TCM Guide : Wired Payments

Electronic Invoicing

Electronic invoicing offers benefits to both suppliers and their customers, but a lack of international standards is hindering its adoption.

In Lapland, inclement weather conditions means that a journey to the post office, be it by a team of huskies or on a ski-bike, can be relatively arduous and time consuming. That is perhaps why businesses in the region leapt at the opportunity to implement Nordea Banks electronic invoicing solution. Within months of launching, Nordeas bank branches in Lapland reported unusually high penetration rates of 30% for its e-invoicing solution.

Finland, in particular, appears to have an insatiable appetite for anything electronic. Within a year, Nordea had notched up a total of 50,000 Finnish companies using its electronic invoicing solution, which even surprised the banks e-commerce evangelist Bo Harald, former head of Nordeas electronic banking operations (he has since left Nordea). This is probably the biggest innovation I have seen in 32 years of banking, Harald says. Until now, smaller companies have had no reason or business case for deploying e-invoicing.

Yet in Finland, at least, everyone from taxi drivers to farmers and plate-glass and pesticide manufacturers are sending or receiving invoices electronically. The business case for adoption is relatively straightforward: Processing an electronic invoice costs around ?0.40less than the ?1.40 for a paper invoice. If more companies issued and accepted invoices electronically, in Europe alone they could save up to ?50 billion a year.

Harald attributes the success of Nordeas e-invoicing solution to its simplicity: No hardware or upfront investment is required. Instead, customers use an e-invoicing template within their existing Internet banking applications to transmit invoices electronically. Similarly, any buyer within the Nordic region can receive invoices electronically using a simple software application.

Like Nordea, other providers of e-invoicing solutions have heeded the lessons from the dot-com boom, which left a trail of failed, complex B2B e-commerce initiatives in its wake. OB10, which purports to be the largest global electronic invoicing network, linking 143 buyers with upwards of 25,000 suppliers across 68 countries, was conceived in 2000 at a time when analysts and businesses expectations of the Internet had hit rock bottom. Developed by former executives from Visa International, the global e-invoicing networks business proposition was relatively straightforward: Harness the power of the Internet to facilitate the electronic transmission of invoices between buyers and suppliers. It did not require buyers or suppliers to re-engineer existing business processes but simply used electronic means to extract invoices from suppliers ERP and accounting systems and converted them into the format accepted by the receiving country so they could be transmitted electronically. In doing so it hoped to save companies upwards of 50% of the millions they spent annually processing paper invoices. Early subscribers to OB10s network included Fisher Scientific, Hewlett-Packard and the publisher of the Financial Times, Pearson.

Piecemeal Adoption

Automating inefficient paper-based processes is not a new concept. For more than 30 years, larger companies have tried to eliminate paper using electronic data interchange (EDI). Yet e-invoicing only really came into its own with legal recognition by the regulators and tax authorities. Following the implementation of legislation ascribing the same legal status to electronic signatures as handwritten ones, in 2001 the EU published its Electronic Invoicing Directive, which removed some of the major legal impediments to e-invoicing in Europe by harmonizing VAT regulations with respect to invoicing as well as providing a standardized set of rules around e-invoicing and archiving. The directive set down two conditions for e-invoicing to occur: First, that the recipient must be able to accept or decline electronic invoices, and, second, that authenticity of origin of the invoice must be guaranteed, using either EDI, electronic signatures or other means.

Markus Hautala, a vice president at Nordea Bank in Finland, says that while the EU directive produced a single set of rules for e-invoicing, individual EU member states interpreted the rules differently. Hansjrg Nymphius, head, financial supply chain product management, Global Transaction Banking, Deutsche Bank, says the effectiveness of the EUs directive was hampered by the emphasis it placed on electronic signatures as a means of authenticating electronic invoices. The issue that the industry faced in Europe was that an electronic bill was only accepted by the tax authorities if it contained a qualified electronic signature. That was an inhibitor on the B2B side, he says. Deutsche Bank first launched its electronic billing solution db-eBills in Asia. It has since rolled it out to other markets, including the United States and Europe.

Real Hurdles, Real Savings

In a recent survey of 108 large to medium-size companies in 10 European countries, consultant PricewaterhouseCoopers found companies were not fully exploiting the benefits of e-invoicing less because of legal and regulatory hurdles than because of the lack of readiness of internal, customer and supplier systems. PwCs study does show a growing acceptance of e-invoicing, with more than 50% of companies in invoice-intensive industries such as the automotive, energy and consumer products sectors developing or planning e-invoicing solutions in the next 12 months. More than a third already operate e-invoicing. Of the companies that have implemented e-invoicing, 60% were satisfied with the cost savings and 71% reported increased efficiencies.

Stefan Foryszewski, a senior vice president at OB10, says the majority of its focus is on supplier enrollment: It doesnt matter how good the technology is. If the suppliers do not choose to participate, a companys electronic invoicing program will not succeed. For suppliers, the key impetus is demand from their customers. It is the large corporates that are driving adoption of e-invoicing, he explains.

While reducing costs associated with processing paper may have been an initial driver for companies to implement e-invoicing, Foryszewski says there are other benefits: Approximately 40% to 45% of suppliers on our network are reporting improvements in payment cycles, he says. They have a guarantee that the invoice has reached its destination. Data quality is also much higher than if a person had to re-key the information.

Nymphius says trying to convince companies that they can save can save the minimal cost of a stamp by sending invoices or bills electronically is not inducement enough in some cases. In parts of Germany, for example, where payment methods are already efficient, it can be more difficult to convince a payer of the benefit of receiving an invoice electronically, he says. That is typically why banks have more success emphasizing the benefits of e-invoicing in the context of the overall financial supply chain and enhanced working capital management. Nymphius maintains that the complete benefits of e-invoicing can best be achieved only when there is full electronic integration of the financial supply chain.

The public sector also has a role to play in driving e-invoicing adoption. In Denmark, for example, e-invoicing is mandatory in the public sector. According to Hautala, in January 2006 the Danish public sector received 1.3 million invoices, of which 66% were fully electronic and 33% were scanned. The public sectors stance on e-invoicing was a catalyst for Johnson & Johnson to speed up implementation of its e-invoicing program. In Denmark, approximately 85% of Johnson & Johnsons sales invoices are transmitted electronically to buyers such as hospitals. In Finland, the corresponding figure is only 30%.

Johnson & Johnson also plans to roll out e-invoicing in Norway and Sweden this year but says that has been delayed due to a lack of uniform standards. Nordic banks agreed on a common protocol called Finvoice (financial invoice), which consolidates e-invoicing requirements from four markets into a single Nordic data model. Other countries may follow suit, but it will probably be many years before there is a common invoicing standard in Europe. In the meantime, though, it will thrive within individual markets.

Anita Hawser