Editor's Note: This piece was reprinted with permission of Ernie Martin, founder and managing director of Receivable Savvy. The company is dedicated to cultivating knowledge and understanding among suppliers in relation to Order-to-Cash processes while also delving into what they do, how they do it and most importantly—why they do it. You can follow this blog and others here.
In a perfect world, invoicing should be a smooth practice. The Invoice-to-Pay process is considered the oil that helps run our country’s economic engine, as suppliers and customers both have a vested interest and want to see less complexity and more speed.
According to the Fed’s "2016 U.S. Adoption of Electronic Invoicing: Challenges and Opportunities," roughly 25 percent of B2B invoicing is handled electronically. In fact, most e-Invoicing is initiated by large companies or government agencies.
Several Latin American countries have already mandated its use and the EU is ahead of the curve in using e-invoicing. Two obvious questions become apparent: What are the challenges to greater adoption of e-Invoicing in the United States and what are the recommended solutions to these challenges?
Many U.S. companies see the advantages of e-invoicing. Although it’s clear that the practice saves money and time, U.S. policy lags behind the European Union. Because the EU has so many members, languages, and includes various currencies, there is a strong need to have a standard format and effective regulation.
A concern for the U.S. is that suppliers, manufacturers and sellers would all need to adopt a similar system for e-invoicing to be successful. Most importantly, the Federal Reserve is examining the need for standardization to speed the adoption of electronic invoicing and payments.
E-invoicing seems like a great solution but there are real challenges to adoption. What four challenges pose difficulty for more widespread use of electronic invoicing?
No. 1 – E-invoicing appears complex
Paper invoicing is common because most companies view it as easy and straightforward. But invoicing has multiple elements that can be automated to speed the exchange of data and payment. In fact, per the "2015-16 Receivable Savvy Perceptions Study Deep Dive" on payment and remittance, suppliers indicated that the most important issue when invoicing customers is faster payment. An electronic invoice can be sent, reviewed and approved much more quickly than a paper invoice, resulting in fewer errors and faster payment. These advantages outweigh any concerns surrounding the perceived complexity of implementing an e-Invoicing solution.
No. 2 – Businesses may have difficulty getting up to speed
With paper invoices, an organization delivers the customer a payment request, either via the postal service or email. But an e-Invoicing system requires the supplier and customer use compatible systems. To do that, both must take steps to ensure there is compatibility where delivery, validation, approval and payment status are communicated. The truth is that onboarding for both sides can be somewhat tedious, but solution providers continually work to make it easier. For many suppliers submitting a small number of invoices, there are options for simply keying in invoice data and submitting to the customer without complex implementation. This allows a greater number of suppliers to ramp up quickly.
No. 3 – E-Invoicing is viewed as an added expense
Businesses can easily send paper invoices to customers via email or the postal service. Placing an invoice in an envelope and adding postage is almost viewed as a non-expense. But, multiply that practice by hundreds or thousands of invoices per year and now we’re talking real money. Although there is a cost associated with submitting an electronic invoice (only pennies per invoice), many suppliers can submit a lower volume of invoices at no cost at all using most third-party solutions. Nevertheless, the savings, speed of payment and reduction or elimination of exceptions more than pays for the implementation of an e-Invoicing system. Still, the notion persists that it’s very costly and it’s not worth the expense.
No. 4 – There is no incentive to change
Countries that successfully implemented nation-wide e-voicing initiatives usually began with a pilot program, studied the results, then put regulations in place to mandate its use. Another common element in Europe and elsewhere is the use of a value-added tax (VAT). One of the reasons the EU uses electronic invoicing more than the U.S. is because there are built-in incentives designed to simplify transactions around VAT and encourage automation. The federal government does use e-invoicing with its suppliers but there may be a need to introduce a nation-wide incentive program to speed the transition away from paper among other organizations that have no direct business with the federal government.
What solutions would address these challenges? The Federal Reserve continues to identify strategies to make e-Invoicing more ubiquitous and some solution providers are actively looking for ways to make true interoperability a reality. With this in mind, possible recommendations may include:
- Reduce the complexity of moving to electronic: Complexity and perceived cost slow down the implementation of e-Invoicing. To reduce the complexity, on the other hand, involves establishing faster onboarding methods that allow supplier organizations to simply click a few buttons, answer a few questions to being transacting the same day. In addition, solution providers often share conflicting and confusing messages about onboarding and functionality of e-Invoicing. Communicating clearly to supplier organizations in a way that allows them to compare apples to apples would go a long way in reducing some of the complexity.
- Create incentives to move away from paper invoicing and to embrace e-Invoicing: Adopting new policies often requires different incentives. One possible incentive might be a tax credit. Another might be guaranteeing faster payment if the invoice is submitted electronically. Built-in incentives already include faster payment and improved data quality and accuracy – but faster payment is not guaranteed, only highlighted as a likely outcome.
- Standardize to reduce costs: Since submitting electronic invoices is ultimately less expensive than other methods, greater standardization and improved interoperability will lessen resistance. What most supplier organizations want is the ability to use the same e-Invoicing approach and connection for multiple e-Invoicing systems. Unfortunately, standardization is often at odds with the mission of some solution providers who have invested heavily in their version of connectivity and validation when handling electronic invoice data. But, there is likely a partnership opportunity between the federal government and private enterprise that can be beneficial for everyone involved.
The U.S. faces clear obstacles in the transition to e-invoicing. Supplier and client organizations can be complex and come in a variety of shapes, sizes and industries. Any move to widespread e-invoicing will also require careful thought, extensive planning and significant buy in from a large collection of private solution providers working with universally accepted standards.
The Federal Reserve has taken clear steps by developing strategies designed to introduce possible standards.
What remains is whether commercial enterprises will embrace these recommendations.
Ernie Martin Receivable Savvy
Ernie Martin is the founder and managing director of Receivable Savvy. Ernie is a well-rounded receivables industry professional with over 25 years of experience in financial supply chain management, marketing and communications. With a varied background, Prior to founding Receivable Savvy, Ernie spent time as the Director of Global Supplier Marketing at Tungsten Network, where he experienced first hand the value suppliers bring to the supply chain. His resume also boasts time at several well-known brands and companies such as Delta Airlines, CIGNA Healthcare and Georgia Pacific. Follow him @ErnieMartin10.