What is Real eInvoicing and What Does It Deliver

WH

ITE

PA

PE

R

ADP® Procure-to-Pay Solutions

What Is Real eInvoicing & What Does It Deliver?

What Is Real eInvoicing and What Does It Deliver? p. 1

Definition “eInvoicing is a seamless, scalable, real-time method of joining buyers and suppliers via the Internet through a collaborative workflow process.”

For most companies, the invoicing process is still paper-based, laborious and far too expensive. This is true for both the buyer and supplier side of the process. As a result, a growing number of companies have adopted systems they believe will save them significant effort, time and money through “eInvoicing.” In far too many cases, this is not the result.

Why? Because the phrase “eInvoicing” has been applied to so many different systems and practices for so long that its meaning is murky. The result: many companies have purchased systems that are merely posing as eInvoicing, and those systems aren’t delivering the performance needed or promised.

This whitepaper will clear away the misconceptions surrounding eInvoicing, and provide practical advice for companies that want to realize the savings and efficiencies it can deliver.

Why Is eInvoicing Important?With true eInvoicing, the cost savings aren’t the only benefit, but they are certainly significant. You can reasonably expect to cut costs by 50% to 80% compared to manual processes. In dollar terms the savings are truly impressive. North American companies transact 17 billion B2B invoices annually. With the average cost per invoice hovering at about $20, a savings of 50% to 80% (depending on the complexity of a company’s processes and the level of automation it adopts) conservatively translates to a savings of about $170 billion annually.

On a corporate level, for every 100,000 invoices, you can expect savings due to process automation alone in the range of $1 million to $1.6 million. In addition, you can expect to streamline your processes, free up your staff for more value-adding work, improve cash flow and enjoy a faster, more thorough view of associated business metrics such as committed spend.

The Evolution of eInvoicingFollowing is a summary of the systems that have, at various times, been called “eInvoicing.”

MANUAL – Mostly paper-basedThough often featuring centralized accounts payable (AP), the processes at this stage of the evolutionary path are burdened with back-end scanning and archiving, manual approval and dispute processes and the need to manually key information into the AP system.

EDI – Going point-to-point electronically is better, but...Here we’re gaining some efficiency through electronic file transfers. The problem is that each connection is unique, so there is no “network effect” – no real collaboration, no real-time efficiencies. In addition, EDI is expensive to maintain and difficult to implement and thus is not broadly adopted. For a time it was the best we could do, and it helped, but not enough.

SCANNING PLUS WORKFLOW – A mix of automated and manualBy this, we mean paper invoices are scanned and then routed electronically. This system still requires manual work, including front-end scanning – a combination of OCR and keying from images – and then goes more digital, with electronic routing and approval, automated uploading of totals to AP and improved controls. This is definitely an advancement, but, again, this system is hampered by its inability to harness the collaborative efficiencies of the Internet.

COLLABORATIVE SCANNED INVOICES – Collaborative but not electronicJust coming on the scene are systems that combine the simplicity of scanning plus workflow with the collaboration afforded by the Internet. In these systems, the supplier scans the invoice and then submits the invoice to the buyer through a web-based platform. This approach has a couple of advantages: (1) the supplier does the scanning rather than the buyer, saving the buyer time and the supplier the cost of postage and handling; and (2) the supplier is now connected electronically through the platform. This means that he has visibility to his invoice status in real-time and


buyer and supplier enjoy online dispute resolution – a big step up from traditional scanning plus workflow. However, the invoice is still fundamentally an “electronified” paper document, which means no line items are being captured electronically.

HUB SERVICES – Electronic but not collaborativeBy hub, we mean a service provider who acts as a translator and transmitter of varying electronic file formats among a network of buyers and suppliers. With hubs, there is no built-in workflow to manage the routing, approval and adjudication of the invoice. By now we have eliminated paper, which is a huge step, but, with the workflow residing outside the hub (typically in the buyer’s ERP or procurement system), sophisticated integration is required to provide any sort of dispute resolution among trading partners. Hub services can be suitable if you have your own workflow, especially if it’s already implemented and fairly entrenched in your way of doing business.

“True” eInvoicing: Saves You Time and Money“True” eInvoicing is characterized by a fit-for-purpose workflow that centers around invoice coding, approval and adjudication. Web-based, with modern architecture and a simple user interface, it’s easier to use, much less expensive and a way to streamline much of your company’s business processes.

True eInvoicing delivers:A true collaborative workflow between buyer and supplier via the Internet with real-time visibility ▸to the process on both sides

Huge savings of time and money due to the elimination of data entry and streamlined processes ▸Line item detail – very important for capturing all of the potential savings ▸Automated price checking ▸The ability to offer and manage early pay discounts, a significant category of savings in its own right ▸Faster resolution of disputes, again, saving time and money ▸Real-time reporting, including visibility to committed spend. This means better cash management. ▸Automated invoice matching (to POs, contracts and receipts) ▸Spend capture, categorization and analysis for better contracting and supplier management ▸

Easy Does It, If NecessaryWhile true eInvoicing delivers the most value, there is no need to throw out your whole system and start over to get it. You could move to a hybrid model, targeting key suppliers based on invoice volume and spend. The idea would be to use “scanning plus workflow” or better yet, “collaborative scanned invoices” for those suppliers who are still on paper while moving toward eInvoicing. But keep in mind, the faster you move to a true and complete eInvoicing system, the more you save in terms of costs and the more you gain in terms of efficiencies. Those who have implemented this hybrid model have reported double the savings of eInvoicing over “scanning plus workflow1.”

