Electronic invoicing (e-invoicing) is the transmission, reception, and processing of digital transactional documents between suppliers and buyers. A true e-invoicing method should be entirely electronic in such a way that data from the supplier can be integrated directly into the buyer’s system.
A scanned invoice in Adobe PDF format sent via email, for instance, is not a true e-invoice because it may need additional data re-entry which is time-consuming and error-prone.
Benefits of e-invoicing at a glance
E-invoicing benefits both suppliers and buyers. It helps:
- Reduce costs
- Facilitate automation
- Shorten payment cycles
- Improve account reconciliation
- Enhance compliance
- Prevent errors, losses and frauds
- Improve supplier/customer relationship
- Reduce the carbon footprint
Benefits of e-invoicing for suppliers
1. Faster payment and improved cash flow
Upon receiving paper or PDF invoices from the supplier, the buyer has to sort, rout, re-key and submit the invoices for approval. This process takes time. There is also the possibility of invoices being lost.
2. Better account reconciliation
The reconciliation of invoices issued to customers against the payments received is one of the challenges that every supplier faces. Customers can combine multiple invoices into one single payment. On top of that, such payment amount can be different from the original invoices due to various reasons, such as customers claim deductions due to damaged goods.
Consequently, a supplier may issue 5 invoices of $2,000 each and receive a single payment of $9,000, and have to contact the customer’s AP (accounts payable) department to clarify details about the payment.
With e-invoicing, customers can send the details of the invoices paid along with the payments to help simplify account reconciliation.
3. Reduced costs
For suppliers, the adoption of e-invoicing helps significantly reduce costs associated with printing, storage, processing, and delivery of paper invoices. E-invoicing’s increased accuracy also means fewer customer services calls required.
4. Fewer disputes and rejected invoices
Invoice disputes and rejections are costly, time-consuming to resolve and can lead to late payments. With e-invoicing, data from the supplier’s AR (accounts receivable) system is transmitted directly to the customer’s AP system, decreasing the risk of errors caused by data re-entry. Therefore, the potential of invoices being rejected is reduced.
5. Improved customer satisfaction
Thanks to e-invoicing’s faster processing and fewer payment issues, suppliers can provide a higher level of customer service. The result is a higher rate of customer retention.
Benefits of e-invoicing for buyers
1. Increased productivity and automation
For paper or PDF invoices, the documents must be stored, sorted, and re-entered into the AP (accounts payable) system. These steps, especially data re-entry, are inherently time-consuming and prone to error.
With e-invoicing, data is sent directly from the supplier to the buyer’s AP system, eliminating the need for manual data re-entry. As a result of decreased workload, accounting staff can devote more time to perform high-value activities.
E-invoicing enables AP departments to automate the validations of invoices before they are routed to line of business managers for approval. These validations ensure that all the calculations, such as VAT (GST) amounts, are correct. They also help identify which goods are being purchased by which departments.
They also match the invoices with other procurement documents, such as contracts and purchase orders. For instance, the prices on the invoice must match those in the contract. The goods’ descriptions must match those on the PO and goods receipt.
Such validations now can be performed automatically with e-invoicing.
Because data entry and validations are automated, there is less need for the buyer’s staff to call the supplier to confirm the reception of invoices or make inquiries about the details.
The benefits of e-invoicing for buyers are greatly enhanced if the e-invoicing solution comes equipped with a supplier portal. It enables suppliers to track the status of invoices as well as the approval and payment information. Suppliers are able to see if their invoices have been received, which have been approved, and which have been submitted for payment. As a result, the need for follow-up calls is markedly reduced.
2. Reduced costs
Thanks to the reduction, or even complete elimination, of manual data re-entry, sorting, validation, and registering of invoices, e-invoicing can deliver substantial cost savings of 60 to 80 per cent.
3. Take advantage of early payment discounts
Suppliers are often willing to offer a discount in exchange for an early payment. E-voicing allows for faster processing and hence shorter payment cycles. As a result, buyers who use e-invoices have more access to discount opportunities.
4. Improved supplier relationship
A fast, efficient payment method will definitely help strengthen the relationship with suppliers. This will translate into a more streamlined supply chain and improved customer satisfaction.
Benefits of e-invoicing for both suppliers and buyers
E-invoicing practically eliminates the need for paper. Additionally, no energy is wasted in producing and transporting all those documents.