The Invoice Efficiency Gap. A study into opportunities for companies to achieve immediate cost savings by closing the invoicing efficiency gap.

Transcription

1 The Invoice Efficiency Gap A study into opportunities for companies to achieve immediate cost savings by closing the invoicing efficiency gap.

2 Summary Medium and larger European businesses (100+ employees) stand to save 28bn every year by improving the efficiency of their invoice processing There has been too much focus on moving to full e-invoicing; a transition which has been achieved by fewer than 10% of medium/larger European firms A much more immediate opportunity lies in reducing the cost of processing paper invoices, by digitisation and data extraction at the point of receipt In a time of private and public sector austerity, as well as a credit squeeze for borrowers, businesses are keenly seeking ways to release funds for investment in the emerging economic upswing This study s conservative calculation of the capital frozen in European business because of invoice processing inefficiency some 28bn is equivalent to around one third of the EU s total annual budget Since paper invoices are likely to remain the dominant medium for the remainder of the decade. European businesses would be well advised to seek hybrid solutions that allow them to grasp the immediate gains from digitisation and data extraction, while also providing a migration path to eventual e-invoicing Page 2

3 The cost of invoice processing One of the biggest producers of organisational documents are the finance functions of accounts payable (AP) and accounts receivable (AR). The vast majority of these financial communications are still transmitted on paper. In fact, the volume of paper bills and invoices generated in Europe amounts to more than 30 billion annually 1, of which approximately half are bills sent to consumers, and half are invoice documents between businesses. The cost of processing a business-to-business (B2B) invoice is considerable. Take the figures produced by one analyst, which state that time, labour and space associated with processing an invoice adds up to 6 per invoice (32% of total cost). The time, phone calls and labour involved in disputing an invoice cost 11 per invoice (58% of total cost). Processing/sending a payment costs 2 per invoice (10% of total cost), adding up to a potential overall cost of 19 per invoice. 2 For medium/larger companies (defined as those with over 100 employees), Pitney Bowes customer studies show the average inbound invoice processing cost to be around 13. Companies are seeking ways of reducing the cost of invoice processing in order to free up cash with which to invest in the coming economic upturn. Free cash is desperately needed to increase inventory, ramp up marketing and increase sales effort as markets once again start to grow. The problem with e-invoicing Many commentators have heralded a wholesale move to e-invoicing as the solution that makes invoice processing more efficient. This is undoubtedly true in theory, with typical cost savings in the region of 70% or more through the adoption of e-invoicing. In 2010, e-invoicing volumes crossed the 2 billion threshold for the first time, with B2B invoices representing over 1.25 billion of that overall total. However the additional costs to the millions of smaller companies of providing data and enrolment into einvoices networks is substantial. The lack of standards or interoperability between providers may mean enrolment in multiple networks. The EU Expert Group on einvoicing addressed this problem and recommended to standardise on the UN/CEFACT standard. With no apparent political will to implement these recommendations this confusing situation will exist for many years to come. Therefore such a wholesale conversion to e-invoicing is only a practical reality when organisations can impose the e-invoicing discipline (and costs) on their supply chain (as is the case with a number of European governments that have mandated e-invoicing from their suppliers). This might explain why, although it has experienced steady growth, e-invoicing has still only captured less than 10% of the total volume of European invoices 3, a fraction of the overall market. Dealing with a vast majority of invoices arriving on paper will be with us throughout the current decade. Digitisation efficiencies The road to eventual e-invoicing implemented either across the board, or with a section of the supply chain is in fact one that can be taken in gradual stages. The first stage is to digitise (scan) paper invoices as they enter an organisation, automatically extract the vital data from them, and then make that available to invoice processing (accounts payable) staff and systems. Pitney Bowes user studies have shown that the typical processing cost of 13 per invoice (in a medium/larger firm) can be reduced to something around 6.50 per invoice through digitisation and data extraction at point of receipt. These user studies have gathered data from a respondent base of corporates across Europe who have adopted an outsourced solution providing the digitisation and extraction service on a per-item fixed cost basis. This provides a very reliable measure of the true cost of the invoice digitisation and extraction process, where in-house solutions often do not provide full transparency of total costs. 1 Billentis, E-Invoicing / E-Billing in Europe, February Celent, Paper invoicing and payment, Billentis, E-Invoicing / E-Billing in Europe, European Market Overview and Forecast, February 2010 Page 3

