Electronic Invoicing: Opportunity for the Government and Businesses

May 10, 2016     By : Kate

The problem and the solution

One of the problems often faced by businesses (especially SMEs) is getting paid on time. Cash flow management can be a complex task when a range of clients have different times of invoice clearing and some of them happen to delay payments. The SME community is particularly vulnerable to the risk of poor cash flow management. Having a hard time to secure a loan from large financial institutions, the SMEs found a relief in the flourishing alternative lending space and organizations dedicated to SME financing.

However, the problem doesn’t go away with access to credit. The source of the problem for any business lies in the complexity of the whole cycle. For example, large retailers that have a wide range of small and mid-size vendors may be clearing the invoices in 90 days. Those vendors, however, have to meet their ends for those 90 days, which creates a tension for them and difficulties to manage the cash flow. Inability to clear the invoices in a shorter period is a significant risk under which many small businesses have to survive.

On the bright side, some professionals believe that the time of tension for the business community comes to its end as electronic invoicing picks up.

As Alain Lefeuvre, Head of Digitalization of Financial Flows and Group Finance Department at Groupe Rocher, shared, “One thing is certain, even if electronic invoicing is not introduced today, it will be necessary tomorrow, so we need to deal with it. We cannot go paperless overnight; there are always changes to make and new elements to introduce without calling into question the conceptual building blocks. It is useful to put in place key indicators, from the start of the project to its implementation, to start with an overview before breaking it down into segments.”

According to some estimations, electronic invoice processing can result in savings of 60–80% compared to traditional paper-based processing and will allow businesses of all sizes the ability to transact seamlessly and more efficiently.

For buyers, electronic invoicing has a great potential to reduce the costs, eliminate processing errors and significantly cut the processing time. For vendors, electronic invoicing is believed to increase business efficiency, improve cash flow management, reduce costs and improve accounts reconciliation.

The opportunity for the government

The US government has also been paying attention to the growth of the industry and has noted the positive impact of electronic invoicing for businesses and economy. The data published by the Invoice Processing Platform suggests that the government spends nearly $300 million annually to process invoices from commercial suppliers of goods and services. Just like businesses, the government could significantly reduce the costs of manual invoice processing by shifting to electronic invoicing.

Fortunately, the technology for efficient electronic invoicing is well-established and available to the government. However, at this point only about 40% of the 19 million invoices that the federal government receives every year are processed and managed electronically.

The IPP also expresses believe in significant benefit of electronic invoicing for businesses. Each year, a large number of private businesses supply over $500 billion of goods and services to the Federal government. By adopting electronic invoicing systems, both vendors and the government can benefit from error-free and quick payments instead of relying on obsolete paper-intense and lengthy manual processing. As an example, the government relies on The Finnish Treasury, which found that private vendors to the government saved 57% with electronic invoicing. Along with cost reduction, private vendors reduce the invoicing cycle and gather more accurate data, improve cash management and customer relations.

In realization of the importance of timely and efficient invoice processing, in July last year, the government proposed a strategy to move towards all-electronic invoicing by 2018. David Mader, controller of the Office of Management and Budget (OMB), shared his insights on the importance of electronic invoicing, saying that the “electronic [invoices], obviously, give you the heightened accuracy, the prompt payment and the quick movement of payment of invoices from invoicing to cash in the bank.”

Mr. Mader has estimated that the savings for the government from moving to electronic will be close to $150–260 million and expressed a confidence that the savings will be achieved.

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Kate

Kate is a staff writer at LetsTalkPayments.com.
She likes to write about mobile payments and mobile commerce.

If you have any suggestions or questions for the author, please email us at follow@letstalkpayments.com