Sunday, June 01, 2008

5 MEGA-Class reasons for e-invoicing

Some of us only see the cost saving when our organisations make the - as such inevitable - move into e-invoicing. Others see environmental issues as the most central. Both are important – but there are at least 5 mega-class reasons for making e-invoicing a reality as fast as possible. And no real reasons for dragging our feet.

  1. 238 billion lower costs – better productivity in EU – but only the beginning

According to a study for the EU-commission the cost saving potential in the business to business sector can reach 238 billion €. This is well in line with what others like the Finnish State Treasury, public sectors in France, Italy and Denmark and enterprises like Electrolux, Finnair and many other have published. The European Association for Corporate Treasurers has estimated that the annual savings potential is 243 billion €. But these impressive totals cover only the processing aspects – much more productivity improvements can be achieved by:

- lower credit risk when more frequent invoicing lowers outstandings

- lower fraud risk when e-invoices sent via service providers provide authenticity and integrity

- better cash flow also through faster payment

- lower IT costs when interfaces to service providers and software for invoicing, accounting, VAT and payments are standardised

- further automation when e-orders, e-statements etc in the procurement process use the same data elements and standards and are sent in the same channels

- lower cost for financing when invoice financing can be automated

- much higher productivity when staff is freed up from boring, badly paid routine work to customer service,sales and process improvements

The move to e-invoicing in Europe is a natural part of the implementation SEPA – it is bringing the business case to it and will use the already designed payments standards. (Fig 1)

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Fig 1.

The same tools can – and should – be used also for business to consumer transactions – judging from estimates in Finland this could save a further 30-40 billion in Europe – and then the time saved and convenience gained by citizens have not yet been included. Every second invoice in Europe – 15 billion in all - is sent to a consumer and SMEs are increasingly asked to send e-invoices also to consumers. (Fig 2). Banks have to take their responsibility and for their part enable 0-investment and 0-it-skill alternatives for SMEs that serve both b2b and b2c.

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Fig 2

2. Better service – actually no other alternative

All enterprises – big and small – must today take into account that their customers have an urgent need to cut costs in their administrative processes. If you do not provide e-invoices you are in many cases automatically at a disadvantage. We have also seen that already 5 public sectors in EU (Denmark, Finland, Italy, Spain and Sweden – 10 more on their way by 2010) have declared e-invoicing as the only alternative – an increasing number of progressive enterprises are doing the same. So if you want to do business with these in the first place you do not have a choice – starting from invoicing – but soon enough involving all messaging with the same tools. Fig 3.

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Fig 3

3. Carbon foot print – all need to take responsibility

The environmental issue is big by any measure – the energy and raw material needed for producing paper for, printing, enveloping, distributing and recycling close to 30 billion invoices per year is a pure waste when digital alternatives are available.

A conservative estimate of the environmental impact of paper invoicing arrived at the figures in Fig 4

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Fig 4

The latest estimate heard was that one invoice has a 100g CO2 footprint – times the remaing unautomated 28 billion annual paperinvoices totals: 2.800.000 tons CO2. And e-invoicing will naturally pave the way from further CO2 savings from digitalization of related documents and processes.

IT is as we know consuming considerable amounts of energy both in data processing, transmitting messages and archiving and a lot of efforts are being put in to get away from present wastefull procedures. Structured data is not a big culprit however – especially when compared to pictures and video.

4. Learning just in time – not just in case

We have already seen that the information overflow, abundance of new technology, globalization has lead to a fragmentation of time for many of us. We also realise that the speed with which new useful tools are actually becoming embedded in the economic processes of society at large is increasing dramatically. This all leads to a need to learn in practise – just in time. It is not meaningful or even possible to learn things as much as before just in case the skill will be needed somewhere – it may well be outdated by then.

Just like e-banking was a case of learning by doing – in private and employee roles – so will e-invoicing be. The practise – needed by every enterprise (24 million in EU) and most citizens will form a step on the ladder to the next level (fig 5) – additional digitalization and automation

of services – all the way to a real time economy.

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Fig 5

5. Radically smaller workforce in the near future – have to be so much more productive

Unemployment has been and still is in some countries a considerable stress factor and matter of concern for policy makers. But when we look at fig 6 we realize that we will have a major challenge with shortage of labor force – 10s of millions soon and by 2050 over 100 million fewer in the work force will have to be so much more productive to keep up the present GDP and also continue to produce growth.

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Fig 6

Without sufficient growth it is not possible to afford the present level of public sector services when a much larger part of population will reach the age where more services – and hands – are needed. Very obvious that anything that can be automated must be – and there is no time to loose.

Conclusion

I am sure you agree that the five mega-class reasons are compelling. It is easy to understand why EU, so many national states and progressive enterprises have lifted this to the top of their agendas. Service providers have to redouble their efforts and policy makers take even bolder measures to move up on this ladder.

It is already becoming normal practise in most EU countries to charge extra for paper invoicing. A small stick is almost always a much more efficient way to steer consumers away from too costly practises – than even a big carrot. Even those who prefer to pay extra for the paper invoice will benefit as price competition returns the cost saving achieved to all customers.

In the business to business sector it is important that enterprises set a clear deadline for paper, e-mail or other unstructured data invoices – and communicate it repeatedly. Everyone will save costs and many other important benefits will be achieved – as described above.

There cannot be place for any hesitation – a new mindset is needed (Fig 7)

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Fig 7

1 comment:

Denise said...

Great post! Thanks for sharing this article about the reasons why should we change to e-invoicing. This definitely would help us in deciding what to do. Keep it up and more power.

Denise

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