Forward looking businesses understand that moving to an eInvoicing system is key to streamlining the order to cash cycle. Adopting this type of solution can provide substantial benefits and enhance working capital management. Not only is eInvoicing critical to improving productivity, in many cases it is also a requirement for doing businesses. Market leading companies are actively preparing for global compliance obligations while boosting efficiency and gaining better insight into the procure to pay processes.
In the U.S., the Office of Management and Budget has mandated that all agencies adopt eInvoicing by the end of 2018. Businesses are rapidly following the directive with about one in four companies currently transmitting electronic invoices. Adoption rates are on the upturn in the U.S. with five percent switching to digital invoices per year. Implementation is anticipated to continue with nearly 40 percent of U.S. businesses sending invoices electronically by 2024.
The trend is closely mirrored in other parts of the world. Latin America is among the largest adopters of eInvoicing with the region generating an estimated 11 billion of the projected 30 billion yearly eInvoices exchanged worldwide. In the European Union, Directive 2014/55/EU mandates the use of eInvoicing in public procurement processes by member states as of November 2018.
Key Benefits of Electronic Invoicing
With an effective eInvoicing practice in place, businesses can:
Maximize discount capture
All companies today must keep a keen eye on costs. With operating margins that may be razor thin, managers are actively seeking to pick up a point or two for the bottom line. Many times, businesses can pocket valuable percentage points simply by leveraging vendor discounts. To illustrate this point, applying a one percent discount every 20 days provides an annualized savings of 18 percent. The Gartner Group estimates that a five percent reduction in operation costs can have the same P&L impact as a 30 percent increase in sales.However, a manual paper-based invoicing system makes it nearly impossible to manage discounts across all purchases. With eInvoicing, companies can set up automated payment systems that send eInvoices at the 10-day mark ensuring to maximize cost saving opportunities.
Improve spending analysis
Automating many aspects of spending with eInvoicing allows businesses to collect and review data from purchasing and A/P systems. In addition, the process can automatically connect to Enterprise Resource Planning (ERP) systems to get a much better handle on buying habits and better utilize ERP analysis routines. This enables companies to identify inefficiencies in the process much sooner, allowing them to initiate corrective action.Issues that can be quickly uncovered include using multiple vendors where consolidation would be more economical, off-contract buying at higher costs, and identifying unused services for which the company is still paying.Having all purchasing information in a digital format provides the business with an opportunity to conduct deep-dive analyses that can uncover significant cost savings and improve its working capital position.
Increase accounts payable processing efficiency
A manual billing system can drain resources and increase the risk of errors. Having staff generate, process, and file paper invoices is a time-consuming process that ties up resources better deployed in other areas of the business office. Using these freed-up resources to help better manage cash flow can have a positive impact on working capital.There is also substantial cost savings when a company converts to eInvoicing. The cost of a paper invoice transaction can range from $20 to $60, up to double the cost of an electronic invoice.
Accelerate the order to cash cycle
A key metric for any finance group is Days Sales Outstanding (DSO). Reducing DSO is one of the single most important factors in helping to free working capital. eInvoicing ensures that bills go out as soon as the order is complete, cutting lag time and ensuring faster payment. This eliminates the “snail-mail” delays in getting invoices out and getting payments back. Companies will no longer suffer from “the check is in the mail” delays that hold up payments.
With a paper-based system, accounts receivable groups often lose sight of the status of invoices, minimizing their ability to properly manage the process. Relying on manual data entry delays getting invoices into the AP system and increases the chances of them getting tied up or lost in the customer’s approval process. This can hamper the finance team’s ability to accurately project cash flow, a serious issue in an organization that may be operating on tight margins. With eInvoicing, there is visibility from the minute an eInvoice is generated until payment is received, making working capital management much easier.
Descartes has been providing eInvoicing solutions to our customers for over a decade. The Descartes solution offers several advantages like helping develop workflow processes and business rules to set thresholds that allow management by exception. Our large network and cloud-based solution enables easy onboarding of trading partners with either our full or self-service options.