US Government e-invoicing – more dubious savings claims?

We're pleased to feature another guest post from Guy Allen, global CPO for Fujitsu.

The latest Procurement Leaders email newsletter leads with an article claiming that the US Treasury hope to save $450m by introducing e-invoicing.

The brief article describes that the aim would be to get 3rd parties, with which it spends $6bn per annum,  to submit invoices via an internet payment system. Well, I am all for cost savings, but a couple of things caught my sceptical eye.

First of all $450m saving. Really? So AP costs for the US treasury are 7.5% of their total spend? Wow! Also one assumes that $450m must be people savings, as the US Treasury will still need their finance systems, their AP systems, their payment systems. So let’s assume that the average all in costs of AP staff in the US is $100k per head; that means in order to achieve the $450m savings they would need to make 4,500 staff involved in the payments process. Yet nowhere in the article is there any mention of job losses. I wonder if anyone can recall any other organisations that make similar wild savings claims?!

Secondly, even though I have questioned the numbers, I do not doubt that there are savings to be made. However in this case it is effectively being achieved by pushing the task of invoice input out to the 3rd parties. Their suppliers will now either have to re-key data from their own systems in to the Treasury web page, or build an application to make the data entry automatic; either the way the cost is moved from the US Treasury to its suppliers. It can be assumed that at some point this cost will find its way back into the prices charged to US Treasury.

Much better to have an approach that address the value chain and takes cost out of the process for everyone. This was once the aim of EDI, which was too complicated perhaps. But I am sure Jason and the Spend Matters team can brief us all on other solutions that address the value chain of the payment process far more effectively then this approach.

Voices (3)

  1. Ernie Martin, OB10:

    Guy, I have to agree with Pete and James on the first point regarding approximate costs to US Treasury AND to the entire US Government. but, the second point requires clarification as well.

    The best third party e-invoicing networks take the acceptance/submission burden from the customer, but that “burden” and cost is not then necessarily passed to the suppliers. First, a third party provider means there is no need to enter anything into the Treasury web site. Second, there is nothing for the supplier to build if they choose automatic submission from their billing system. Unlike EDI, a third party provider simply makes a connection with no hardware or software required and no major build by IT – very cost effective for them.

    Finally, keep in mind that there are now costs associated with submitting invoices the old fashion way; printing an invoice, mailing it, resolving errors, calling customers to inquire about invoice receipt – even if e-mailed, late payments – longer DSO, etc.

    There are many more benefits to e-invoicing through third party providers for both the customer and their suppliers.

  2. James R. Clawson:

    I agree with Pete that what US Gov. is talking about is just a small % of what the possible outcome could be. The $450M is only an estimate if it were to be extended all across the whole government!

  3. Pete from Purchasing Insight:

    Peter, Guy,

    The US treasury are claiming to be able to save $7m per year – just a fraction of 1% of their budget. The $450m is the estimated saving if this were extended across the whole of government.

    This is an achievable saving for any organisation through the redeployment of people as well as other efficiencies associated with tighter control of payments, discounts and avoidance of penalties. The cost to the supplier, depending on ho this is approached, could be trivial.

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