The e-invoicing play for banks

Daniel Szmukler is a director of the Euro Banking Association

The replacement of business processes based on paper documents with the exchange of information in electronic form is a highly beneficial global trend, and the competitiveness of Europe’s economic activity will benefit from this migration, writes Daniel Szmukler.

Electronic invoicing has been achieving growing but varying rates of adoption in Europe and is potentially capable of achieving critical mass in many industry sectors in the short to medium term. This is owing to adoption by governments and generally to private sector adoption through supply chain automation. An active electronic invoicing service provider industry is supporting this growth. It is, however, recognised that further efforts are required in order for electronic invoicing to achieve its full potential, especially bearing in mind the needs of small and medium-sized enterprises.

Electronic invoicing requires the complete removal of paper from the invoicing process. Many large corporate enterprises and many public administrations throughout the world are already realising the benefits of automating their business processes, of which electronic invoicing is an obvious and effective example. E-invoicing is part of a general move to supply chain automation and this includes in addition: purchase order, logistics data and electronic payments, as well as information and analytics.

In most countries invoicing is an important fiscal process especially where VAT and sales taxes are raised. It is essential that e-invoices are securely transmitted and stored and retain their authenticity and integrity.

There are four good reasons for adopting electronic invoicing:

1. It is supportive of public policy priorities for economic growth, productivity, fiscal efficiency and financial transparency.
2. It makes a material contribution to cost reduction and efficiency by both buyers and suppliers
3. It provides major benefits to suppliers by facilitating prompt payment and liquidity generation
4. ‘Big bang’ IT projects are not required and transition costs are modest.

For both corporate and public sector trading parties, the manual processes involved in handling paper invoices are labour-intensive and lead to errors, delays and long payment cycles. Manual approval processes and limited process controls lead to uncorrected billing errors, potential fraud, and difficulties in achieving accurate audits for all parties.

By moving to a process that handles invoices electronically, buyers and suppliers achieve material cost and efficiency gains by removing delivery and print costs, by removing the need to archive paper, and to purchase envelopes and stamps. Even more significant cost savings are obtained through work flow, process improvement and administrative efficiencies at all levels. At a minimum, greater transparency is built into the whole procure-to-pay cycle.

The buyer establishes a more stable and satisfied supply chain, and will see measurable error and fraud reductions. The environmental benefits of electronic invoicing are also significant. Electronic trading systems will allow access to transparency of spend analytics, and simpler financial reporting.

In addition, once the pivotal e-invoice process is created, it is an enabler for the implementation of full end-to-end e-procurement from ordering to payment. It is important to make a distinction between the complex internal change management required to adopt full e-procurement with the comparatively straightforward step of adopting electronic invoicing. This modular step then creates the potential for the gradual adoption of e-procurement.

Banks can support their corporate customers in managing their invoicing and other supply chain processes by meeting real market needs through provision of the following services:

• Presentment and delivery of invoices and related data from trading party to trading party as part of end-to-end support for the Financial Supply Chain
• Extension of all these services through the existing asset represented by secure e-banking channels, another leverage point for the installed base of e-banking customers
• Provision of wide network reach within the banking sector and with other service providers (four corner model) plays to banks’ strengths in secure interoperability
• Deployment of tools for content standards and compliance with the legal and fiscal framework. A new EU standard is in preparation and the arrival of an e-invoice standard also plays to banking industry strengths
• Integration with payments and cash management
• Links to supply chain finance services

Alternatively, banks unconvinced of their own internal business case for e-invoice processing could align with an e-invoicing service or platform provider and provide invoice finance using e-invoices as transaction trigger, collateral and audit trail. The encouragement of e-invoicing by clients is also a sound business strategy because it can enhance customer liquidity and credit strength. It also creates an enlarged ’window of opportunity’ and tenor for invoice finance because e-invoices tend to be approved more quickly thus creating a longer financing period.

Over several years EBA has researched and monitored the development of e-invoicing through its E-Invoicing Working Group and more recently the Supply Chain Working Group. There is a global dimension to electronic invoicing which is an integral component of new trading practices in the networked economy and is an indispensable part of creating market competitiveness. Consequently it is more than just the modernisation of a traditional business process. It takes place at the point of convergence between the physical and financial supply chain where the processes associated with orders, manufacture and delivery meet contractual arrangements, risk analysis, credit, financing and payments. The European banking industry should see e-invoicing as an opportunity to engage.