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A review of electronic invoicing methods

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There are different types of e-invoicing methods to choose from and to realise maximum benefit it is important to select the right one for your business.

We all know a move to e-invoicing makes good business sense – slicker processing, reduction of errors, cost savings, it’s better for the environment… The benefits are numerous.

In this review we outline the three main types of electronic invoicing methods (EDI/XML, Portal and PDF) and consider the strengths of each. We will consider the ease of installation, the on-boarding rates, data accuracy, and the costs involved to your business and your suppliers.

Get our review of E-Invoicing Methods 

XML or EDI invoicing

The traditional e-invoicing approach asked a supplier to send an XML or EDI file. Conceptually it is simple: the billing system of the supplier sends (often via a service provider) an XML or EDI invoice document to the finance application of their buyer.
But for suppliers it is less simple. In the majority of cases, the supplier needs to change their billing application and infrastructure in order to send XML or EDI documents.

If the supplier is sending a thousand invoices a year to the buyer, they may be able to justify the effort and cost to do this (assuming they also have the skills available to make the change). But if they are only sending hundreds of invoices a year, it is far less likely they will be willing to make the changes and meet the costs to support this method of invoicing. As a result, on-boarding rates remain low and paper invoicing remains. However, no manual data input is required so data accuracy is very good.

Summary:

High level of IT changes required
Slow to implement
High data accuracy
High cost so appropriate only for very large suppliers (1,000 invoices/year plus)
Low on-boarding rate

 

Invoice Portals

Portals were supposed to remove the barriers to e-invoicing which exist with XML and EDI. And they do, but only for a minority of suppliers. The problem for all except the very smallest, micro business, is that to use an invoice portal creates duplication and operational inefficiencies. If an organisation already raises their invoice in an accounting application, why would they want to do it all over again in a third party portal? Duplicate time, duplicate effort and duplicate cost. They also add risk that the invoice details recorded in the supplier’s finance application are different to that in the portal. This is because portals require manual data entry from the original invoice by the supplier, with the result of natural errors transferring through. So, portals may help the very smallest of suppliers who don’t use an accounting package, but for everyone else it makes no business sense. As a result, on-boarding rates remain low and paper invoicing remains.

Summary:

Low level of IT changes required
Quick to implement
Some errors due to manual data entry
Appropriate only for very small suppliers (1-3 invoices/year)
Low on-boarding rate

PDF E-Invoicing

PDF e-invoicing is the second most popular way to invoice after paper today. It simply requires the supplier to create their invoice as normal within their own accounting package and send as a PDF file via email. Almost every billing application can generate an invoice as a PDF, with all the invoice data items embedded in the document and visible to the right technology. PDF e-invoicing then takes the data from the electronic document (as put there by the suppliers billing system), so 100% data accuracy is guaranteed.

This type of e-invoicing is accessible to all suppliers irrespective of size. Suppliers are not required to change their processes, or incur any technology or infrastructure changes or costs – as a result on-boarding rates are extremely high.

Summary:

Low level of IT changes required
Quick to implement
High data accuracy
Appropriate for all sizes of companies (high or low invoice numbers)
High on-boarding rate

Review

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In conclusion, as a general rule of thumb, the easier it is for the supplier, the higher the on-boarding rates, the greater the impact will be to your business. Focusing on your largest suppliers first will bring the greatest benefits to you more quickly; also take in to account the time taken to get the solution in place and the time to on-board your suppliers – the longer it takes to become functional, the longer it will take to realise the business case.

Do you want to implement e-invoicing? 

We can help you to understand how today’s technology can fit your particular requirements and deliver quick benefits.

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