What distinguishes the SME from the smart, successful PLC? Strategy. It’s not just deciding what to do that is important; it is how you do them. This distinction in approach can make the difference between a beneficial change and a strategic lever for cost optimisation, brand positioning and business growth.
A major UK PLC client of ours set themselves the goal of migrating to 100% digital invoicing within six months. It was not just a way to meet customer demand but also to transform their finance operations from a back-office processing centre to a financial insight hub that was both profit protecting and loss minimising.
Other vendors they approached about accounts receivable software for e-Invoicing focused provided only one or two alternatives to paper invoicing. It failed to provide the key ingredient that would reduce the burden on their AR teams: a self-service mobile-responsive invoicing portal. When they saw our platform and the array of primary and backup delivery methods available, they realised it was possible to effect a change that could not just meet needs but serve other strategic goals.
They also realised the financial impact on operating expenditure of going 100% digital was significant enough for the solution to pay for itself within six months. In other words, they could cover the cost of integration and set up within their existing OPEX budget and then make annual savings after that compared with their cost base pre-implementation.
The opportunity cost of not changing
One of the main drivers of change for introducing electronic invoicing is meeting buyer eInvoicing requirements efficiently, without adding headcount. A number of Accounts Payable platforms require businesses to enter invoice data manually if they cannot send it via EDI but then still require them to send associated documentation by email.
Manual data entry is prone to error and spawns queries and complaints that delay payment and place a drain on staff time. EDI requires set-up and maintenance costs, often from third parties, and is more the proviso of IT than of AR. Dedicated AR resources needed to be assigned to accounts whose invoices were delivered via EDI, which goes against their organisational structure, which is based on product areas, not invoice delivery methods. Businesses do not structure their organisations around how the customer receives the invoice – they organise around what they sell and to whom. For our client, the cost of not changing was focused around:
a) increasing the cost to serve their existing customers, which would undermine their profitability
b) the risk of customers buying from competitors who could meet their eInvoice requirements.
In short, they would become financially uncompetitive and commercially less attractive. However, by going 100% digital, they flipped that around to improve their customer proposition and market standing, improve their shareholder appeal by meeting pressure to improve sustainability, gain real-time insights into their balance sheets for better financial management, and improve employee retention.
What is the difference between digital and electronic invoicing?
Paper invoicing has three formats: bill in the box, postal and fax. All three require manual processing and storage. Digital invoicing is the next step up – a replica of the paper style invoice is sent as a digital document, such as a PDF, and is typically sent by email or uploaded to a portal.
Electronic invoicing involves a machine-readable format that can be scheduled for output, sent machine to machine and ingested automatically by the customer’s system for processing, approval and payment. Vendors that supply only Electronic invoicing solutions may not provide customers with a convenient online archive of both invoices, statements and associated documents so that they can self serve, and crucially, no means of interacting to make invoice queries or provide remittance advice.
Our client’s starting point was that over 90% of their original invoices were delivered on paper using the ‘bill in the box’ method. Secondary or ‘copy’ invoices were often emailed on request. Everything from invoice out to cash in was handled by credit controllers using their ERP system, various spreadsheets, and a fairly idiosyncratic digital filing system. By going to 100% digital invoicing, they eliminated more than paper:
- Fewer invoice queries
- Fewer copy invoice requests
- Fewer late payments
- Fewer extra hours of staff time to meet the workload
- Fewer employees ‘moving on’ to companies that had more 21st century systems.
In their case, less definitely meant more:
- More data for reporting
- More time to analyse data and propose new approaches
- More on-time payments
- More working capital
- More efficiency in both serving customers
- More highly satisfied and loyal buyers
- More credibility in their market for taking action to make their business more sustainable.
The 100% Digital Invoicing Playbook
To explain a little more about why and how they went from near 100% paper to 100% digital invoicing, offering customers both a range of delivery options and a growth path towards more electronic methods, download the 100% Digital Invoicing Playbook or watch the video version by clicking here.