The bellwether of commonsense in 2009 is e-invoicing
Over the past decades removing the manual re-working of commonly shared transaction and trading data has been variously referred to as EDI, e-commerce, b2b and other trendy and evocative names. When really the simple down and dirty description is one of –
‘Get rid of paper’.
Ah, easy to say and hard to do even in this day and age. People like paper. We have used it for centuries; it is in our DNA almost to trust paper; and the truth is it is the simplest, easiest and most universal technology tool to portably transfer information.
However, when you merge two fundamental technology tools, a human and a piece of paper you ensure that misinformation, errors and delays will occur, no matter what else is in play.
The internet has transformed commercial correspondence beyond imagination from say 1989 compared to today. Emails have almost wiped out the use of routine business letters. Credit cards have replaced cash as the common method of payment, certainly in retail. Mobile phones and portable computers, and in some case today, that is one and the same thing, have presented business with accurate, timely, useful and low cost integrated information sharing platforms
In retail, barcodes POS, portable PDAs and soon to be more prevalent – RFID tags, have changed what was the normal situation in 1979, so much, one can not imagine it any other way.
So how come we are so backward, so reluctant and so slow to adopt the electronic exchange of basic trading business information between buyers, sellers, traders, logistical and other service providers? It seems so simple an idea to embrace that only the most highly intelligent, self-proclaimed ‘experts’, would miss the fundamental sense in it all.
The overall answer to this conundrum is not complex or mysterious; rather it is a combination of numerous things that are combining to prevent the mass adoption of e-enablement technology naturally.
By ‘naturally’ think of the fax machine; one day no one had one, the next day everyone had a fax machine. It was relatively cheap, could be used by anyone to anyone and was simple to use. Primarily because it was underpinned by a ‘standard’. All fax machines operated in a standard manner so there was no interoperability or integration hassles to overcome.
Is that the case with EDI today, yet? Sadly the answer is no.
In the broadest sense the relationship between buyers and sellers is one where the few and the big deal with the many and the small. The big end of town has embraced EDI, to a degree at least, while the majority of the trading partners have not. EDI requires an investment in technology to be capable of maintaining the use of ‘standards’ even though in many cases the ‘standards’ are not always exactly the same. Without going into the gooblygock of why this is so, let’s accept it and move on.
There are three tiers of technology in play here:
Or simply in other words:
The goal the buyer is wants to enjoy is to electronically purchase product to meet customer demand service levels, to achieve profitable stock turn levels and to meet cash flow performance that maximises sales, minimises costs and leaves enough loot for the back pocket so as to make the whole enterprise worthwhile.
For the seller the key thing is to get the purchase order rather than your competitor doing so, ship the goods required, and avoid errors in delivery, so that payment is not only received but is not delayed.
When big corporations inter-trade electronically this sales and payment goal is achieve by EDI, in that:
The
(purchase order) PO goes from buyer’s computer to seller’s
computer
The responding POA purchase order acknowledgment; or
DA delivery advice: or
ASN more usually, an advanced shipping notice
Goes from the seller’s computer
to the buyer’s
computer
So that an INVOICE can be sent to the buyer and thereby
The buyer pays the seller promptly
Guess what the average transaction costs[1] both sides? Ah come on take a guess, it isn’t a State secret. Global and local studies show that the shared costs to all of this electronically are between $2 and $5 a transaction.
And, drum roll, to cost to undertake this totally or partially with the use of paper? The average is $70. Best practice, for paper processing as an oxymoron, is $20 (Wal-mart) and the worst goes from the State agencies, in the $100s, to Federal agencies in the many of $100s.
Wait there is more. By far and away the most expensive component of this loop is the paper invoice. Why? Well, first off the ratio of inbound paper invoices is as high as 90% of all purchase orders, regardless of whether the POs are electronic or manual. Fifty percent of all workflow costs and the reasons for all payment hassles, aggravation and delays are almost all down to one simple problem: missing invoices. In Australia we estimate that there are 2 billion paper invoices put in stamped envelopes very year. Not all of them it seems get processed much faster than they did one hundred years ago.
Disgracefully really
Let’s just recap on the only way to get and pay an invoice or to send and receive payment of an invoice. Remembering that both sides suffer greatly when visibility over who, owes who what, is stuffed up by a bit of paper.
The first two give the accounts payable people on-time knowledge of what they owe, when they owe it, and therefore when, what, will be paid; which is usually promptly. The second two introduce huge gaps in financial controls until the paper is processed, and of course results in the horrid outcomes of 60 to 90 day cash-flow hassles for the account receivable people.
Is there another way? Yes there is and as an introduction let us look again at the e-invoice as a stand alone issue
One outcome of the Global Financial Crisis is a more general realisation that a lack of timely and useful visibility over accounts payable and accounts receivable cash-flows is still certainly due to the dreaded paper invoice.
Paper invoices present many obvious and not so obvious inefficiencies and associated problems to both the supplier and the buyer; the former often experiencing less than reliable payment lead-times and the latter bearing work practice and other costs manually preparing paper data for electronic processing with poor visibility over financial control and liquidity matters.
EDI and web applications are answers to many situations but this still leaves a large number of small to medium enterprises with cost and work practice issues to resolve
An answer is to capture the invoice data at the source, more cheaply than EDI, and without the need to invoke EDI rules and standards.
There is technology now emerging that is just that: desktop data capture and transmission software.
This simple PC desktop tool will replace the need to mail a hard copy of the invoice, via the APO, or to fax the copy to the accounts payable people, As such the software will ensure that accounts payable receives the electronically ‘printed’ invoice (as XML), ready for processing, within minutes of it being ‘printed’. More over the (PDF) image of the invoice will also be sent to meet digital signature and archiving requirements.
This sort of software will be commercially available early in 2010.
In the meantime it is not too early to start to think about ‘EDI’ as a here and now requirement. There are dozens of vendors who can start you off with the PO step and are capable of expanding the PO link through to full, closed loop, electronic data exchange of all transactions.
Hear them bells? It is so simple. You should not ignore it any longer.
Author:
Pat
Gallagher
| Kromatag Advisor
Salmat Businessforce
2 Military
Road
Matraville
NSW 2036 Australia
t
(02) 9311 9738
f
(02) 9311 9918
m
0418 976 069
e
pat.gallagher@salmat.com.au
w
salmat.com.au