4 Calculating the cost of the invoice efficiency gap On the basis of this highly conservative model, built on reallife experience, and also taking into account the existing level of e-invoicing penetration in different European countries, potential savings from incoming invoice digitisation and data extraction have been calculated. This analysis has focused simply on B2B invoices, in particular those inbound invoices paid by medium and larger firms (defined as those with over 100 employees). This section of the European business population is most likely to have a sufficient volume of accounts payable to be able to make considerable savings through invoice digitisation and data extraction. They are therefore also likely to have management attention and support to prioritise invoice processing efficiency initiatives, in order to release much needed cash for investment in growth. This study also focuses on the 100+ employees segment because it is economically significant representing, on average, around 70% of Europe s private sector turnover, even though numerically making up just 3-5% of the business population. In brief, the methodology employed by this study is as follows. The volume of B2B invoices issued annually in each European country was first reduced by the B2B e-invoicing penetration level on that country. The remaining invoice volume was then further reduced by the proportion of companies already digitising invoices at point of receipt, which Pitney Bowes proprietary data showed to be between 40% and 50% on average across the countries studied. The resulting statistics represent the Invoice Efficiency Gap for each country. The results published in this analysis, despite the fact that they start from a very conservative perspective, show that European medium/larger businesses could reduce the cost of invoice processing by almost 30 billion each year. This saving requires no additional infrastructure investment, nor does it require organisations to take command of their supply chain and impose additional disciplines upon their suppliers. In effect, it represents an immediate savings potential with no barrier to entry. As the largest economy in Europe, Germany naturally offers the highest national savings level at 6.11 billion. The UK ( 5.50bn) and France ( 4.18bn) follow hard on Germany s heels. The difference between the UK and France can be explained by the difference between the two countries business demographics, with France s much larger agricultural community. Spain ( 3.08bn) and Italy ( 3.22bn) offer much the same level of savings through greater invoice processing efficiency. The combined savings achievable in Belgium and Netherlands come in at a not inconsiderable 2.01bn. Scandinavian countries offer a much lower Invoice Efficiency Gap, not simply through the size of their economies relative to larger countries, but also because their e-invoicing penetration levels are particularly high. Country Invoice Efficiency Gap ( bn) BE 0.71 DK 0.38 DE 6.11 IE 0.31 EL 0.75 ES 3.08 FR 4.18 IT 3.22 NL 1.30 AT 0.65 PT 0.95 FI 0.33 SE 0.72 UK 5.50 Europe Page 4

