CHAPTER 2

LITERATURE REVIEW
CHAPTER 2

LITERATURE REVIEW.

E-INVOICE: ENDING THE PAPER CHASE

It is hard to believe that, in the 21st century digital age, one of the most
business critical documents, the invoice,is still created and sent in paper format. In
2010, of the staggering 30 billion invoices sent in Europe, only 10% were electronic
invoices.

The reliance on manuel processing of paper invoices is one of the greatest

challenges for Account payable (AP) and Account receivable (AR) departments,
being expensive, time consuming and prone to error. In a global economy where
 many other business processes are being automated, inefficient financial processes
can put a company at a significant competitive disadvantage.

Consequently, more businesses are investigatng how e-invoicing can play a

critical part in the goal of optimising their back-oofices, streamlining operations
and reducing costs. Businesses of all sizes benefit from e-invoicing in a number of
ways. The most obvious are the direct cost savings for the sending the invoice
(paper, postage and printing) and in processing (accepting the invoice, processing
and approving it) for the recipient. According to Quocirca, e-invoicin can enhance
business efficiency through reducing the costs of handling invoices by up to 70%.

So why, despite the proven benefits of elctronic invoicing, are adoption rates
so low?. Perhaps the most prevalent factor in hindering the move to e-invoicing is
the highly fragmented market, compounded by the diversity of suppliers that a
business will deal with, that invoice in different ways. E-invoicing has also been
held back by a lack of commoly aggreed standards and a complex array of global
ledislation.

Fortunately, the market being revitalised by a combination of legal and

business drivers and, in 2011, approximately 5 million European businesses are
expected to send or receive electronic invoices. As not all buyers and suppliers will
want to move to e-invoice at the same pace, some leading businesses have turned
to managed service providers to take control of their total invoice management.
This white paper will explore how th e-invoicingmarket has evolved, recent
milestones which aim to accelerate e-invoice adoption and the benefits of
outsourcing invoice management to a third party managed service provider.

THE PROBLEM WITH MANUAL INVOICING

Reliance on paper invoicing slows organisational processes as manuel data

entry inevitably invloves errors, lost invoices and processing delays. Keying in
information from paper invoices is still the most time-consuming and costly
activity, yet it is probably the least value-added task in accounting departments. It
also usually forces paper and electronic invoices to be handled separatedly,
requiring separate processes and associated inefficiencies. Quocirca estimates that,
on average, paper invoices cost 4,600 XFA per invoice to raise and 5750 XFA to
receive, while electronic invoices cost 1150 XFA to generate. Figure 1 show a
typical manual invoicing process.

Figure 1. Manual invoice processing

Paper invoices are not only expensive and time-consuming to send manually,
they are also cumbersome to archive and store, reconciling invoicing disputes can
also place a heavy burden on company resources. This can lead to poor supplier
relationship, which can make it difficult to secure regular discounts. Companies
may have difficulty preparing audit trails for closing books and meeting the
requirements for Europan VAT audits, and a high reliance on paper also comes at
an environmental cost-not only in paper waste but also in the associated energy
costs of transporting the physical invoices.

As businesses look to optimise their financial supply chains and minimise

manual operations, there is growing interest in electronic invoicing, which provides
both buyers and suppliers with operational and strategic benefits.
EVOLUTION OF E-INVOICING

A BRIEF HISTORY

E-invoicing is nothing new. In the mid-1960s, the big car and aviation
manufacturers recognised that the speed of processing business information was
critical to remaining competitive. The early solutions for transfering invoice
information were called EDI (Electronic Data Interchange) and were suited for very
large companies with tight relationships to their suppliers. To a large extent, such
EDI approaches have remained an exclusive option for very large companies due to
the very high costs for setting up the business communication between the
supplier and the buyer. A newer and more modern technology for sending
standardised text files is based around the use of XML (Extensive Markup
Language).

As XML is still a relatively young technology, there is still a lack of major

accepted standards. The most widely used method for sending invoices
electronically today is as a PDF attachment to an e-mail, although use of e-invoices
in this format does not eliminate manual processes.

