E-invoicing is not a new concept, but it’s had some trouble catching on in the United States. According to the Business Payments Coalition (BPC), there are only about 250 e-invoice service providers operating in the U.S. market, and large corporations are generally the only organizations using e-invoicing. But that could be on the cusp of changing.
The BPC is establishing a framework for widespread adoption of e-invoicing. The goal of such a framework is to create a set of policies, standards and guidelines that would enable businesses to exchange documents and messages regardless of the systems that they use. After a preliminary assessment, the BPC was able to provide recommendations and considerations that could be acted on and implemented.
The BPC's three-year plan has four stages.
- Assessment: Conduct a preliminary analysis of existing global frameworks for suitability in the U.S., as well as assess technical requirements to create an e-invoice delivery messaging infrastructure.
- Engagement: Engage key stakeholders (payment service providers, banks, corporate practitioners) about the assessment results.
- Development: Establish workgroups of stakeholders to develop technical requirements of the framework and create governance and operational guidelines.
- Market acceptance: Encourage stakeholders to adopt the framework requirements.
“We performed a preliminary assessment of different frameworks that are out in other markets today—Europe, Australia, etc.,” said Todd Albers, senior payments consultant for the Federal Reserve Bank of Minneapolis and the convener of the BPC e-invoice workgroups. “What we wanted to understand is, can we modify a framework like that for U.S. requirements, and implement that in our market? And the workgroup we assembled said, ‘Yes, it can be done—but it requires a more detailed assessment of the requirements for developing such a framework.’”
Following that initial assessment, the BPC has convened two workgroups that have been looking at two different components of the framework. One is focused on creating a messaging infrastructure for businesses to exchange e-invoices. Europe has gone this route, developing an e-delivery network that standardizes the connections between service providers that support companies’ AP and AR departments. “In those frameworks, they’ve standardized the ‘technical stack’ for delivering these invoices between service providers,” Albers said.
The other workgroup is defining an e-invoice semantic model. The purpose of such a model is to allow anyone who receives an invoice to know the exact meaning of the data. “That’s one of the biggest challenges that businesses have to deal with today,” Albers said. “In these types of integration, they have to understand what is being sent to them by the sender. And the market in the U.S., from an e-invoice standpoint, is very fragmented. We have many different standards that are in use today.”
The BPC published a catalog of all the e-invoice standards in use in the U.S. in 2017. At the time, more than 40 different standards were identified and in use. “So if I’m a small or medium-sized business and I have to deal with all of these different ways to do integration for every single one of my trading partners, that becomes this really big barrier to electronic invoice adoption,” Albers said. “That’s why we’re only seeing around 25 percent adoption between businesses today. Because of the complexity and cost of many integration efforts, there’s really no incentive to expand the exchange of structured invoice data beyond high volume trading partners, especially not for businesses that fall into the ’long tail’ category. So that’s one of the reasons why you’re seeing email invoicing becoming so prevalent in the market; that’s a low-barrier technology solution to deliver invoices but it creates manual processing on the buyers’ side.”
WHY STANDARDIZED E-INVOICING?
Should e-invoicing standardization come to fruition, there are clear benefits for AP and AR departments.
Although there has been a lot of talk about faster payments in recent years, where payment speed can truly be increased is in the invoice process. “If I change the settlement from three days down to 30 minutes, that’s great, but you’re going to get more value by accelerating the sending of a structured invoice electronically that is automatically processed into the AP system than you will accelerating the settlement of a payment,” Albers said.
The average time to process a paper invoice can be anywhere from 12 to 15 days. If that invoice can be sent in a structured data format, it can be processed in a matter of hours. “Then you go through your approval process, and that invoice can be ready to be paid, on average, in about three days,” Albers said. “So as a business, I can make smarter decisions on when and how I make payments. On the payment initiation side, a business can develop working capital strategies with their cash, either be accelerating payment to receive a discount, or by extending their days payable outstanding (DPO) by paying with a virtual card. On the receiving side, if I know my invoice is in process or has been approved, I can offer up a discount to help reduce my days sales outstanding (DSO), and I don’t have to call to understand what is the status of my invoice.”
There is also a lot of cost involved in connecting with trading partners. And you might be dealing with multiple providers, platforms and technologies. “So a small business may have to support multiple business processes to either send or receiving invoices—that’s a lot of extra cost,” Albers said. “And it’s not only limited to small and medium-sized businesses. That’s what most businesses have to deal with unless you’re the big dog and you can mandate one way that your partners send invoices to you. A lot of businesses don’t have that clout, and so they have to deal with how their trading partner wants to send and receive that invoice.”
Standardizing e-invoicing has the potential to improve that process immensely. “The framework can simplify that connectivity and reduce the overall cost,” Albers said.
It can also improve the overall data quality of invoices. Once you have structured data in place, you don’t have to do as much interpretation. And having more accurate data can improve any AI or RPA processes that a company may have in place. “Having good data is invaluable to those processes,” Albers said. “If I’m trying to interpret data based on a scan or a PDF, there are some opportunities still there where the meaning of that data is not fully understood. That gets interjected into those processes and then they may not be 100 percent accurate. So data quality really supports all-sized businesses as we look at more and more of these automation tools.”