Early payment discounts – is e-invoicing the solution? 

By Roger Hatfield, VP North America for CloudTrade 

Earlier this Spring, interesting news came in from across the pond with the publication of the first edition of the UK Government’s new ‘name & shame’ report on late supplier payments.

The good news is that just under half of all the invoices that were reported on were paid within 30 days, but there were serial offenders, who made their suppliers hang on for 31+ days and longer.

While Europe is ahead of the USA with their e-invoicing initiatives, the figures shows that only 25% of the companies, who were reported on, offered e-Invoicing. What happened to the rest? Why aren’t they taking advantage of e-invoicing to manage their supplier payments? And what lessons can we learn for us here in the US?

Roger Hatfield
Roger Hatfield

My view is that while many organisations appreciate the problem of late payments, and the knock-on effects it can have on their supply chain they cannot change their modus operandi: they are hamstrung by their current systems, practices and processes and cannot make any change in the short or medium term due to help erase late payments. This is a global problem.

It’s clear that the UK and US markets are different in their approach to supplier’s payments; with the UK using more traditional ‘direct’ banking methods to pay their suppliers; whilst, in the USA, a lot of organizations still use cheques but there is also a wealth of payment providers who provide a multitude of solutions from invoice receipt/processing, online vendor/supplier payment portals and invoice automation to help manage the payment process.

But I do wonder how many organizations are able to take advantage of the hard earned, and negotiated, early payment discounts (EPDs) from their suppliers? Many of the payment solutions on offer in the US allow organizations to keep their existing bank relationships and pay suppliers by ACH, check, virtual cards and credit cards in a faster time frame than would normally be achieved by processing in-house. Using a payment provider can slash processing costs by up to 50% or more and gives a business’s accounts payment function full visibility into payment status and approvals. But what about those EPDs?

In comparison to the UK, the USA is streets ahead when it comes to paying suppliers – The Paystream Advisors 2016 Data Capture and Mailroom Technology Insight Report stated that nearly 92 percent of invoices received electronically are paid on time, compared to only 45 percent when invoices are received in paper form.

In my view this is where the problem lies – the Federal Reserve states that currently only 25% of US invoices are electronic, so that’s 75% of all US invoices being processed by other means – a huge opportunity for efficiency and EPD gains.

We know that reducing your Days Payment Outstanding (DPO) helps support your supply chain partners, and that shortening your DPO could provide additional margin to your bottom-line and improve your cashflow – so where is the problem?

Well, let’s consider the 75% of invoices that aren’t electronic – these will include, paper, PDF and other electronic forms, outside the traditional EDI or network-based channels.  A proportion of these invoices will have been outsourced for processing by an optical character recognition (OCR), mailroom or payments provider, who will provide invoice capture, management and integration services to give users an end-to-end payables solution.

The attraction of this approach is that it gives organizations one solution for all their AP processing needs – no matter what format invoices are received. The service provider will typically process the documents using OCR, which means that every electronic document received is converted into an image for OCR processing.

We know that OCR is normally okay, when every invoice we receive is in the same format, size and the data fields remain in the same places on the image. But, suppliers tend to send complex documents, across multiple pages and with specific line item detail, which you need to process into your back-office systems to manually or automatically perform the 2/3 three-way match. This is where the costs mount up, as it is very likely that every processed invoice will need to be reviewed manually because the suppliers ‘standard’ invoice format changes dynamically with the addition of multiple lines and pages.

An alternative approach that the majority of organisations use is just to capture the header level and totals from the invoice, without the requisite line level detail, but this doesn’t help you understand your spend at a granular level and is exactly the data that you need for financial/supplier reporting purposes and to be able to claim those ‘hard negotiated’ early payment discounts.

Remember that every time your OCR or mailroom provider looks at, and corrects, an invoice, it is likely to cost you money – if the document is already electronic why convert it in the first place?

Could ‘true’ e-invoicing be the answer?

With the latest e-invoicing technology suppliers don’t have to do anything different. It allows them to simply create their invoice, convert it to a PDF and email it to a named email address. The technology uses the original invoice and extracts the data (100%) from the PDF and puts it straight into the buyer’s finance package. Simple.

More importantly, the supplier doesn’t have to pay or log into a portal. All they need to do is ensure their invoice is produced as a PDF (which their own finance package is able to do for them) and then email it over. For the buyer, the time-consuming process of keying and rekeying and matching line level detail in data is removed. There are no more paper invoices to hold on to, or potentially lose. The data is all held electronically.

As well as saving money on accounts payable processing costs, this simple approach means the invoice data is presented back to the payments system in real time. Immediately after it has been processed successfully, it will be in the payments systems, typically within 1-5 minutes of receipt, including full line level detail.

The latest e-invoicing technology can also apply validation against key data provided by the users and business rules can be applied against other key data fields on the invoice – such as rejecting invoices that don’t contain a PO number.

There is no doubt that e-invoicing provides the foundations that allow organisations, of all shapes and sizes, to put automation and controls around their invoice to payment function. Increasing their ability to pay on time, understanding what they are spending at a granular level and helping them reap the rewards of those EPDs.

Isn’t it about time you thought about how this could affect your organisation and the bottom line?

Roger Hatfield is VP of Sales for CloudTrade in North America.

 How CloudTrade’s solution works

CloudTrade’s patent-protected software uses unique rules-based technology with backward tracking search, to interpret, validate, and extrapolate semantic meaning from complex documents, of any type. So, whether its invoices, sales and purchase orders or advanced shipping notices, CloudTrade processes them automatically and cost effectively.

Although CloudTrade offers organisations several ways to send complex business documents (including direct XML / EDI), by far the most popular approach is for an organisation to simply send an application generated PDF via email.  When an application generates a PDF, in almost all instances it will be a text PDF. CloudTrade reads the document text straight from the PDF, without the use of OCR – which guarantees 100% quality.  PDF documents are easy to use and out-of-the-box with most ERP and accounting packages. As a result, typically >90% of organisations (irrespective of shape or size!) when asked will send PDF documents – including invoices, sales and purchase orders, advanced shipping notices and other complex, data rich documents.

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