5 Additional Gains Aside from direct cost savings, there are two further key advantages that corporations gain from invoice digitisation and data extraction at point of receipt. Early payment discounts - A further problematic area for AP and procurement departments is in meeting early payment discounts. According to Paystream Advisors, the average organisation cannot capture between 50-60% of discounts offered by suppliers because the AP department cannot process and pay the invoice within the 10-day discount period. By implementing a digitisation front-end however, organisations can capture 250% greater early payment discounts negotiated by purchasing. 4 Rapid dispute resolution - Research from PricewaterhouseCoopers shows that for almost a third of organisations surveyed, they identified fewer disputes as a benefit to digital invoice processing. 5 By implementing a digital AR/AP strategy, businesses are improving transparency in the finance function through centralised and accessible electronic storage, better data quality, clear audit trails, accurate and timely reporting. Multi-channel challenges To understand the reasons behind limited take-up of e-invoicing and to lay the foundations for the implementation of successful e-invoicing strategies, it is important to analyse the challenges that European businesses face. The main barrier to overcome is the breadth of document types, the various data formats and all possible delivery channels available. Figure 1 is an overview of the finance process where multiple channels may be used to deliver different data formats for each document type. Figure 1. Overview of document types, data formats and delivery channels involved in today s finance processes Documents Data Channels Offer Paper Mail Order Pdf Fax Order confirmation Tiff Delivery note CSV VIPER Invoice XML Download Credit note SAP IDoc FTP / S-FTP Reminder EDI e.g. Edifact Webservice / X400 / AS2 This is emphasised by recent research which identifies customer (40%) and supplier (38%) compatibility/readiness as being the principal problems affecting e-invoicing application. 6 Hybrid solutions For forward thinking businesses, the key to overcoming this hurdle is to adopt a system that has the scope to deal with all these document, data and channel formats. There are solutions available which can process the various incoming and outgoing invoices efficiently to keep your customers and suppliers happy, providing them with the option of migrating to digital usage when it is right for them. By implementing a system of this nature, organisations can effectively transition incoming and outgoing invoicing to the electronic format using the digital delivery platform of their choice - without it negatively impacting on customer and supplier relationships. One of the greatest barriers for the adoption of e-invoicing to date has been the difficulty and cost of integrating smaller vendors. By using a hybrid solution, organisations can ensure that implementation costs for the network remain low and actually benefit the smaller players. 4 Ibid 5 PricewaterhouseCoopers, Survey on the take-up of e-invoicing by businesses & related difficulties, 14 May PricewaterhouseCoopers, Survey on the take-up of e-invoicing by businesses & related difficulties, 14 May 2008 Page 5

6 Archiving is another issue that needs to be examined for a successful e-invoicing strategy. On a practical level, the solution needs to be able to cope with the hybrid approach to invoicing to ensure that all the invoices are stored in an accessible format for enterprise access. There are also important compliance considerations here. Following the EU Council Directive 2001/115/EC on invoicing, it is now compulsory for Member States to recognise the validity of electronic invoices, allow cross-border invoicing and electronic storage. However individual countries also have their own rules governing how physical invoices may be converted to a digital format and digitally stored for the regulatory period. In Germany and Belgium, for example, paper invoices can be digitised and stored for 10 years providing that the integrity of the content of the invoice is guaranteed whereas in the UK, the requirement is 6 years and to be robust enough to withstand a court challenge to their authenticity so it is advisable to stay within the guidelines laid down in BiP As regulations for archiving of e-invoices and digitised paper invoices differ, this further underlines the need for an automated invoicing system that can cope with both digitised paper and e-invoices to meet the variable regulatory requirements, whilst saving space and streamlining operational processes. If records are not being digitised and only kept in paper form, the risk of loss or damage could harm organisational compliance procedures. The majority of companies are still archiving invoices in hard copy - up from 2005 to 82% - compounded further by the finding that over half of organisations store their invoices for 10 years or more. 7 The reality of economic globalisation for finance departments means that any automated solution needs to be able to cope with cross-border transactions. Variations in national VAT, currency and regulatory considerations need to be dealt with. Moreover, manual AP/AR systems make it difficult to comply with compulsory standards such as the EU 8 th Company Law Directive, the European equivalent of the Sarbanes-Oxley Act. Electronic systems that allow for clear audit trails will allow businesses to bring efficiencies to mandatory requirements such as this. The key to implementing a successful e-invoicing strategy seems to lie in the implementation of a hybrid solution to cope with all incoming/outgoing invoices and storage requirements. A realistic approach is to partner with a managed service provider who can advise and deliver this hybrid solution. Some service providers can bring additional outbound invoice benefits such as mail handling for paper invoices where postage discounts can be achieved through pre-sortation or the use of meter technology. This provides a stronger business case for the adoption of a partnered, hybrid solution, where cost savings can be achieved throughout the invoice lifecycle, be it in electronic or paper format. Real-life examples Automotive manufacturers are leading the way when it comes to digitising invoices; according to Deutsche Bank, 60% of German car makers are utilising digital solutions. One example is Chevrolet: At Chevrolet, we have automated the accounts receivable function by partnering with Pitney Bowes. They provide us with a platform which connects our organisation with cars dealers in a simple and fast way, says Ulrich Gold the Director of Finance and Administration from Chevrolet. By recognising the influence we have over our supply chain and the implementing a hybrid invoicing system, it has helped to improve the speed at which invoices are sent out and allows dealers to invoice the customer earlier, ultimately improving cash flow. Pitney Bowes handle all our outgoing mail, a key service and benefit area for our business as whole, as well as the AR function, providing a centralised and efficient facility where we can take advantage of print and mail savings. 7 Ibid Page 6

