Digital Invoicing for Online Transactions

For most companies today, B2B transactions start and end with the purchase order?with billing and payment still largely done the old-fashioned way, on paper.

But many companies are increasingly seeing fully digital transactions?including invoicing?as the wave of the future to save money and improve efficiency. For those companies that buy and sell goods or services online and use the Web to manage their logistics, electronic invoice presentment and payment (EIPP) technology?sending and receiving digital invoices?is the next logical e-business step. And it’s a trend CIOs need to pay attention to.

Early adopters of these new Web-based financial applications, including AT&T Wireless, Con-Way Transportation Services and General Electric, have begun to achieve savings throughout the enterprise. Among the benefits: In addition to lowering invoice processing costs, companies can reduce billing errors, improve cash flow, provide better customer service, and obtain more timely and accurate data for analyzing how they spend money or sell their products. A year ago, TowerGroup, a market research company, predicted that by 2005, the number of business and consumer bills that will be presented and paid electronically will approach 5 billion world-wide, up from 60 million in 2001.

Though companies have long known that they save money when they pay (or get paid) electronically, it’s the ability to manage invoices online that makes the business case. From a survey of more than 100 U.S.-based corporations with at least $100 million in revenue, Avivah Litan, vice president and research director of financial systems for Stamford, Conn.-based Gartner, concludes that suppliers that bill their customers electronically can earn back their investments?and save an average of $5.7 million a year?if a mere 2.3 percent of their invoices are “viewed, paid and disputed” online.

But there are still many hurdles to overcome. For instance, the break-even point for bill recipients is less clear. John Hagerty, vice president with AMR Research in Boston, observes that EIPP vendors first concentrated on helping sellers generate electronic invoices and are only now writing code to help buyers load the data into their ERP systems for processing.

The key to deriving the most value from EIPP technology is to integrate it with back-office applications like ERP, purchasing, accounts payable, order management and call center systems. “Integration is where you get the direct savings,” says Judy Cavalieri, director of e-business strategy and marketing with AT&T Wireless in Redmond, Wash. Given that integrating systems and processes is one of the biggest challenges CIOs face today, EIPP can further complicate an already daunting integration picture. But as more and more companies aim to eliminate paper from business payment transactions, it’s a challenge many CIOs will have to meet.

Customers Like It…

Many EIPP software vendors market their products to financial officers of supplier companies with the promise of faster payments and, as a result, improved cash flow. It may be a coincidence, but the technology started to flourish as the economy soured. “It fit into the business climate that we’re in,” particularly after 9/11, says Bob Novaria, treasurer of BP North America and sponsor of the e-billing implementation project for the U.S. division of aviation fuel and lubricant seller Air BP. Customers using Air BP’s electronic billing and payment service, which is provided through Citibank, do pay faster, says Novaria, in part because Warrenville, Ill.-based Air BP and its customers can now identify billing mistakes before an invoice is past due.

But as with many e-commerce applications, it’s the purchasers of goods and services, rather than the suppliers, that are driving adoption. Jacquelyn Barretta, vice president of information services with Con-Way Transportation Services based in Portland, Ore., only began online invoicing in March after contending with mail delays caused by the anthrax scare. The logistics company, which logged nearly $2 billion in sales last year, hopes to cut invoicing costs by 90 percent by switching to electronic billing. But its customers, many of whom have received invoices via electronic data interchange for many years, had as their first priority getting copies of their shipping manifests online and being able to check the status of their shipments. “Just seeing an invoice electronically versus on paper doesn’t save [customers’] money,” says Stewart McCutcheon, CTO with Elemica, a B2B exchange for the chemicals industry based in Wayne, Pa. The real payoff comes when companies can use their supply chain management systems to reconcile the invoice with purchase orders and delivery records, and net out what they owe without anyone having to rekey data or pick up the phone to dispute errors.

In May, Fairfield, Conn.-based General Electric implemented software from DataCert that allows its legal department to receive electronic invoices from several hundred outside law firms that support the company. The project responds to a corporate mandate that GE’s business units eliminate paper from their purchasing and payment process, says Suzanne Hawkins, senior counsel for legal operations, whose job includes choosing information systems to support GE’s 930 in-house attorneys. Most of the lawyers already use a corporate purchasing system and pay their bills through a common accounts payable system. The EIPP software will integrate the two systems, says Hawkins.

