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Accenture

Large buying organizations seeking to improve AP processing are turning to Web-enabled electronic invoice presentment and payment (EIPP). Electronically settling invoices between trading partners has proven effective, increasing productivity by as much as 60 percent. Winning EIPP solutions marry low-cost Internet capabilities with secure EDI infrastructure.

Through accounts payable (AP) processes, large buying organizations can employ technology to dramatically improve productivity. It is not uncommon to have hundreds of AP staff manually enter paper invoices and manage invoice exceptions. Internet-enabled electronic invoice presentment and payment (EIPP) is emerging as a vehicle to dramatically improve productivity by as much 60 percent. Potential users of EIPP solutions should understand the context of EIPP and the high-level requirements expected from vendors to capture incremental business value.

Clarifying B2B EIPP

EIPP represents the set of activities that companies perform over electronic channels to create, deliver, receive, dispute, pay, and settle invoices between two trading partners. EIPP addresses a set of key activities performed by both buyers and suppliers (Figure 1).

The Focus of EIPP

Functions addressed by EIPP solutions include:

• Automated invoice exchange between buyers and suppliers
• Online status and history of invoices, exceptions, and payments
• Executed electronic payments and electronic delivery of remittance detail

Two important distinctions will help define and clarify EIPP’s application in the market: 

• Invoices are most often used for discrete purchases in connection with the purchase and sale of direct goods sold on payment terms. Bills address recurring transactions, often for indirect goods, represented most commonly by utility or telecommunications charges. The focus of EIPP, as the term implies, is on invoices.
• Second, EIPP comes in two flavors: AP and accounts receivable (AR) solutions. AP solutions, or buyer-side EIPP solutions, allow corporations to receive invoices, lodge disputes, and pay invoices. AR solutions, or seller-side EIPP solutions, allow corporations to present invoices, address disputes, and receive payments against those invoices. The AP and AR solutions are fundamentally different in terms of how they create value for clients and the functions they support. This discussion will focus on insights related to buyer-side EIPP solutions.

The Role of EDI

Companies across industries try to improve efficiency in procuring goods and transaction settlement. Since the late ’60s, EDI has been used to electronically exchange trade-related documents. And since the mid ’80s, international standards for EDI have taken hold. Today, it’s estimated that the value of EDI transactions globally is $1.6 trillion; growth is projected at over 8 percent for the next several years.¹ Yet, EDI has not reached wide-scale, fully electronic trading communities across industries. EDI is often used only for Tier 1 trading partners. The relevant costs associated with EDI for transactions, as well as management and maintenance, make it less than optimal for use by all of a company’s trading partners. EDI effectively addresses the 20 percent of trading partners that generate 80 percent of the transactions, but it does not foster collaborative dispute resolution and is limited in the ability to address the other 80 percent of a company’s trading partner community due to cost issues.

The Internet has emerged as a viable tool to extend and enhance EDI capabilities. The Internet promises to maximize participation in the sharing of trade-related documents and information in an electronic form because of its lower cost and easy access for trading partners of all sizes. The winning EIPP models will not replace EDI, but they will seek to leverage many of the strengths of EDI solutions. The market is beginning to see the uptake in hybrid Internet and EDI solutions. These solutions leverage the best of the Internet and EDI to create value for users. Solutions that marry the low-cost Internet with the highly secure EDI infrastructure will capture the greatest share of transactions and create the greatest value for users.

Problems Addressed by EIPP

Companies across industries identify four primary “pain points” that they look for EIPP to address:

• Receipt of paper invoices that require manual entry to an ERP system.
• Inefficient processes to manage invoice exceptions and resolve invoice disputes.
• Time-consuming and high-cost processes associated with providing invoice and payment status to trading partners.
• High-cost of processing paper-based and limited ability to send remittance detail to suppliers.

It is estimated that companies can achieve up to 60 percent cost improvement in the process areas addressed through the use of Web-enabled EIPP solutions.

Prioritizing EIPP

While processing improvements are both attractive and achievable, companies should place EIPP in the context of a broad range of business improvement opportunities. The relative priority of capturing EIPP-related benefits varies greatly across companies and industries. Media and entertainment, for example, is in the midst of its first ERP installations. Some high-tech companies are ahead of the curve and have created custom capabilities. Other companies are focused on major cost-takeout opportunities; AP processes are not high on their agendas.

