As digitization of business processes remains a hot topic for forward-looking organizations in the UK and around the world, a prime example of this development–electronic invoicing–continues to grow its significance globally, and in the UK in particular.
Currently the most notable driver for e-invoicing in the UK is the NHS eProcurement strategy, which was outlined already in 2014 and has been under implementation by the NHS trusts and their network of 160,000+ suppliers since January 2016. As part of mandating the usage of PEPPOL (Pan-European Public Procurement Online–a network and a set of standards for exchanging procurement documents electronically), e-invoicing is an integral component of the broader strategy aimed at making NHS procurement operations more efficient. While this development driven by the NHS already directly impacts many organizations, both in the UK and abroad, it may have even broader implications as far as e-invoicing adoption is concerned. This is because in addition to driving e-invoicing adoption in those organizations that are mandated to comply with the NHS procurement policy, it is also likely to have a ripple effect in the broader business network of these organizations as they discover the benefits of e-invoicing and encourage their other trading partners to start exchanging invoices electronically as well.
While electronic procurement is a broader topic than just e-invoicing, this particular area concerning “the queen of all business documents” deserves a closer look. However, following the example set by the NHS, it’s good to keep in mind that any organization looking to move from paper-based invoicing to e-invoicing should also consider the broader context of their supply chain and procurement operations when making decisions on their e-invoicing solution.
What is e-invoicing?
On a very general level, e-invoicing is about sending and/or receiving invoice documents in an electronic format as opposed to handling paper invoices. The term electronic invoice may seem self-explanatory, but it’s good to note that there sometimes is debate over what counts as an e-invoice. Therefore, to clarify the scope, e-invoices as discussed here are electronic documents containing all information required from a legal perspective to be considered compliant invoices in the eyes of tax authorities, e.g. HMRC in the UK.
Looking at things from this tax compliance point of view is the basic test for considering if an electronic document can be counted as an e-invoice. The debate usually arises from the type of electronic format that is used where there are roughly speaking two options: a structured format such as XML, and an unstructured format such as PDF. Some argue that only e-invoices using a structured format should be counted as “true e-invoices”. However, the major implications of this distinction mainly relate to internal process efficiency, such as enabling invoice process automation and data quality management. Note that this is not to say that process efficiency and invoice data quality should be ignored–actually far from it, since these are areas where the full potential of e-invoicing can be discovered–but rather that the division into paper vs. electronic invoice formats is sufficient in building a case for change.
Why e-invoicing, what’s there for me?
Before going into the reasoning why e-invoicing has such a compelling argument over the traditional paper-based invoice handling, it’s good to get a perspective on how common e-invoicing is at the moment. While the general adoption rate of e-invoicing in the UK is somewhere between 15% and 40%, there are vast differences between organizations based on their size and even industry. Typically, nearly all of the large organizations have some kind of e-invoicing solution in place, but what varies is the ratio between electronic and paper invoices handled within each organization. Here it’s good to note that, due to various reasons, moving from paper-based invoicing to e-invoicing usually does not happen all at once, but is a process of gradually increasing the share of electronic invoices. In fact, getting rid of paper invoices altogether is still rather difficult, and depends greatly e.g. on the size and diversity of the organizations trading partner network.
Whereas large organization are typically looking to extend and optimize the solutions they have already implemented, many small and mid-sized organizations are still considering if they should embark on the journey towards a “paper-free” future. For those organizations–large or small–that have not yet moved to e-invoicing, the correct question to ask is not if they should move to e-invoicing, but rather when they should do this. There are three simple reasons why this is the case:
- It’s good for your business. Compared to paper-based invoice processing, automated e-invoicing provides process improvements such as faster invoice processing and lower error rates. These often have major impacts on the quality and efficiency of operations and–perhaps most importantly–typically results in cost savings of 60-80% (Billentis, 2016).
- It’s good for the environment. For organizations looking to develop their initiatives around corporate social responsibility, e-invoicing is a great way to do this while also improving your business operations. Over the course of its lifecycle, thecarbon footprint of an invoice is reduced by 63% when moving from paper-based to electronic invoicing (Tenhunen & Penttinen, 2010).
- You may have to do it. In addition to large companies looking for cost savings on invoice handling by requiring their suppliers to send invoices in electronic-only format, also the public sector is increasingly driving e-invoice adoption. The most notable recent development in the UK has been the aforementioned case of NHS mandating the use of PEPPOL for all NHS trusts and their suppliers. As e-invoicing adoption rates among both private and public sector organizations grow, you can expect the same to happen to the pressure these organizations place on their business partners when they look to optimize their own invoice handling costs.
E-invoicing will be reality for every organization
E-invoicing is an area with tremendous potential for all organizations, and as we move towards a real-time digital economy, sooner or later paper-based business processes will be a thing of the past. The pace of change varies by country and industry, but as government initiatives and procurement policies of the large enterprises push more and more organizations to adopt e-invoicing, it will become increasingly harder for the typically small and mid-sized businesses that have not yet moved to e-invoicing to not make the switch.
Cost-savings are the most cited reason why e-invoicing is so tempting, but process automation and, increasingly, invoice data quality are also important aspects of how e-invoicing can help organizations better run their operations. Ranging from the simple solutions utilizing unstructured e-invoice formats to advanced solutions enabling full invoice process automation, any organization should be able to find a solution that fits their needs. Questions such as future growth of the company, need for invoice data quality management and invoice process automation, variety of invoice channels, number of trading partners, etc. are all important things to consider when making an educated decision on what is the right solution for you.
If you want to read some more information on the topic you can, for example, have a look at our white paper on “Tapping Into the Full Potential of E-invoicing” or our blog on the same subject. The future of your business will include e-invoicing – the question is when will you start?