Benefits of E-Invoicing in the Age of TARP

Suppliers often complain about having to participate in e-commerce programs encouraged by their large customers.  One of the typical comments that I often hear from suppliers is “What is in it for me?”  One of the benefits of e-commerce I had not considered until recently is the payment visibility advantages to be gained during an economic recession.

What is in it for me?

Vendors and buyers often answer with “You will get paid faster.”  However, faster payment is not necessarily correlated with e-invoicing.  Most buyers approve invoices within a few days of receipt but hold the payment until the invoice due date.  Buyers are interested in holding onto their cash for as long as possible.  Some buyers have developed invoicing discount programs which offer a faster payment in exchange for a small discount.  2/10 Net 30 is the most common type of discounting program, although numerous permutations of this model have been created under different names such as supply chain finance and reverse factoring. 

At GXS we recently encountered a retailer, which had a problem with suppliers whose payments were delayed unintentionally.  The root cause was the relatively disorganized process for handling paper invoices.   The paper bills were frequently misplaced during the approval workflow.  Errors were typically not discovered until the supplier phoned the retailers A/P department complaining.  In such scenarios, the supplier would be paid faster through electronic invoicing because the likelihood of a misplaced invoice would be significantly reduced.

Payment Uncertainty in Today’s Financial Crisis

Newspaper headlines around the world are filled with concerns about the imminent failure of major financial institutions and corporations.  The US Big 3 automotive OEMs have been the center of attention for much of the past few weeks, but in many respects the situation in retail is far worse.  14 major US retail chains have filed bankruptcy in the last 12 months including Linens n Things, Mervyns and Steve & Barrys. 

The insolvency of these major corporations not only has a negative impact in the capital markets, but it creates a ripple effect with the suppliers of these failing institutions as well.  Suppliers whose customers which face potential bankruptcy are at risk of not only losing the future revenue streams from a major account, but also of non payment for goods and services rendered.  In a bankruptcy scenario, supplier’s must get in line behind secured and unsecured debt holders to lobby for partial payments towards the insolvent company’s accounts payable balance. 

E-Invoicing and Bankruptcy

With major corporations in every industry suffering from unforeseen impacts of the financial crisis, accounts receivable organizations around the world are closely monitoring their customer’s credit lines and outstanding invoices to understand their exposure.  Those suppliers who have adopted an electronic invoicing approach benefit from greater visibility into outstanding invoices.  Electronic invoicing provides an audit trail of the submission and receipt of an invoice to a buyer.  There is no risk of invoices being lost in the mail or approval workflow during a bankruptcy process.  Additionally, many buyers offer self-service portals in which a supplier can monitor the status of an invoice.  Portals benefit suppliers by eliminating the need to call a buyer daily to determine the status of a pending invoice.  The portals will often identify several approval stages such as invoice received, invoice approved, exceptions identified and payment issued.  The ability to rapidly respond to customer credit and payment scenarios can help a supplier minimize their exposure.  For example, a supplier could temporarily suspend new shipments and order fulfillment activities with accounts that are past due.

E-commerce programs typically cost a supplier $25-$50 per month for unlimited transactions (purchase orders, shipment notices and invoices).  Alternatively, a company can pay for each individual transaction at a rate of $0.25-$0.50, which is comparable to the price of a postage stamp.  Suppliers often complain about having to participate in e-commerce programs due to the cost and effort required.  However, I suspect many of the companies selling into the automotive, retail and financial services markets are viewing a postive return on investment from e-invoicing this month...

GXS
Steve Keifer