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AP Depts. Jump on the E-Invoice and E-Payment Bandwagon
This article is reprinted/republished by the express written permission of IOMA (The Institute of Management & Administration). ©2008; for more information about IOMA publications visit www.ioma.com
Just a short time ago, the only way to make the invoice and payment process more efficient using automation was to turn to the p-card. Now, AP departments are increasingly taking advantage of electronic invoicing and payments. This is revealed in the latest version of IOMA’s AP Department Benchmarks and Analysis 2007, which is based on a survey of almost 500 AP departments.
Small Companies Eye E-Invoicing
The survey reveals that already over one-quarter (27%) of companies surveyed are using electronic invoicing to some degree (Table 1).
| Table 1. Does Your Dept. Use or Plan to Use Electronic Invoicing? |
| By No. of Employees |
|
|
|
|
Currently |
Do Not |
Planning |
|
Use |
Plan to Use |
to Use |
| Up to 99 |
31.30% |
33.30% |
35.40% |
| 100 to 499 |
18.4 |
44.9 |
36.7 |
| 500 to 999 |
26.5 |
38.2 |
35.3 |
| 1,000 to 4,999 |
23.6 |
29.9 |
46.5 |
| 5,000 & up |
49.2 |
4.9 |
45.9 |
| Overall |
27.3 |
31.5 |
41.2 |
| (Source: IOMA’s AP Department Benchmarks and Analysis 2007) |
|
In addition, 41% say that they plan to use electronic invoicing within the next year. Less than a third are not using it and have no plans to begin doing so.
As might be expected, the largest companies (5,000 or more employees) have the highest usage of e-invoicing. Virtually all (95%) of these companies either use e-invoicing or plan to do so in the near future.
However, comparing the data to 2005, it’s readily apparent that many more small companies are joining the fray. At that time, for example, only 31% of small companies (less than 100 employees) said they either used e-invoicing or planned to use it. Today, that percentage has more than doubled—to 67%. One reason for this is the increased availability of low-cost options for e-invoicing that have emerged over the past few years, allowing smaller companies to capitalize on this technology.
When the statistics are reviewed by industry in Table 2, it becomes obvious that there are no clear industry trends. However, in every industry, over half of the companies are either using or planning to use electronic invoicing.
| Table 2. Does Your Dept. Use or Plan to Use Electronic Invoicing? |
| By industry |
|
|
|
|
Currently |
Do Not |
Planning |
|
Use |
Plan to Use |
to Use |
| Manufacturing |
23.20% |
39.30% |
37.50% |
| Financial Services |
|
|
|
| (Banking, Insurance) |
23.3 |
39.5 |
37.2 |
| Government |
22.2 |
37 |
40.7 |
| Healthcare |
30.5 |
13.6 |
55.9 |
| Nonprofit/Education |
15.2 |
39.4 |
45.5 |
| Retail Trade |
36.8 |
26.3 |
36.8 |
| Services (Business, |
|
|
|
| Legal, Engin.) |
29.9 |
37.3 |
32.8 |
| Transportation/ |
|
|
|
| Communications/ |
|
|
|
| Utilities |
42.9 |
7.1 |
50 |
| Wholesale Trade |
43.8 |
12.5 |
43.8 |
| Other |
16.7 |
50 |
33.3 |
| (Source: IOMA’s AP Department Benchmarks and Analysis 2007) |
|
70% Will Be Imaging
This is the first AP benchmarking survey in which respondents were asked about imaging.
To achieve total electronic invoicing, some imaging will most likely have to be done. That’s because it may be impossible to convert each and every supplier to electronic invoicing. And then there are the one-shot invoices that could continue to come in as paper. This is where imaging comes in. With this setup, you scan the paper invoice to convert it to an electronic image, which is fed into an automated workflow system for routing and approval. The images are archived for easy retrieval.