Legal Regulations:

The EC Directive on invoicing (2001/115/EC) was introduced in 2004 with an

aim to simplify and harmonise VAT invoicing requirements across Europe to make
it easier for businesses to conduct cross-border trade. Since then, all e-invoice have
been accepted as legal VAT documents by all EU Member States, provided thet
they meet with specified security requirements. Although all member states have
followed the fundamentals of the original Directive there are a large number of
variations, which hs so far created a very complex environment for businesses to
exchange e-documents. More recently, the European Commision stated that it will
revise the E-signatures Directive in 2011 in a bid to encourage businesses to make
more use of electronic invoices. The Directive will be changed to make it easier for
electronic signatures from different EU member states to be read, recognised and
accepted. Electronic invoicing is also part of the European Commission’s flagship “A
 Digital Agenda for Europe” which wants to see e-invoicing to be predominant form
of invoicing by 2020.

E-invoicing choices today:

Today the market is categorised by a mix of on-premise and hosted

solutions, most of which offer integration to Enterprise Resource Planning (ERP)
systems, compliance with varying country regulations and supplier on-boarding.
There are four main e-invoicing model that businesses may adopt:

Buyer direct:

The buyer accepts paper and electronic invoices from the suplliers, but takes
responsibility for converting paper to electronic format. This approach is often
favoured by larger organisations, but still requires manual processes such as
document scanning for paper to digital conversion and data extraction prior to
uploading to AP systems.

Supplier direct:

The supplier is responsible for creating a digital invoice directly from is AR

system or via web based form, eliminating the buyer’s need for manual data entry.
Whilst this approach is popular in the B2C market, adoption in the B2B market has
been limited by challenges of integrating buyer’s AP systems with suppliers’ AR
systems.

Consolidator:

Invoices, regardless of data standards, are interchanged via a third party

such as a service provider or an invoice portal. Both senders and receivers of
invoices are connected to a network for the dispatch and receipt of invoices. Once
enrolled in a network, which may charge an upfront fee as well as an on-going fee,a
supplier can send an e-invoicing to any customer on the network. E-invoicing
networks require full buyer and supplier participation and generally appeal to large
corporations. Some suppliers ay have little incentive to participate in e-invoicing
network as they may not be able to justifiy the fee. However, in a competitive
environment, they can feel under pressure to comply in order to retain the
business. Additionally,where buyers and suppliers have joined different networks
 there can also be issues with interoperability. Examples of e-invoicing networks
include Ariba, Basware, GXS and OB10.

Total invoice management as a managed service:

A managed service provider (MSP) can take full control of the invoice
process-including the manual capture of paper invoices and document scanning,
the handling of a diverse range of invoice receipt formats (e.g XML, CSV, EDI, fax or
paper) and the sending of invoices in a buyer’s preferred format software is
developed maintained and operated by the MSP with customers paying a “fee per
transaction” enabling lower costs.

The benefits of a managed service:

A managed service that can handle invoice data across multiple countries,
legal boundaries and any format can provide businesses with a gradual transition
to e-invoicing. Services such as mail handling, document scanning, document
conversion and storage can deliver cost savings and improved efficiency for a
business of any size, and enable them to focus on their core business.

Under a managed service scenario, buyers and suppliers that are reluctant to
join an e-invoiciing network continue to send paper invoices. Instead of mailing
invoices to a buyer’s AP department, suppliers send these invoices to a processing
centre managed by the e-invoice managed service provider. At these processing
centres, the documents are scanned and data is intelligenc\tly extracted from the
paper invoices and converted into an electronic format data from both the paper
and thelectronic invoices is then available for processing through a single unified
platform. (figure 2)
 Figure 2: A managed service platform for total invoice management

A managed service can offer a flexible, scalable and phased approach

that creates a continuum between legacy media and future e‐invoicing
mechanisms. This path from manual to automated electronic invoicing follows
supplier and buyer adoption rates so that businesses can start gaining efficiencies
and reducing costs immediately.

A managed service for e‐invoicing offers a range of operational and

strategic benefits for an organization’s buyers and suppliers:

Buyer Benefits:

o Reduced costs:
Automating accounts payable processes can reduce invoice processing costs
through the elimination of sorting, registering and manual data entry of invoices.
Storage requirements can also be reduced through e‐archiving, replacing the
physical space required for invoice storage.
o No Capex investment:
A managed service uses a pay‐as‐you‐go model, which provides for more
predictable operational expenses and can expand and contract as business
changes. Using a managed service means that a business can effectively outsource
innovation whereby the service provider has to remain active and accountable to
drive innovation in the process as new methods and technologies become
available.
o Multichannel delivery:
Organisations receive all their invoices in their preferred format, from day
one, without having to wait to on‐board a critical mass of suppliers on the e‐
invoicing network.
o Reduced manual activities:
Buyer organizations can see a reduction in full time employees and
processing costs that were originally associated with document scanning and data
entry from paper invoices. This cost saving also translates to faster invoice dispute
resolution as a result of electronic invoice processing. Staff productivity is also
increased as staff can focus on more strategic activities.
o Shorter payment cycles:
E‐invoicing can reduce invoice processing times, which enables organizations
to capture opportunities for more early payment discounts.
o Improved supplier relations:
Relationships are enhanced by more efficient, more accurate payments
to suppliers.

