By Bryan Richardson
Low costs and operational efficiencies beckon—if implementation is handled correctly.
Treasury’s current cost-cutting mantra can be described as: “automate the simple.” This can be seen in the rush to outsource (or insource) less-sophisticated but manpower-intensive processes like the management of accounts receivable and accounts payable. AP, in particular, is proving to be an area where tech solutions can be brought successfully to bear, and vendors have been making hay with the opportunity. Indeed, for the last decade, e-invoicing solutions have caught on by promising improved operational efficiencies, lower costs and quick returns on investment. The trick, of course, is getting the implementation right.
E-invoicing proponents say their approach is right for companies whose needs are too simple for electronic data interchange computer-to-computer systems, but too complex for simple purchasing cards. With e-invoicing, a third party stands between a company and its suppliers and receives electronic invoice data in any format and provides it to the customer in its preferred file format, as long as it’s electronic.
PAPER CHASTENED
The popularity of this service can be seen in the growth of London-based e-invoicing provider OB10, which has its US headquarters in Atlanta. The company has over 70,000 suppliers on its network in over 100 countries and processes approximately $40 billion worth of invoices each year for clients such as Hewlett Packard, General Motors, Pfizer and Kellogg. According to Ernie Martin, North American marketing manager for OB10, the company has experienced 40-50 percent growth over the past several years while transaction volume for 2009 alone grew over 60 percent.
Mr. Martin notes that e-invoicing circumvents the traditional AP process problems including keying errors, invoices lost in the mail, invoices lost after receipt and the expense of a lot of people pushing a lot of paper. The principal customer benefits include:
- Elimination of paper and the associated expenses of handling, processing and archiving
- Elimination of keying errors and the associated expense of time and labor
- Increased opportunity for early payment discounts
- Reduction in phone calls from vendors wanting to confirm receipt of invoice and looking for payment updates
- The principal benefits to suppliers include:
- Confirmation that invoices have been received by customers, eliminating need for follow-up calls
- Reduction in paper, handling and postage expenses
- More predictable payment: invoices automatically load into customers’ payable systems, which can also speed payment cycle time by 5-10 days.
In a recent webinar, Kellogg officials said it implemented e-invoicing in 2006 and currently receives 90 percent of its invoices electronically, with 80 percent classified as “touchless”—or requiring no human intervention. The food giant used the transition as an opportunity to rationalize its vendor database, whittling it down from 11,000 to 4,700 suppliers. This allowed it to eliminate or redeploy AP personnel by 60 percent.
Mohawk Industries, a $6.8 billion flooring company, implemented e-invoicing in 2005 by initially focusing on its top 1,000 invoice-generating suppliers. Its solution provider, OB10, converted 76 percent of the company’s suppliers within five months, resulting in a 400,000 reduction in paper invoices annually.
FOUND IN TRANSLATION
The key to this type of success is supplier education and buy-in. The OB10 model has been designed to offer no barriers to adoption. It has a non-intrusive interface and does not require the installation of any software or hardware. And it relieves suppliers of the burden of changing their invoices to meet clients’ preferred format.
Paul Owen, service development manager for Fisher Scientific, a UK laboratory supply company, agrees. “The initial reaction from our community of suppliers has been overwhelmingly positive. The process has been relatively painless as it has been easy to educate our suppliers that OB10 represents a new, more efficient way of delivering invoices, which will ultimately save them time and money with only a minimal investment.” Mr. Fisher predicts that OB10 could save eventually as much as 80 percent of the previous cost.
Of course a transition of this nature requires good communication and planning inside and outside the company. Sam Morgan, payables manager for
Kellogg’s European service center, says several factors contributed to its success:
- A consistent e-commerce message across the organization
- Obtains full stakeholder focus
- The rationalization of the global supplier network
- Thorough partner selection process
- Effective change management throughout the organization
- Attention to the business concerns
Ms. Morgan adds that a long-term vision for the project and AP operation, clear goals and dedicated resources are crucial for the success of an e-invoicing approach. Some companies that have successfully implemented e-invoicing are looking to deploy it in reverse, that is, as a supplier. According to Fisher Scientific’s Mr. Owen, “From our own experience with our suppliers we’ve seen how sending invoices electronically also delivers cost and efficiency benefits. We see submitting invoices via OB10 as another way to make sure that our customers remain happy with us.”