The shift towards e-invoicing looks set to bring major benefits for all players in the supply chain space. Liz Salecka reports.
While e-invoicing has gained global recognition for the cost savings and efficiencies it brings to managing receivables and payables, as well as its support for supply chain financing, the take-up of the technology has varied considerably across different regions.
According to a recent survey by Boston-based research company Celent, European companies have taken the lead and now account for 56% of the e-invoice market, followed by North America with 35%.
Asia, in contrast, only accounts for 7%, an issue which Celent attributes to a more limited regulatory framework, a lack of established standards, tax impediments and fewer government initiatives.
“There are a number of regulatory issues in certain regions which are still unsupportive of e-invoicing,” says Lionel Le Meur, managing director, order-to-pay trade executive at JP Morgan. “The EU has come a long way in standardising and finalising legal e-invoicing, whereas Asia is a much more fragmented market that will require some time before e-invoicing reaches widespread adoption.”
Jon Richman, global product head, trade and financial supply chain, global transaction banking at Deutsche Bank, adds: “The trend towards e-invoicing is global, and although take-up in regions such as Europe may have been faster initially, this is largely because of the higher labour costs typical of these regions and recognition that greater automation can reduce these costs.
“Within Europe, there have also been several government initiatives aimed at standardising e-invoicing to promote this activity, and this has given the region a lead in this regard.”
There are a number of regulatory issues in certain regions which are still unsupportive of e-invoicing.”
However, Kevin Brown, head of products, global transaction services at RBS, believes that this may change: “We are seeing some developing countries leapfrogging in the adoption of this technology. In Latin America for example, Brazil and Mexico have mandated e-invoicing and implemented a process that is tied in to the systems of their tax authorities, which has been the single most important reason for take-up,” he says. “Other countries in the region such as Argentina and Chile will follow these tried and tested processes.”
Many western companies are now turning towards e-invoicing to take advantage of the faster, more efficient and more cost-effective invoice processing it allows.
Brown at RBS identifies five key benefits of e-invoicing, including lower costs, real-time data delivery, fewer errors, improved security and better cash flow forecasting. It also enables companies to demonstrate their corporate social responsibility.
Our corporate customers have already been able to achieve an annual cost saving of US$100mn.”
Meanwhile, JP Morgan’s Le Meur points out that while many US companies have already automated the handling and management of invoices within their organisation, they have had to take note of the fact that invoices still come in as paper and payments are made by cheque.
“By adopting e-invoicing, these companies can achieve a 50 to 70% cost saving,” he says.
Supply chain benefits
E-invoicing has a very important role to play in the supply chain space by strengthening buyer/supplier relationships.
“E-invoicing can improve the relationship buyers have with their suppliers because buyers can provide their suppliers with greater visibility into the approval process. Once suppliers have sent an e-invoice they can log onto the platform and monitor its status,” says Le Meur.
Moreover, it offers faster invoice approval capabilities – shaving up to three weeks off traditional invoice approval processes – enabling both buyers and sellers to benefit from more time, and greater opportunities, to boost their working capital.
Le Meur explains that the earlier a supplier is notified of an invoice’s approval, the more time it has to take advantage of supply chain finance or dynamic discounting opportunities.
Whereas in a supply chain finance programme, a bank discounts the invoice to finance the supplier, with dynamic discounting, the buyer accelerates payment using its own cash. If a buyer agrees to a 60-day payment term with a supplier, once an invoice is approved, it may be able to go back and negotiate a 2% discount if payment is made within 10 days.
“E-invoicing can reduce the time it takes to process an invoice down to, say, five to 10 days, which then gives both buyer and supplier more options from a working capital perspective,” says Le Meur. “If invoice approval takes longer, it may be too late to discount the invoice as the supplier may have already organised funding against that invoice.”
He explains that JP Morgan’s order-to-pay solution has built in both dynamic discounting and supply chain finance functionality and offers sophisticated tools, which enable buyers to rank and file the options open to them when discounting by providing scenario analyses.
It has taken longer than originally expected for e-invoicing to get off the ground.”
“Our corporate customers have already been able to achieve an annual cost saving of US$100mn through dynamic discounting,” he says.