o Compliance benefits:
E‐invoicing enables full auditability and the use of digital signatures, security
certificates and e‐invoice archiving regulations and can guarantee the integrity and
authenticity of transmissions, helping companies meet national and legal invoicing
regulations in EU countries.
Supplier Benefits:
o Reduced costs:
Costs, both financial and environmental, are significantly reduced by
eliminating manual invoicing, process and archiving.
 o Limited business disruption:
Requires minimal, if any, changes to the supplier‐side process.
o Spend management:
Suppliers gain real‐time visibility into invoice status, whether the invoice is
being reviewed, approved or under dispute. The data from e‐invoicing can be used
by the buying organisation to leverage contracts and rationalise its supplier base.
o Faster approval cycle:
Electronic invoicing compresses the approval cycle, ensuring that suppliers
are paid on time.
o Gradual migration:
As time progresses, the supplier can decide if and when it makes sense to
move to a complete e‐invoice approach with the help, where necessary, of the
outsourcing company.

GETTING STARTED
The benefits of using a managed service for e‐invoicing provide a compelling
case for consideration, with tangible cost savings for both small and large
organizations. E‐invoicing no longer means investing in risky and expensive in‐
house development. Starting the process now is critical in preparing a business for
electronic invoicing as it reaches critical mass, as well as capturing efficiency gains
from the early stages of the project. Overall, the approach any company takes
should reflect its position as the sender or receiver of invoices, the needs of
customers/suppliers, and the geographical focus (local/European/global). Some
suggested recommendations for getting started include:
o Executive sponsorship:
Deploying an e‐invoicing solution requires project management and
commitment at the highest level within both procurement and finance functions.
The organization should have a project sponsor to ensure full buy‐in across the
organization.
 o Analyze requirements:
Understand the scope and objectives of migrating to e‐invoicing. Analyze the
number of invoices being sent and received. Some managed service providers offer
assessment services and tools that analyses invoice types (e.g. domestic or
global), types of suppliers and buyers (e.g. B2C or B2B), the profile of customers
(e.g. a mix of large, medium and small) and predict the new cost per invoice.
o Review the market:
In an extremely fragmented market it is vital to look for credentials that
demonstrate that the service provider has experience in addressing the myriad of
technical, legal and commercial challenges of e‐invoicing.
o Ensure integration with AR and AP systems.
An e‐invoicing service should integrate seamlessly with an organization’s
existing financial or ERP systems.
o Look for a service that works with organizations of all shapes and sizes:
An e‐invoicing service provider should be able to transmit a wide range of e‐
invoice formats, provide conversion of prepare invoice into an electronic one and
also conversion of an e‐invoice into paper, delivering an invoice by traditional
postal methods.
o Set realistic expectations:
It is not practical to gain 100% adoption immediately. A business should
recognize the abilities of its customers to accept e‐invoices. Give customers the
opportunity to receive invoices electronically – this may mean a slower adoption
rate but will maintain better buyer and supplier relations.
o Widely communicate to gain‐buy in:
Communication and cooperation is the ingredient to success. It is important
to ensure that all internal stakeholders take part in the communication process and
understand the importance of e‐invoicing to the business.
Accounts Payable Accounts Receivable
A sportswear manufacturer was spending €4 million per annum A global specialist in energy management, this company helps its clients
distributing paper‐based invoices and statements. Ricoh’s i‐ reduce operational costs by implementing efficient energy management
Invoicing solution is helping the customer to make a gradual systems. By outsourcing invoice management to Ricoh, the energy
transition from hard‐copy to electronic invoicing, streamlining management company dramatically improved its own business processes
administration, reducing process costs and improving cash and significantly reduced operational costs.
collection.
The Challenge
The Challenge
Represented in 190 countries around the world, this multinational
This company operated an expensive and inefficient invoicing organisation has more than 8,000 suppliers. With the company receiving
process, mailing 4.5 million paper invoices and statements a year. more than 2,000 invoices a day, it took a team of 12 people to simply
Invoices were printed on a daily basis whilst other transactional complete more than 1 million fields of data every month. Errors in data
documents, such as statements and order acknowledgements, entry, an unavoidable result of manual processing, led to issues with
were printed on a monthly basis. Printed documents were invoice matching and payment. With the volume of invoices fluctuating