(Next: The Evolution of eInvoicing)

1 Devon Energy presentation at P2 Energy Conference, October 2009


THE EvOLuTION OF EINvOICINg

Unlike other invoicing solutions, true eInvoicing uses a fit-for-purpose workflow that centers around invoice coding, approval and adjudication.

MANUAL

EDI

SCANNING + WORKFLOW

HUB

eINVOICING

Pape

r Pro

cess

Docu

men

ts “

Elec

tron

ified

”Th

e Ne

twor

k Eff

ect

1

2

3

5

6

• Back-end scan and archive• Manual approval and routing• Manual keying into AP system

• Point-to-point electronic file transfer• Electronic transmission, but costly,

therefore limited adoption

• Front-end Imaging• OCR and key from image• Electronic routing and approval

• Document transformation & transmission• No intrinsic workflow (workflow resides in external systems)

• Embedded / integrated workflow• Collaborative network of buyers & sellers• Eliminate data entry

• Automated upload of totals to AP• Improved controls

COLLABORATIVE IMAGE INVOICING4• Supplier scans the invoice;

reduces buyer scanning• Electronic routing and approval

• Online dispute resolution• Supplier visibility into invoice

status; reduces supplier queries

• Eliminates Paper• Sophisticated integration to

external workflow is required

• Automated price checking• Spend capture & analysis• Automated invoice matching

• Line-item detail• Early pay discounts• On-line disputes

Value Delivered


How to Deal with Vendors: TerminologySo, when vendors approach you, and claim they have an “eInvoicing” system, how do you cut through the rhetoric to find out what they really have to offer?

Here are some questions to ask that will help you with assessing various technology options and process changes:

How “electronic” will my documents be from start to finish? This is important because at each point where manual intervention is required, value is lost because:

Any manual activity is costly and provides the potential for the introduction of errors. For example, while scanning ▸technologies can “electronify” a paper document, they typically fail to digitize 15% to 25% of all information. That means you need to do a lot of expensive verification and slow manual keying.

If any data is not captured, the opportunity for further value addition is limited. For example, if line-item detail is ▸not captured, invoice matching to POs or contracts isn’t possible, which has huge implications for approvers and cost reduction. Nor would you be able to do spend capture and analysis. So be careful that you aren’t sacrificing two important savings opportunities.

Will there be a synergistic “network effect?”A network has a self-generating value that can be described as almost logarithmic: the more people who join, the easier and more attractive it is for others to join, and the more who will want to join, etc. To understand the importance of the network effect, consider EDI. Because it’s point-to-point, there’s no network. It’s one-to-one versus the many-to-many approach of eInvoicing. With scanning plus workflow, there’s no network effect either, since the supplier is never engaged electronically, so there’s no value or reason for them to abandon their manual systems. And when there’s no cost savings for the supplier, ultimately that means less cost savings for the buyer.

How high is the level of collaboration among trading partners? Every time the collaboration breaks down, and one of the parties reverts to a manual process, value is lost. Moreover, certain value drivers are only available in a collaborative, fully electronic system. For example, online dispute resolution is instantaneous. Invoices are resolved faster, saving time and money for approvers and making early pay discounts possible. It also means buyers and suppliers have visibility into financial information earlier, which allows them to make better cash management decisions. Further, if a collaborative platform is in place, tools like dynamic discounting and joint logistics planning are possible, adding even more value.

Is the solution modular and scalable?Every company is different, and every company has legacy systems and processes that need to be considered when implementing an electronic invoicing solution. To make sure that you capture the maximum value, you have to ensure any solution can be “mixed and matched” to meet the needs of your particular environment and history. Your solution also needs to be able to accommodate growth. Scalability and an easy and clear upgrade path is extremely important.

(Next: Vendor Checklist)

The ADP logo is a registered trademark of ADP, Inc. ADP® Invoice is a trademark of ADP, Inc. and/or ADP P2P Canada, Inc. All other trademarks and service marks are the property of their respective owners. All rights reserved. ©2010 ADP, Inc. 04-3427


A Vendor ChecklistIf you’re thinking of looking at eInvoicing systems, here’s a checklist for evaluating vendors:

Buyer FunctionalityOnline dispute resolution including, PO, receipt, and invoice adjudication ▸Invoice coding (batch and split line item coding) ▸Automated approvals ▸PO to receipt to invoice matching ▸For non-PO invoices, receipt to invoice to contract matching ▸Business rules for coding and approval ▸Approval hierarchies and routing (including spend ▸authorities and approval chains based on type of spend)Automated upload of data to accounts payable system ▸Download of paid status to supplier portal ▸Early payment discount management, including dynamic discounting ▸Spend capture and categorization, for strategic sourcing ▸and negotiating better contractsReporting ▸

Supplier FunctionalityPO receipt ▸PO adjudication (supplier counter proposal) ▸PO flip to receipt or invoice ▸Electronic receipt creation ▸Receipt flip to Invoice ▸Invoice creation and submission by various methods, ▸depending on the sophistication of the supplier (from web-based entry to full B2B transmission)Document status portal ▸Paid status portal ▸Online dispute resolution ▸Reporting ▸

Documents

What is Real eInvoicing and What Does It Deliver