Electronic invoicing gains as adoption barriers fall.

Businesses are continually looking for ways to eliminate paper processes. In addition to driving high operational costs, paper creates slow, inefficient, manually intensive workflows. For most businesses, the single biggest paper hassle is inbound accounts payable (A/P) invoices.

While electronic invoicing has always offered a way to alleviate this paper pain, historical offerings have failed to catch on because the adoption barriers outweighed the benefits. But a new approach to electronic invoicing is catching on that makes use of previously existing but disparate technologies, integrated and delivered in a different, innovative way.

Many businesses are living the same scenario, where a large buyer receives thousands to tens of thousands of paper invoices each month from thousands of vendors. The data entry alone is overwhelming, draining the company of valuable resources. Combine this challenge with the vision of taking margin-enhancing, early-pay discounts (if only the approval process was fast enough), and it's easy to see why interest in electronic invoicing solutions has continued to grow over the years.

Until recently, however, electronic invoicing projects have had mixed results at best. The primary reason is that the value proposition is typically strong for the buyer but weak for the vendor. The business world is littered with electronic invoicing projects in which only a small portion of vendors participated.

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Problems with Historical Solutions

There are three main historical approaches to electronic invoicing. Each has had limited success due to inherent drawbacks that often overshadow the tangible benefits:

Electronic Data Interchange (EDI). While companies have often been able to create electronic trading relationships with their largest vendors through EDI solutions, smaller vendors are unable to afford the upfront cost and complexity of such solutions. Furthermore, once the relationship has been established, there are high maintenance costs.

EDI is also a fragile process. Each time one party makes a change to a system or document, the connection breaks down and must be corrected. EDI can be a good solution for a subset of larger vendors, but it is unrealistic to implement it across the board. (For example, a buyer with 1,000 vendors may be able to convince the largest 50 vendors to send invoices via EDI, but the remaining 950 vendors are relegated to sending paper invoices.)

eInvoicing Networks. Over the past few years, networks of vendors and buyers have been created to enable the transferring of invoices electronically. But if EDI solves the problem for 5 percent of vendors, eInvoicing networks only increase the number to 10 percent. The challenge is that, like EDI, there is an integration project required of the vendor, and along with that comes upfront costs.

Even buyers with substantial trading partner leverage are not able to move their vendors to adopt eInvoicing networks, which have attempted to accommodate smaller vendors in various ways, with equally unsuccessful results. For example, one solution is to have vendors key in or attach invoices to a Web portal. Vendors tend to reject this process because of the redundancy with their accounting systems.

They are annoyed with the idea of creating an invoice in their accounting system and then leaving their system for a new environment to send it. The process is cumbersome and actually creates more work. So, while eInvoicing networks lower the bar to vendor adoption incrementally, there is still a long list of vendors looking for a better way than this "EDI lite."

Optical Character Recognition (OCR). Some firms have looked at OCR as a way to reach down to the smallest of vendors. The idea is to take paper invoices from vendors, scan them in with large teams of "inexpensive" labor, then use OCR technology to read the invoices and convert them to extensible Markup Language (XML) or another suitable data format. OCR relieves some of the pain of traditional paper processing, but in the end, OCR is still just a form of what we're all trying to get away from, paper processing.

While these traditional forms of electronic processing have had only limited success, the tide seems to be turning as new approaches have gained momentum.

A Better Way?

To successfully implement electronic invoicing projects, vendors need a viable solution without the common barriers of upfront costs, IT resource requirements, on-premise installation and new processes. All are immediate red flags.

Further, as most electronic invoicing projects begin with a sponsorship from a single large buyer, to help encourage vendor adoption, it is important to offer the vendor a value proposition greater than just that initial single buyer relationship. In other words, the solution should offer vendor benefits relative to other buyers within the vendor's trading partner ecosystem.

Consider the following: Does the solution offer electronic payment processing? Does it simplify the invoice sending process into one single workflow, allowing for a combination of electronic, email and postal delivery? Are there accounts receivable or credit management features?

A new approach to electronic invoicing is taking hold. The irony is that the technology isn't new: It's the way the technology is being used that is innovative and generating interest. Using this new process, vendors print invoices with their existing accounting system to a virtual printer that is downloaded off the Internet. The invoices are then transmitted to the electronic invoicing service provider and routed to the buyer for direct import into the buyer's accounts payable workflow process.

The process works because the technology that does the mapping and parsing of invoices is hosted in the data center of the electronic invoicing service provider. There is no on-premise software or integration on the vendor's site. This allows for a quick, cost-effective vendor on-boarding process.

The mechanics above describe an easy way to participate in electronic invoicing. By making electronic invoicing available to even small vendors, some providers have increased the adoption rate, resulting in high numbers of vendors and buyers in an electronic invoicing community.

As the community grows and matures, the benefits of this "many to many" relationship are fairly obvious. For example, when a new vendor joins the community, over time it becomes more and more likely that some of its buyers will already be members.

Within such a community, invoice delivery methods can be determined dynamically without requiring any previous setup. Invoices can be sent electronically or by postal mail, email or fax, enabling vendors to outsource the entire invoice sending process. Community members can also leverage tested methods for getting paid faster on the vendor side and improving efficiency on the buyer side.

Electronic invoicing is something to consider, whether you're a buyer interested in improving efficiency, reducing costs and taking early pay discounts or a vendor interested in improving trading relationships with your customers. When evaluating options, remember to always ask these two very important questions: Is the solution free of start-up barriers? And, is the vendor benefiting from it? If you can answer "yes" to both questions, you've found a solution to consider.

SHAN HAQ is Director of Product Management for Transcepta, an Aliso Viejo, Calif., company that sponsors an online electronic invoicing community. He can be reached at 949.330.6750.

RELATED ARTICLE: TAKE AWAYS

* While electronic invoicing has always offered a way to alleviate paper-intensive invoicing pains, historical offerings have failed to catch on because the adoption barriers outweighed the benefits.

* Too often, the value proposition is typically strong for the buyer but weak for the vendor. The result: a host of electronic invoicing projects where only a small portion of vendors participate.

* In a new technique, the technology that does the mapping and parsing of invoices is hosted in the data center of the electronic invoicing service provider, making for a quick, cost-effective vendor on-boarding process.