AP is often riddled with inefficiencies; it is a low priority because of its relative size.

Also, some companies do not have an interest in improving the invoicing efficiency. Early adopters are capturing tangible benefits and establishing a foundation for additional opportunities as they begin to digitize their financial processes. Potential users of EIPP must understand the fundamental requirements to look for in an EIPP solution to determine EIPP’s fit with their organization.

Elements of a Winning Solution

There is a set of broadly defined requirements that solutions must meet in order to stimulate demand in the market. Potential users of EIPP solutions should take these into account in designing and implementing an EIPP solution.

Solutions That Focus On the Buy-Side AP Area Will Achieve Long-Term Sustainability

There are three primary reasons why buy-side solutions will drive near-term adoption in the market.

First, to use EIPP across a trading community requires business process changes by all of the participants. Large buying organizations in their use of a buy-side EIPP solution will be able to influence the business practices of the suppliers in a trading community through their powerful position in the value chain. Some large buying organizations have already made this a requirement for doing business. It is unclear if a supplier would be able to impose those same requirements on its buying community.

Second, it would not be infeasible for buyers to accept a business practice where they must visit multiple suppliers’ Web sites to view and pay invoices unless that supplier has near monopoly power in their industry.

In B2B relationships, buyers are likely to have thousands of supplier relationships. It is difficult to imagine the business process requirements for buyers to view and pay these invoices on their supplier-sponsored Web sites. Compounding this problem is the likely requirement that suppliers will expect the electronic payment mechanism in a sell-side model to be an ACH debit from the buyer’s account. Many buyers will view the ability for suppliers to electronically debit their account as an insurmountable obstacle.

Third, the buy-side return on investment (ROI) can often be based on direct productivity improvements alone, while the ROI for sell-side solutions often requires a reduction in DSOs to justify the one-time and ongoing costs to support the solution. If the ROI requires a reduction to DSOs, it is unlikely to deliver the expected results. This is based on the observation that buyers will always seek to extend the payment date to the maximum time allowed regardless of the channel through which the invoice is delivered.

Solutions Must Leverage Robust Business Integration Capabilities and Infrastructure

The target market for Web-enabled EIPP solutions are likely to be users of ERP systems who will expect that the EIPP solution will integrate seamlessly with their ERP system.

They will also want to minimize the business process impacts of a new EIPP solution and may require, for instance, that the EIPP solution not attempt to disrupt existing workflow processes and procedures of the core ERP solution.

Trading Partner Adoption

A robust trading partner adoption plan is a fundamental requirement for any EIPP service provider. EIPP solution providers must be able to communicate a proven approach to drive adoption and show how the solution enables ongoing maintenance and support of the trading partner community. Establishing a goal of 80 percent trading partner participation within an 18-month timeframe is achievable with the appropriate infrastructure and support mechanisms.

Unique Vertical Industry Requirements

The winning EIPP solution will reflect the fact that different industries have different underlying business practices that impact invoice processing. For example, the retail industry needs a value-added EIPP solution to address unique invoice exceptions, such as advanced payments, consignment sales, and returns processing. In assessing the usefulness of an EIPP solution, users should understand how it could support the unique requirements of their industry.

Relating and Interacting With Core Supply Chain Practices

Users must place buy-side EIPP solutions into their broader supply chain context. Specifically, EIPP solutions must address how buyers

create purchase orders. While this adds some complexity to design and delivery of the solution it should be a primary concern for users. Capturing purchase order information and ensuring accuracy initiates the invoicing process and helps to address unique needs of each organization (e.g., business practices related to evaluated receipt settlement).² Discrepancies between the purchase order, the contract price, and any invoice will also be the primary driver behind exceptions that will need to be managed when the invoice shows up in the AP area. EIPP vendors who fail to address the importance of the purchase order will have fallen short of the mark. 

Endnotes

¹ EDIs Changing Role in the Internet World, an EDI Commerce Forecast and Analysis 2001-2006, IDC.

² ERS allows companies to eliminate the need for an invoice. Based on the order price specified in the purchase order and the quantity entered on the goods receipt, the buyer determines the correct invoice amount.