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Week 1: Get Smart

The concept of a smart economy doesn’t sit comfortably with a business sector that is still heavily reliant on paper. Take invoices: arguably the most important business document there is, since without it, no-one gets paid. Maybe it’s a holdover from the ‘cheque’s in the post’ culture, but British businesses still overwhelmingly use paper and postage rather than an electronic equivalent.

With the ongoing tribulations in the British economy, this year has seen no shortage of calls for change, but appealing to CFOs’ patriotic nature with some big-picture initiative will cut little ice with many firms focused inwards, looking only at where they can cut costs in their own business in order to survive.

The good news is, the two goals don’t have to be mutually exclusive. A recent report produced by the Swiss group Billentis estimates that an average business can save between 1 and 2 per cent of its turnover by switching from paper to electronic invoicing and by automating the related supply chain processes.

The ‘E-Invoicing / E-Billing in Europe and abroad’ report makes the case that replacing paper-based invoice processing with electronic and automated methods offers savings ranging from 60-80 per cent. What’s more, it says an e-invoicing project can begin returning on its investment as rapidly as six months from the start date. The report found that organisations moving to e-invoicing often find a ratio of 70 per cent to 30 per cent in favour of electronic documents over paper, so the savings quickly become apparent.

This also addresses another hidden cost within business. According to estimates from the research firm Gartner, managing a piece of paper costs nine times the price to print it in the first place. Then there’s the environmental advantage of removing large volumes of paper. Green initiatives may have fallen off the business agenda lately but any EU or Government mandate on carbon footprints would suddenly bring this issue sharply back into focus.

High tech, low price

Not so long ago, automating an accounts receivable system would once have been the exclusive preserve of large corporations, with multi-million budgets to match. Technology, one of the business world’s great levelers, means the same facility is now available to small and medium sized firms at a fraction of the cost.

To draw on another smart economy mainstay, we believe cloud computing has a huge role to play in making this happen. Cutting through the hype, what this means in simple terms is that the information can be stored in one central place and accessible over the internet from any location.

In the context of this discussion, the concept is essentially a ‘clearing house’ for electronic invoices. By storing everything in one location, the scenario of lost, and therefore unpaid invoices, disappears. E-invoices are routed directly to customers and the status of any transaction is immediately transparent to buyer and seller.

Straight away, an accounts receivable system provided this way removes the need for individual businesses to invest capital expenditure in their own systems for handing e-invoices, as well as the op-ex required to manage those systems. All that’s needed is a web browser to log in, view invoices, approve them and submit proof of delivery. From the supplier’s point of view, if the customer has a query relating to the invoice that’s instantly visible, eliminating any potential backlogs and blockages in the approvals process.

Beyond cap-ex, further savings are made because the work involved in processing invoices manually is removed – to say nothing of storing and tracking them should they be needed later. The ‘hard’ cost saving is a faster sending of invoices and eliminating postal charges. The soft costs are that it speeds up the process, there are fewer queries in relation to invoices and therefore administration staff become more productive because they can spend time on other tasks.

Eliminating errors

It also leaves the process open to mistyped information such as order numbers or delivery dates. Any mistakes may not be picked up until much later, further slowing the payment process down and potentially harming goodwill from suppliers at a time when good customer relationships have never been more valuable.

Some CFOs may be reading this and think ‘I don’t need this, I already send my invoices by email’, but that still puts the onus on the other party to read the invoice, and to input the details on their own system.

We would argue that the incentives to deal with customers via e-invoicing are too big to ignore. Firstly, the simpler and faster process of approving invoices means that suppliers can be paid quicker and consequently their cashflow position improves. In turn, making it easier for customers to process e-invoices means they will be more open to meeting a supplier’s payment terms. It becomes, in other words, a virtuous circle.

Since 2004, the EU has recognised the status of e-invoices and they are legally accepted in member states. The Billentis report refers to a sample survey by the author Bruno Koch which found that in the past, smaller customers perceived moving from paper to e-invoicing as “nice to have”, whereas larger organisations tended to use it as a mandatory requirement for doing business with them. Koch argues that increased cost pressures and competition in the future will soon force the optional to become obligatory.

Moving a customer-supplier relationship onto an automated accounts receivable platform has never made more sense. Large parts of the cost have been stripped out, clearing one of the largest single obstacles from the process just when it is most needed. Doing so has the potential to benefit both the wider economy and the individual business, without imposing a suffocating straitjacket on either.

Ten years ago, the UK Government’s ambition was not to build a smart economy but to make Britain a hub for e-commerce. E-invoicing has the potential to turn both nebulous concepts into something more tangible, because without the invoice there is no transaction. This is real e-commerce. It is the smart move to make and the time to make it is now.

Week 2: Paper Tigers

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