment is encouraging progress; for example, the EU mandating that public bodies must be able to accept eInvoices by 2018, although simply being able to accept eInvoices does not necessairly mean the organisation has to implement full eInvoicing.

The business case for eInvoicing has been made for many years now, yet organisations were slow to make the move in many cases. Why was that? Well, thinking back to my own CPO days, the first barrier was the sheer complexity and hassle. Simply getting all the organisation's suppliers on-board to invoice in a different manner is a task that should not be underestimated.

Then there was the question of real cost savings. Some business cases used savings of small amounts of time, spread across a lot of internal staff. So hundreds or thousands of staff, each saving a few minutes a day in processing or authorising invoices all adds up to al lot of person-days or years. But there is a fallacy there; all those people save a bit of time to be sure, but does the organisation save any money if you can't actually fire any of them!? You might assume that their extra ten minutes a day is translated into added value activity, but it's pretty weak argument.

So have matters changed in recent years? To some extent, yes, they have. Firstly, eInvoicing tools have simply got better. In particular, providers have taken steps to make using the process easier for everyone, particularly suppliers. Different suppliers have different approaches to this, but however the process works at a detailed level, the aim is for submitting eInvoices to be a simple and attractive option for suppliers.

Then we have the growth in supply chain finance offerings. Technology has made concepts such as dynamic discounting more feasible, whereby different finance rates can be offered at different times to different suppliers. That means the options are more flexible and attractive than the old days of "2% discount for payment in 10 days", that I remember from the very beginning of my procurement career.

If the pace of adoption is now increasing, it is this factor that is at its core. To run an effective SCF programme, eInvoicing is almost essential, but it is the SCF that provides a strong business case for eInvoicing. Now some buyers choose not to benefit themselves from SCF programmes, but assuming they do, a return of perhaps 0.25%* of third-party spend might be an expectation - so £250,000 for a firm spending £100 million a year with suppliers, or £25 million if you spend £10 billion. Those numbers are big enough to support some investment in the technology needed.

We haven't touched here on the other benefits of eInvoicing, in particular the fraud aspect - that is hard to quantify and therefore is not enough in itself to justify the business case, but as a means to reduce the risk of loss it is very real. We may well come back to that in another article; there are other interesting aspects of the public sector business case too, such as tax "capture" issues. But lets finish today by suggesting that yes, we are finally seeing eInvoicing becoming a standard practice, although it will take years to reach 100% adoption.

(* This is based on financing 25% of spend and the buyer making a 1% margin on that. The benefits could be greater particularly if firms increase standard payment terms at the same time as introducing SCF, which is ethically dubious but does happen).

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