7 Conclusion It is well known that the pace of technology adoption tends to be over-estimated at the early stages and underestimated at the later stages; e-technologies are proving the rule. Take for example broadband; the rapid rise in broadband penetration over the last few years has meant that it has overtaken dial-up technology, but this did not happen overnight and there was a significant lag time between technology availability and widespread take-up. The same applies to e-invoicing which has been around for some 15 years and yet currently has only a sub-10% share of the total invoicing market. This proportion can only grow, and yet we cannot assume that there will be one hundred per cent adoption by the end of the decade. One leading expert in the field predicts that e-invoicing penetration will reach just under 20% by Yet realistically, outside of highly controlled supply chains, there will continue to be a high volume of paper invoices produced and processed. Organisations need to ensure that they have hybrid systems that can cope with both paper and electronic formats if they are to manage the transition to digital as the market pace of change happens. How can this be realistically achieved? The following steps have been outlined to provide a checklist for organisations looking to implement an effective e-invoicing strategy:- Adopt a hybrid solution one that can cope with different document, data and channels; Migrate to e-invoicing gradually; Integrate digital archiving as part of the e-invoicing strategy; Seek executive and/or board level sponsors; Look at a solution that does not require an overhaul in your existing systems; Partner with experts in the field of document and workflow management who can audit, advise and implement a solution that will work for your organisation. Multiple document, data and channels are here to stay; the challenge for organisations across Europe is to develop a migration path that can handle a wide variety of formats, can give the enterprise a single window into the finance function, and can deliver much-needed financial efficiencies in the short-term, without the need for capital investment. 8 Billentis, E-Invoicing / E-Billing in Europe, February 2009 Page 7

8 Pitney Bowes Credentials Pitney Bowes Management Services has experience in handling business critical, outsourced services for financial services organisations, government agencies, retail, travel and transport, telecommunications, utilities and industry. Each year Pitney Bowes helps to move 500 billion pieces of mail around the world. Pitney Bowes Management Services hybrid e-invoicing solution Invoice Process Automation is helping businesses across the globe to cut costs and implement efficient processes that add value to the entire organisation. Taking e-invoicing to your suppliers across countries is hard. Convincing a supplier to use e-invoicing is harder still. Pitney Bowes Management Services have experience in doing just that with a high success rate because:- 1. We do this in partnership with clients 2. Our solution delivers value to the implementing business, it s suppliers and customers. This contrasts with many other electronic invoicing solutions that often increase the cost to one party. 3. Pitney Bowes Management Services has the power, bandwidth and experience to deliver globally. Invoice Process Automation provides a dedicated workflow solution built on format consistency and eliminating the system headaches surrounding the typical one-too-many relationship between businesses, customers and suppliers. Pitney Bowes Management Services 6 Hercules Way Leavesden Park Watford Herts WD25 7GS phone number Pitney Bowes Ltd. All rights reserved. Pitney Bowes is a $5.6 billion global technology leader whose products, services and solutions deliver value within the mailstream and beyond. Founded in 1920, our company s 33,000 employees deliver technology, service and innovation to more than two million customers worldwide. For more information about Pitney Bowes, its products, services and solutions, visit xxxx (11/10)