inserted into envelopes and sorted by country ready for mailing, on a daily basis, manual processing also caused delays during busy
documents were printed in‐house using black and white printers periods.
and it was necessary to stock pre‐printed stationary and
The Solution
envelopes. The company was looking for a robust and financially
compliant system to optimise its financial supply chain. Ricoh provides an outsourced invoice management service (i‐Invoicing)
and receives the invoices on fax, email or paper. All supplier invoices are
The Solution
scanned upon receipt. Ricoh’ image recognition software ‘reads’ the
The company has outsourced its entire invoice process to Ricoh invoices to identify and record essential information. Ricoh manages
to transition from paper to electronic invoicing over three years. licences and upgrades with the customer paying just for the service
Transactional data is recorded to the point at which an invoice is provided. The supplier’s name, invoice number and date, the purchase
delivered in electronic or paper‐based format to the customer. order number, item costs and the total invoice amount are captured no
Ricoh sends electronic invoices to the majority of customers, matter where on the invoice the appear. Ricoh validates the data,
saving costs and helping the company move towards a paperless manually completing any fields missed during the batch process. An
billing process in keeping with the company’s green export file containing the validated data is returned to the customer for
environmental policy. upload into SAP. The data provided is already formatted in SAP tables
and can be uploaded directly into SAP without manual intervention
Transactional data, generated by the company’s SAP order Customer Benefits
management system, is processed by Ricoh and used to create
electronic invoices. According to customer preference, invoices Ricoh’s i‐Invoicing service has eliminated errors and streamlined the
are either uploaded to a web portal for online viewing, or printed accounts payable process. Outsourcing has helped enhance business
and dispatched by conventional means. Customers are able to efficiency and reduce operational costs. The company has improved the
download and pay bills by logging on to the secure web portal. timeliness and accuracy of the invoice data available to the business and
Ricoh ensures that electronic invoices are legally compliant by reduced the time wasted on manual data entry. Tehe tim saved is the
attaching a secure digital signature which can be authenticated by equivalent of releasing 10 full‐ time employees to core business activities.
local tax authorities. Copies of electronic invoices are lodged by
Ricoh’s service has also reduced delays associated with fluctuating daily
Ricoh within a digital archive from where they are easily
volumes. By providing a similar service for several customers, Ricoh is
accessed when required.
able to manage peaks in demand and provide accurate data on a timely
Customer Benefits basis, irrespective of the volume of documents processed. The data
provided by Ricoh is more accurate than that which had been manually
The customer has made a seamless transition from paper‐based captured by the company’s own accounts payable department. With
invoicing to electronic invoicing, releasing internal resources, more accurate information available within SAP, there are fewer
reducing costs and improving its green credentials. 80% of mismatched invoices. Supplier invoices are now validated more easily
customers are ultimately expected to opt for electronic invoicing. and paid in a timely manner with less need for manual intervention.
They will typically receive and pay their bills two days earlier
in the billing cycle, improving cash flow. The number of paper‐
based transactional documents distributed by Ricoh on the
manufacturer’s behalf is expected to reduce by 3.6 million per
annum, saving the manufacturer €3 million.
CONCLUSION:

E‐invoicing has long promised cost savings and efficiency gains, and
compelling market drivers are now set to broaden adoption, enabling more
organizations to begin the transition to electronic invoicing.

As a full e‐invoicing approach requires buy‐in along the whole supply

chain, a big‐bang approach to e‐invoicing is not realistic. A managed service is a
cost‐effective and resourceful way of managing the process of migration to e‐
invoicing. The ability of a managed service provider to integrate multiple
channels and formats of transaction data means that a business can gradually
migrate partners to full e-invoicing at their own pace, whilst benefiting from
faster business processes, reduced labor-intensive tasks and improved buyer
and supplier relationships.

By not restricting the format of invoices, a managed service ensures that

the benefits of e‐invoicing are not limited to just large enterprises, but also
extended to SMEs who will gain access to a wider market of potential
customers and suppliers, especially larger organizations who may prefer
working with e-capable trading partners. E‐invoicing will be a major factor in
generating business process efficiency for many businesses in the future.
Starting now will ensure businesses of all sizes are ready as the e‐invoicing
market steadily builds towards critical mass.