Ray Zabarte, global head of payables, Standard Chartered Bank, also emphasises that as e-invoicing is much faster, decisions to make finance available can be made sooner.
“Supplier financing facilities come into play when an invoice is approved. If you reduce the time taken to approve an invoice by 20 – 40%, this really unlocks value for suppliers as they can be paid much sooner.”
He explains that if a supplier has negotiated 120-day payment terms with its buyer, and the invoice is approved after 15 days, it can take advantage of supply chain financing on the 15th day. If the invoice approval process takes longer, the supplier may have to arrange financing elsewhere in order to meet its working capital needs.
Many banks are now integrating e-invoicing technologies with the wider capabilities offered by their working capital management solutions, and this has led to strong suggestions that the technology will soon become a mass market reality.
RBS is taking major steps in this direction by integrating its document automation solution with payment mechanisms to offer an automated working capital solution, which will ultimately be rolled out globally.
In the past, a lot of corporate buyers put pressure on smaller suppliers to adopt electronic solutions.”
Deutsche Banks also advocates integrating e-invoicing into a broader working capital management solution.
“It has taken longer than originally expected for e-invoicing to get off the ground because e-invoicing by itself generally does not generate significant efficiencies,” says Richman. “However, the opportunity to enhance the accounts receivable and payable process by integrating this with a broad, front-end solution for working capital management offers tremendous value as an end-to-end solution.”
He adds that when e-invoicing is combined with financial supply chain management, the value of the overall proposition is multiplied. “It enables greater efficiency, improves connectivity between multiple trading partners, reduces the risk of error and also improves working capital management and cashflows for all the parties involved,” he says. “Other services, such as fx, are also now being integrated into working capital management solutions to develop the value proposition.”
Attractive for Asian suppliers
The growing availability of integrated solutions, which combine supply chain finance with e-invoicing, is expected to encourage interest among smaller suppliers – particularly in Asia.
“Many Asian suppliers have big trading partners, which want them to start trading electronically and to use e-invoicing,” says Deutsche Bank’s Richman. “In the past, a lot of corporate buyers put pressure on smaller suppliers to adopt electronic solutions, and while this can work – it does not work for all.”
He explains that, as payment services are now being integrated into automated supply chain finance solutions, which deploy easy-to-use technologies and come with improved supplier training, it has become much easier for smaller suppliers to adopt e-invoicing.
“Integrated solutions now offer major value because suppliers can use the same solution to access early finance as well as for e-invoicing,” he says. “Simpler web-based technologies have become available, and both banks and other service providers are also making it easier for smaller suppliers to get onboard.”
Misys has recently rolled out an integrated supply chain finance and e-invoicing solution for Chinese suppliers on behalf of a major European retailer in China, which involves the scanning-in of paper-based invoices.
“In this particular case, the driver for the electronic transmission of invoices was the supply chain finance programme being set up for the suppliers,” says Olivier Berthier, solutions director, transaction banking at Misys, pointing out that by allowing invoices to be scanned in, the solution removed the complexities faced when onboarding several Chinese suppliers.
“Suppliers are unlikely to look at a standalone e-invoicing solution. Their motivation is to get paid earlier and if, as part of that, they need to adopt a form of electronic invoicing, then they will do this.
“Offering e-invoicing as part of a wider solution geared at working capital management is a great way to get suppliers onboard.”
Standard Chartered’s Zabarte agrees, pointing out that the provision of integrated solutions has made a real impact on the Asian market.
“The roll-out of integrated solutions is becoming a very real phenomenon and we have seen take-up in various locations across Asia for a number of years,” he says, pointing out that Standard Chartered’s Straight2Bank proprietary platform also offers suppliers the capabilities required to send trade documents electronically and access supply chain finance facilities online via the same interface.
He adds that as most supply chain finance solutions also offer increased visibility into invoices, suppliers can pinpoint almost precisely when they will be paid by the buyer. This puts them in a better position to forecast their cash flows, and decide if they need access to financing.
“This has proved to be one of the unexpected benefits of supply chain finance programmes, and a number of suppliers are taking advantage of it,” says Zabarte.
