The True Business Case for e-Invoicing
The decision to shift from paper to electronic invoicing is a big one. It is a big change management project touching multiple stakeholders within and outside of your company, and as such it requires a very thorough assessment of the current situation and a strong, clear business case.
In the first two decades of e-invoicing solutions, the business case was built around eliminating the paper in accounts payable to make invoice processing more efficient. But, as companies learned over many years, that business case was incomplete. It was too narrow in scope, and in benefit.
As a result, we learned through many failed efforts that e-invoicing is not just an A/P project. It is a procure-to-pay (P2P) project, and the true business case is to establish one controlled audit trail from the point where the buyer raises the requisition, to procurement sending a purchase order out to the supplier, to A/P receiving back the invoice, and being able to approve it and pay it. There is visibility into every single individual transaction in the company from the moment of creation to the moment it has been closed.
Speeding the Close
Why is this so important? Every organization in the world has a financial year that ends somewhere.
Towards the end of that financial year, everyone goes frantic. Salespeople bring in their last deals, business people race to spend remaining budget allocations, and the finance department hunkers down to close the books. E-invoicing increases the speed with which the books can be closed.
In a paper-based process, closing the books typically takes about three to four months. But, if everything is electronic and every transaction is accessible, closing the books could be a matter of days. You will not have to worry about having lost or forgotten something, or about having left something out of the report. That's a lot of cost taken out of the process, and skilled people can move on to more strategic projects.
But closing the books faster is not the whole business case. If at any point in time you can push a button and say, "This is the total of invoices that I've received. This is what I've paid. These are open," closing the books is really just a click of the button drawing an arbitrary dividing line between one period and another. You don’t have to wait for financial statements. You have real time visibility into your financial position any time you want it.
Optimizing Working Capital
That in turn improves the CFO’s ability to optimize working capital. Because we’ve been in a low interest rate environment for so long, the focus of working capital optimization today is capturing early pay discounts. If you have visibility into your cash position and don't have to borrow to pay suppliers, you have negotiating power. You may be able to get discounts if you can pay suppliers immediately—which you can only do when you get the invoices immediately, and when they are backed by a purchase order.
If you have a PO, then you have something to match the invoice against. Not only can you pay quicker, you have all the ingredients to provide a proper audit trail. This is the final piece of the business case, and why this must be a P2P project.
The Final Piece
Every country has rules and regulations organizations have to comply with, and at some point, your organization will be audited to make sure you are playing by the rules and paying all the taxes you owe. An audit is a massive cost factor. The longer auditors spend in-house, the more expensive it becomes.
Invoices that are not backed by a PO always raise suspicions with auditors. They want to know, why did you get this invoice and why did you approve it? If they find one fraudulent invoice has been paid, they’re going to assume there are more, and they are going to go hunting.
If you have one process that is fully documented and transparent that you can show to the auditor, that makes audits fast and easy and that also takes cost out. E-invoicing alone, where you’re not involving procurement to get to a very high percentage of PO-backed invoices, will not help you make the true business case. It is only when e-invoicing is integrated with a compliant P2P process that you can create a bulletproof audit trail.
If my whole P2P process is optimized, so receipting happens in real time or as quickly as possible, and it’s visible in the same place, I can close the books fast. I can optimize working capital. Audits are quick and easy.
The benefit of this extends far beyond efficient processing in A/P and procurement. It has enormous benefit for the CFO. When you have real time visibility into your financial position, that is arguably the backbone of many other finance process improvements. And, it has great benefit for the Chief Compliance Officer, because unless that whole process is compliant, the company is exposed. This is not just KYC—know your customer. I call it KYT—know your transaction.
As e-invoicing solutions started to pick up steam in the early 2000s, maybe the CFO went to some kind of seminar and learned about it and wanted to take it on. On the face of it, it sounds simple, logical and modern: Take a paper process and make it electronic. We tried it, and it didn’t work. The business case was wrong.
As you can see, there is a domino effect of benefits that accrue, and getting rid of paper is just the first domino to fall. When we think of it as a much larger and far reaching transformation, it is clear that it must be led by one global process owner that is empowered by both the CFO, the CPO and possibly the chief compliance officer, because all of their processes will get re-engineered and optimized, and that will be the topic of my next post.