Electronic Invoicing

Bad invoices are bad for business

The debate over what the potential savings are with the introduction of electronic invoicing continue.

As we come to terms with electronic invoicing and I know that is a big assumption on my part we are starting to ask different questions.

For example:

How many invoices processed annually are in error and need special attention?

Bad invoices are bad for business

It is the invoices in error that create most work and drive up the cost.

I think everyone accepts that a computer can process invoices faster than any person but that assumes that the invoice is correct and the automated processing of an invoice by computer occurs without error. How much is saved per invoice? This is a measure of productivity and the savings only arise when for example 2 people can do what formerly 4 people were needed to do.

Interestingly, computers can't resolve issues arising from an invoice in error, let's call them exceptions. Only people can do that so the full benefit and savings from electronic invoicing increase as you work towards zero exceptions. Is that practical and what is the implication?

If you ask any AP manager the bid deal for them is the workload associated with exceptions. Interesting many will reveal that it is often a core number of suppliers that they have quality problems with.

Three point check

So, savings depend on three things:

1. automating the processing of invoices - drive down routine processing costs
2. reducing the number of exceptions - delivers big savings as explained later
3. resolving quality issues with suppliers - change process and apply technology to automate

Putting some parameters around this:

Few exceptions

If you have few invoices in exception then implementing electronic invoicing offers you productivity and a moderate win in terms of savings since your costs associated with exceptions are low. Bigger AP departments have much more scope to deliver savings and they have been in the early wave of adoptors of electronic invoicing.

Many exceptions

If you have many invoices in exception then implementing electronic invoicing is harder as you have quality issues with suppliers to resolve yet also offers you a big win with a reduction in the number of exceptions.

Bad is expensive

I am not going to write the "how much does it cost to process an invoice" sums as these are misleading. What we do know is that exceptions cost considerably more to process than clean invoices. Research suggests exceptions can cost up to 10x more to process.

How many invoices do you have in exception as reducing these in number deliver the big savings?

Let's say you process 50,000 invoices p.a and 3% are in exception, that is 1500 invoices

If we estimate it takes 20 minutes on average to resolve the exception then that is 62.5 frustrating and non-productive days of work.

Now if we can reduce that to 1% then the impact is that you spend 20.8 days in this non-essential (as far as your business is concerned) activity.

That is a real saving of 42 days.

The point of this blog was to highlight an area that will assist your business case and justification for electronic invoicing based on looking at the problem area in AP - exceptions.

It is not the whole story just shining the torch on a problem area.

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Labels: accounts payable, electronic invoicing, savings

posted by FrankB @ 3:32 PM