“Most supply chain finance solutions require a firm commitment from the buyer to pay invoices on a set day,” he continues, pointing out that the established practice of buyers could be to take up to 15 days or more over the agreed terms. “As the supplier now knows the exact date on which payment will be made (give or take one or two days), it is in a better position to forecast its cashflows, and may decide it does not need a liquidity buffer.”
The future of electronic trade documentation
The electronic transmission of other trade documents, such as letters of credit, has come under the spotlight as corporates seek to eliminate paperwork and take advantage of the efficiency and cost savings, greater accuracy and security that automation can bring.
“Increasing efficiency in trade documentation management, and also saving costs at an operational level, is critical to corporates,” says Kevin Brown, head of products, global transaction services, RBS, pointing out that e-documentation also enhances security. “Electronic solutions to transmit trade documents can also improve the accuracy of a corporate’s processes by reducing individual handling of the origination and processing.”
According to Olivier Berthier, solutions director, transaction banking at Misys, significant progress has already been made in the electronic transmission of letters of credit via bank proprietary e-banking solutions or multi-bank solutions.
“However, when it comes to other types of documentation, that is another story. Paper is still heavily used for certificates of origination, government documents and bills of lading,” he says.
The use of electronic documentation in cross-border trade has been hindered by the slower up-take of the technology in certain regions.
“There is an eco-system building up in areas like tax and stamp duty with governments using paper so that they can utilise their employees,” says Berthier. “This is slowing down the adoption of the electronic transmission of trade documents in some emerging markets.”
Mike Quinn, managing director, global trade services, JP Morgan, adds: “In various countries, there are regulatory issues that prevent automation. Original paper documents are required for customs, tax and general regulatory compliance. Governments need to take action on this – the broader problem faced is not exclusive to banks.”
Ray Zabarte, global head of payables at Standard Chartered Bank, acknowledges that a lot of paper is still involved in international trade, with importers, exporters and other government agencies not seeing the electronic transmission of documents as their highest priority.
However, there have been successful government-led initiatives in countries such as Korea and China, which are looking to remove paper from domestic trade to prevent fraud and speed up access to finance.
“Asia is a very diverse region, and each country has its own agenda. Where it is seen as a priority, electronic documentation is moving forward, and as domestic initiatives take hold, they will form the basis for user acceptance in a country, leading to its greater use in international trade,” he says.
Aside from regional issues, limited uniformity in the standards used for electronic documentation is also largely to blame for shortcomings in its take-up.
“There has been a movement towards the electronic transmission of purchase orders and invoices, but when it comes to an area like cross-border shipping documentation, this is still very much paper-based,” says Arthur Vonchek, CEO, Bolero. “One of the big problems is that there is not a global industry standard. Everyone has their own agenda. Even within industries, there has been little standardisation.”
“There is a need for greater standardisation,” adds JP Morgan’s Quinn, pointing out that “the industry may be best served by an industry-wide solution”.
“At JP Morgan, we have a proprietary solution that has all the capabilities needed to offer our customers the opportunity to present documents electronically, but we face similar issues to other players such as limited uniformity in the standards, processes and procedures used when engaging other necessary parties to the transaction.”
While bank proprietary solutions offer the capabilities needed to electronically transmit trade documents on behalf of corporate customers, third-party solution providers, such as Bolero, claim they can go one step further by offering open platforms, which can be used for e-document transmissions with multiple banks and other supply chain partners.
Vonchek explains that Bolero uses its own multi-bank messaging infrastructure to automate the management of letters of credit, bank guarantees and shipping documents via one platform, providing corporates with greater control of, and visibility into, their trade accounts with multiple banks. This, he claims, is particularly relevant given that large corporates today can be involved in international trade transactions with as many as 150 banks globally.
“In the past, banks looked to develop differentiated platforms with sophisticated technologies and then promoted their own proprietary platforms. This created an issue as different banks used different technologies. However, since the financial crisis there has been a big move by corporates towards using the services of a broader range of banks, and unlocking themselves from bank proprietary systems,” he says.
Last year, Bolero also took its offering one step further with the launch of Presentation Dashboard, a single workstation which allows the submission of all the trade documents relevant to a trade financing in one electronic presentation. A key feature of Presentation Dashboard is that trade documents, such as the bill of lading, can be submitted as originals in the electronic presentation. GTR