Is eInvoicing dead?

May 5, 2014 Matthew Stammers

is-einvoicing-dead

As soon as you read the title of this blog the hairs on the back of your neck may be rising and you might at this very moment be reaching for your keyboard to hammer out an angry response that I’m talking nonsense. After all, adoption of eInvoicing and the value it brings has never been greater in business.

But before you spring into action, bear with me while I talk this statement through.

Why are companies here?

The purpose of the vast majority of companies is value creation. Individuals, banks, pension funds etc. invest in companies because they expect to see an increase on the value of the investment they have made in that company. 

Companies therefore must have value creation at the heart of their business, and that value needs to feed through to the bottom line performance of the company. If you take this premise to be true, then anything that the company is doing that doesn’t create value should be stopped and those projects or initiatives that create the most value should have the most focus.

Note that I have carefully used the term value here rather than money. Value is a broader term that encompasses a company being a good corporate citizen and treating its employees well. These are areas that add to a company’s value.

If you take this premise a step further, it’s an obvious truth that all companies have constrained resources. Therefore, companies have to prioritise which projects they undertake and which they leave on the shelf. This prioritisation is based on which projects offer the best value creation for the business.

Does eInvoicing offer enough value creation?

Now while eInvoicing definitely does create value for a company by linking a company with its suppliers, removing paper, and automating processes, the question remains: 

Is eInvoicing really dead?

That is, does it create enough value as a project on its own to be given time, effort and resources to be undertaken when weighed against other value creation projects?

To answer this, it’s worthwhile working an example through:

Spend: €1 billion
Typical savings from eInvoicing: €300,000.

Now these numbers are alright, but the impact that they offer a global business with €1 billion in spend is tiny--less than .0003%. 

It is simply not going to shift the dial in terms of value creation or performance of that business.

Change the way you think

Rather than thinking about eInvoicing as a solution in its own right, consider it as an enabling project. 

If you get your business and your suppliers to adopt eInvoicing, effectively build a virtual network between us, what can we do with that network. If you consider that really the purpose of an eInvoicing network is to facilitate the movement of cash--the ultimate measure of value--you can start to consider what to do with this network to maximise the value of that cash movement to the business.

This is where the topics of making cash available early to suppliers at a discount--i.e. introducing a discounting programme--comes into play. The eInvoicing piece is great, but really it’s just an enabler to introduce a programme that has far more value creation for a business. 

Now let’s go back to our example to work this through. 

If we take our company saving €300,000 from an eInvoicing automation project, a discounting project added into this using the underlying technology will achieve much more:

Spend: €1 billion
Savings from eInvoicing: €300,000

Savings from Dynamic Discounting: €3,800,000.

This is a ten-fold increase in the return using exactly the same technology and now providing sufficient value back to the business, that it becomes a real needle mover.

Maximising trading relationships between buyers and sellers through eInvoicing in and of itself is not dead, but thinking about doing an ‘eInvoicing project’ should be. 

What large companies should be focused on is how to ensure you are creating the maximum value from the trading relationship that I have with my suppliers. And this doesn’t mean an old fashioned approach based on screwing them down to the lowest price and the longest payment terms, but rather thinking about how modern technology can enable a completely different approach where both parties benefit significantly. 

This approach could and should be centered on how do we all maximise the value of the cash that is flowing between us.

This is especially true in parts of Europe where adoption rates are less than 15%. The reasons it is so low after all these years is because companies are not convinced that the operational efficiency business case is strong enough to justify making it a priority project.

Want to learn more about how eInvoicing and Dynamic Discounting can save your company millions? Download a case study from a top performer in Accounts Payable and Discounting.

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