The benefits of e-invoicing for SMBs
5th Apr 2013 | 07:00
Electronic invoicing can be 10 times cheaper than using paper
According to Paolo Malinverno, Research VP at Gartner, businesses can recoup any spend on setting up e-invoicing in a year. Yet only a very small percentage of UK SMBs are using the technology.
The simplest system involves emailing a PDF to a supplier. But the real benefits of e-invoicing come when it transforms the entire payment process as the invoice becomes a request for payment, integrated with the accounts system and the supplier payment system.
Recent developments suggest that many more businesses will use e-invoicing in one form or another in 2013. An EU VAT directive, introduced on 1 January, removed previous constraints to its adoption by lifting the technical requirements for the delivery of electronic invoices.
Adoption has been held back by a lack of standardisation and interoperability, but that is now being addressed by bodies including EESPA (European E-Invoicing Service Providers Association), the UK National e-Invoicing Forum (UKNeF) and the EU itself with the Pan-European Public Procurement Online (PEPPOL) project OpenPEPPOL. The latter is designed to make it easy for European businesses to deal electronically with any European public sector buyers.
"e-Invoicing adoption isn't what it could be in the UK," says Nigel Taylor, chair of UKNeF and head of e-invoicing at supplier GXS. "The public sector has made some inroads but in general it has not been taken up as well as it should be."
But he points out that among firms ready to sell unpaid invoices to factor companies, which then aim to collect the full rate, those using e-invoicing can get more than the regular rates of 80-90% of the value.
"Because the invoice is processed quickly and it has been matched to a purchase order, a lot of the risk goes away, so new supply chain finance companies are doing a similar thing to factoring but offering a much better rate," says Taylor.
In this way, e-invoicing is opening up an alternative access to liquidity.
Many smaller businesses may have no choice but to use e-invoicing as large customers require them to submit invoices electronically through payment portals. Sometimes this results in companies having to interact with several different portals.
Gartner's Malinverno believes the drive for cost savings is pushing firms towards e-invoicing in the cloud.
"SMBs are thinking, if I have to send invoices electronically to one large customer, why don't I send electronic invoices to everybody?" he says. "They have had enough of interacting with different portals in different ways to invoice different customers.
"They say 'I want to do everything electronically and push the problem, push all this diversity out to an outsourcer in the cloud'. It is proven, even if that monthly fee seems a lot and the cost typically depends on how many invoices you send, that pays itself off in terms of people time and internal IT resources in the space of less than a year."
The main barrier, in Malinverno's view, is the need to change internal processes: "Small business can do that; medium businesses are different. Accounts departments are not the most progressive so changing the processes for them is a huge deal. That is the main inhibitor."
eMail marketing provider PadiAct uses the Avangate e-commerce platform to invoice B2B clients. Claudiu Murariu, co-founder, says: "Invoicing was a very big deal for us. We were only three people and it was essential that we got paid as soon as possible."
PadiAct wanted a solution that would help with international invoicing and would provide e-commerce facilities, as it needed to allow customers to pay by credit card online. Avangate offered both and now does all the invoicing for PadiAct.
"A big problem in the beginning", according to Murariu, was that when customers were invoiced, they had to be redirected to the Avangate site to make payments and this confused customers."
Avangate addressed this in 2012, releasing an API that allowed PadiAct to integrate e-invoicing into customer accounts on its own website. An important feature is that the system adjusts each invoice to take into account VAT regulations and currency conversions for each customer's country.
"We receive just a single invoice from Avangate every month instead of hundreds from customers, so that is easier for accounting," says Murariu.
PadiAct plans to develop the system, using APIs from Avangate, to provide more advanced statistics and to offer single sign-on for customers accessing their invoicing and payment information from a PadiAct dashboard.
Sarah Pettegree of Bray's Cottage, a pork pie bakery in Norfolk, started using cloud based accountancy software KashFlow to manage her finances in 2008. Now the e-invoicing facility within the package has become central to the operation of the business.
"We could send out professional looking invoices, over email and they were all properly recorded instantly on the accounting system," she says. "We could then keep an eye on our credit control and do everything properly, which for a small firm was quite a step change, doing the equivalent in terms of systems as a big firm could do on Sage or similar, but in a much less over-engineered way."
e-Invoicing is integrated with the accounts system.
"The electronic invoice is the way the pie sale is put on the system. It is one of our key tools. I used be a management accountant so I knew what I needed to achieve and I didn't like being out of control."
e-Invoicing suppliers are starting to open up their networks so that small businesses using one portal can send e-invoices to customers using another. Various models are emerging such as the freemium model where the first 15 invoices, for example, are free, a model by which only a midsized company pays for it, or even a model where you can send any invoice for free, with charges for 'extras' such as storing the invoices.
"All these models are coming up to entice SMBs with benefits for them for once," says Malinverno. "All these things have started happening in the last year. Most of them are happening in the Nordics – but in the UK you can still sign up to the service."