E-invoicing

Electronic invoicing is a form of electronic billing. E-invoicing methods are used by trading partners, such as customers and their suppliers, to present and monitor transactional documents between one another and ensure the terms of their trading agreement are being met. These documents include invoices, purchase orders, debit notes, credit notes, payment terms and instructions and remittance advices. These documents can be exchanged in a number of ways including EDI, XML, or CSV files.^[1] (GXS) They can be uploaded using web applications or FTP sites. The company may use imaging software to capture data from PDF or paper invoices and input it into their invoicing system. Some companies have their own in house e-invoicing process. However many companies will hire a third party company to implement and support these e-invoicing processes and to archive the data that passes through them on their own servers.^[2]

E-invoicing includes so many different technologies and entry options, it is used as an umbrella term to describe any method by which an invoice is electronically presented to a customer for payment.^[3]

Why E-invoicing?

The main responsibility of the accounts payable department is to process and review transactions from their suppliers. In other words, it is the accounts payables departments Job to ensure all outstanding invoices from their suppliers are approved, processed, and paid. Processing an invoice includes recording important data from the invoice and inputting it into the company’s financial, or bookkeeping, system. After this is accomplished the invoices must go through the companies’ respective business process in order to be paid.^[4]

While this process is simple. It can become very difficult for companies with many trading partners to keep track of all transactional documents. The department can become overwhelmed with paper invoices and other forms. This can lead to a host of problem including human error during data entry, lost invoices, late payments, invoice duplicates, and even double payments.^[5] Electronic Invoicing can be a very useful tool for the AP department. It centralizes all transactional documents in one location on a web server. So they can be easily found and processed. Electronic invoicing allows vendors to submit invoices over the internet and have those invoices automatically routed for processing. With E-invoicing, Invoice arrival and presentation is almost immediate. Therefore invoices are paid sooner and the amount of time and money it takes to process these invoices is greatly reduced.^[6] Respondents to the 2012 global E-invoicing study stated that 56% of businesses experienced higher cost saving per invoice by implementing sophisticated e-invoice systems (sending/receiving XML e-invoices, using point-to-point connections, using third-party web service/portals) than those without.^[7]

History

Since the mid 1960’s companies have begun to establish data links between their trading partners to transfer documents, such as invoices and purchase orders. Inspired by the idea of a paperless office and more reliable transfer of data, they developed the first EDI systems. These proprietary systems were fairly efficient, but rigid. Every set of trading partners seemed to have their own standard of electronic data interchange. There was no standard that any trading partners could choose to adopt. Recognizing this, the Accredited Standards Committee X12—a standards institution under the umbrella of ANSI—moved to standardize EDI processes. The result is known today as the ANSI X12 EDI standard.^[8] This remained the main way to exchange transactional data between trading partners for nearly 3 decades. The 1990’s came with advances in internet technology. Companies began to appear offering more robust user interface web applications with functions that catered to both supplier and customer. These new web based applications allowed for online submission of individual invoices as well as EDI file uploads. Along with other methods of file uploads including CSV and XML. These services allow suppliers to present invoices to their customers for matching and approval via a user friendly web application. Suppliers can also see a history of all the invoices they submitted to their customer without having direct access to the customers systems. This is because all the transactional information is stored in the data centers of the third party company that provides the invoicing web app. This transactional information can be regulated by the customer in order to control how much information the vendor is allowed to see. (For example payment dates, or check information).^[9]

One organization that helped pioneer the use of electronic invoicing as part of a web-based AP Automation software package, iPayables was founded in 1999 by Kenneth Virgin, Jonathan Titel and Robert Ripley. Their model allows customers and suppliers to exchange transactional documents including invoices, purchase orders, remittance notes, EDI files and more using a web based application known as InvoiceWorks®. They are unique in the industry in-that they offer a dynamic discounting feature, offer free vendor adoption and no supplier fees. Other similar organizations that also offer electronic invoicing solutions include Baseware and Ariba.^[10]

As companies advance into the digital era, more and more are switching to electronic invoicing services to automate their accounts payable departments. The 2012 Global E-Invoicing Study illustrated the rate at which electronic invoicing is growing. According to the study 73 percent of respondents used electronic invoicing to some degree in 2012, that is a 14% increase from 2011. Supplier resistance to e-invoicing has decreased from 46 percent in 2011 to 26 percent in 2012.^[11] Some even believe it to be an industry standard in the near future. According to a report done by the GXS team in 2013, Europe is adopting government legislation encouraging businesses to adopt electronic invoicing practices. The United States has no such legislation yet, but does recognize the value of this technology. The US treasury estimated that implementing e-invoicing across the entire federal government would reduce cost by 50% and save $450 million annually.^[12]

References