Hawkins anticipates significant financial and productivity savings when she gets her first set of annual metrics next month. Among its benefits, the EIPP software allows GE to automatically validate every invoice it gets according to the terms of its contracts with each firm, rather than having lawyers manually review the bills for erroneous or duplicate charges. Hawkins plans to tie the EIPP software into the purchasing system this month. When bills come in, they’ll be checked against purchase orders to ensure that enough money has been budgeted?eliminating more manual data entry. In addition, the DataCert system will automatically deliver invoice details to GE’s Outside Counsel Management System, which Hawkins uses to analyze how the company spends its annual budget of more than $200 million for external legal help?yet more data that was formerly entered manually. By mid-June, 19 business units out of 30 and 250 out of 400 domestic law firms had gone online.

As a big spender, GE had plenty of clout to push its legal suppliers, many of them also large companies, online. Cavalieri, with AT&T Wireless, says competition for thousands of small business customers influenced her company’s decision to deploy EIPP technology last year. The company fielded an online account management, billing and payment application from software vendor Edocs for its 3 million small business and consumer customers. About 600,000 use it so far. The company is exploring a similar application for large enterprises that now get their invoices on a compact disc but felt more pressure to start with the small business customers that didn’t have an online billing and payment option. As part of AT&T Wireless’s online customer service package, electronic billing and payment has helped reduce customer turnover by about 20 percent, she says. Meanwhile, the company saves money by reducing the number of billing questions handled by call center reps.

…But Integration Takes Work

One can’t, however, buy an EIPP solution that comes already integrated with any ERP, supply chain, CRM or financial management system. John Van Decker, senior program director for application delivery strategies with Meta Group in Stamford, Conn, says it will take another three years before the major ERP vendors incorporate Internet-based invoice payment solutions into their accounts payable software. Gartner’s Litan says, “The biggest technical issue that companies have is integration with a legacy system or ERP system.”

Hawkins says DataCert had to write a custom electronic invoice format so that invoice data from the outside law firms approved by an inside GE lawyer could be delivered electronically to GE’s accounts payable system, the Outside Counsel Management System and the purchasing system. Starting about a year ago, integration with the first two systems took about six months and “was a lot of work on our side and [DataCert’s] side,” says Hawkins.

Con-Way’s Barretta says she decided to build her EIPP system in-house because she could not find packaged software that met her company’s needs, particularly modules that would be easy to integrate with the existing information security system the company uses to authenticate its online customers. “We’re an Oracle Financials user, and we looked very closely at what they had to offer, but at the time we started building the application they didn’t have what we wanted,” says Barretta. “Package add-ons don’t fit into the same security scheme.”

But the integration needs didn’t stop there. Her team also had to reproduce the business rules programmed into the system that generates paper invoices so that the electronic bills are sent to the right place on the right schedule. Next, she plans to develop an XML-based application that will allow Con-Way to send invoices directly to customers’ back-end systems (data from the current application comes in a Microsoft Excel spreadsheet).

The Bottom Line

Aaron McPherson, research manager with Framingham, Mass.-based IDC (a sister company to CIO’s publisher), thinks it will be easier for companies to achieve the benefits of EIPP once the early adopters set up. “The next group of adopters won’t have to spend as much money,” he says, because they can take advantage of the work the EIPP vendors have already done integrating the first group of suppliers and buyers. According to Gartner’s Litan, new EIPP software deployments by billers sending invoices cost around $400,000, not including annual maintenance. She didn’t survey payers using the software to receive invoices because, she says, not enough of them were doing it to obtain adequate survey results.

For now, McPherson says, it’s mainly large companies with a huge billing or payment volume that can justify the investment. At Elemica, McCutcheon thinks he can build critical mass by offering members a standard way to transfer invoice and payment information through the exchange so that they don’t have to set up links with every trading partner. “People aren’t really seeing this as a competitive advantage,” says McCutcheon. “It’s an efficiency play.”

Says GE’s Hawkins: “It costs us less money to process an electronic invoice. Ultimately, we are not going to have any paper invoices.”