Similar to e-invoicing, over two-thirds (70%) of companies say they use or are planning to use invoice imaging (Table 3). Because imaging typically involves an investment in hardware and software, larger companies tend to use it more than smaller companies. Half of the smallest companies (less than 100 employees) say they use imaging now or plan to use it soon—versus 97% of the largest companies (5,000 or more employees).
| Table 3. Does Your Dept. Use or Plan to Use Imaging? |
| By No. of Employees |
|
|
|
|
Currently |
Do Not |
Planning |
|
Use |
Plan to Use |
to Use |
| Up to 99 |
28.30% |
50.00% |
21.70% |
| 100 to 499 |
15 |
39 |
46 |
| 500 to 999 |
26.1 |
34.8 |
39.1 |
| 1,000 to 4,999 |
38.9 |
27.8 |
33.3 |
| 5,000 & up |
65.6 |
3.3 |
31.1 |
| Overall |
33.4 |
30.5 |
36.1 |
| (Source: IOMA’s AP Department Benchmarks and Analysis 2007) |
|
Electronic Payments Take Off
Although paper checks are still the predominant payment method, electronic payments are gaining more of a foothold. Making payments using ACH methodology makes good sense because it eliminates the hassle and cost of preparing and sending out paper checks. Plus, paper checks are very susceptible to fraud, so replacing them with e-payments reduces this risk. Companies of all shapes and sizes are recognizing this fact and taking action. Overall, almost half (49%) now make some payments electronically, and an additional 33% plan to do so in the next year, leaving only 18% with no plans to make electronic payments. Large companies are the biggest adopters of this approach.
Table 4 shows that there is an inverse relationship between company size and a lack of interest in making electronic payments. Yet even the smallest companies (less than 100 employees) have a significant level of usage (54%) and interest (19%).
| Table 4. Does Your Department Use or Plan to Use Electronic Payments? |
| By No. of Employees |
|
|
|
|
Currently |
Do Not |
Planning |
|
Use |
Plan to Use |
to Use |
| Up to 99 |
54.20% |
27.10% |
18.80% |
| 100 to 499 |
34.3 |
29.3 |
36.4 |
| 500 to 999 |
42 |
26.1 |
31.9 |
| 1,000 to 4,999 |
54.3 |
8.5 |
37.2 |
| 5,000 & up |
66.7 |
5 |
28.3 |
| Overall |
49.2 |
18.2 |
32.7 |
| (Source: IOMA’s AP Department Benchmarks and Analysis 2007) |
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Effect on Payment Terms
One of the reasons that companies sometimes give for not making electronic payments is that they do not want to give up the payment float. To get around this issue, many companies negotiate better payment terms.
Over one-third (38%) of respondents who make electronic payments indicated that they had taken this action (Table 5).
| Table 5. Do You Renegotiate Terms for Electronic Payments? |
| By No. of Employees |
|
|
|
|
Yes |
No |
|
| Up to 99 |
32.40% |
67.60% |
|
| 100 to 499 |
20.3 |
79.7 |
|
| 500 to 999 |
37 |
63 |
|
| 1,000 to 4,999 |
43.3 |
56.7 |
|
| 5,000 & up |
53.7 |
46.3 |
|
| Overall |
37.9 |
62.1 |
|
| (Source: IOMA’s AP Department Benchmarks and Analysis 2007) |
|
Again, it is the large companies that take the lead, with over half (54%) of the largest companies that make electronic payments also renegotiating the terms. Also, the larger the company, the more likely it is to be able to make these adjustments.
Apparently, it is the norm in certain industries to renegotiate terms. Healthcare firms renegotiate 67% of the time (Table 6), while the government renegotiates only 15% of the time.
| Table 6. Do You Renegotiate Terms for Electronic Payments? By Industry |
|
Yes |
No |
| Manufacturing |
42.50% |
57.50% |
| Financial Services |
|
|
| (Banking, Insurance) |
26.5 |
73.5 |
| Government |
15 |
85 |
| Healthcare |
66.7 |
33.3 |
| Nonprofit/Education |
22.7 |
77.3 |
| Retail Trade |
56.3 |
43.8 |
| Services (Business, |
|
|
| Legal, Engin.) |
30.8 |
69.2 |
| Transportation/ |
|
|
| Communications/ |
|
|
| Utilities |
23.1 |
76.9 |
| Wholesale Trade |
53.8 |
46.2 |
| Other |
33.3 |
66.7 |
| (Source: IOMA’s AP Department Benchmarks and Analysis 2007) |
|
It is worth pointing out that allowing for e-invoicing may also help in negotiating for better terms. That’s because the vendor avoids the printing and postage costs of sending paper invoices. Also, along with an e-invoicing setup usually comes a vendor portal, where vendors can check on the status of payments online, which is easier than them having to make phone calls or send e-mails and wait for an answer.
Final Note
As you can see by the data, AP automation tools are no longer used by just a few large, leading-edge companies. Where does your company stand in taking advantage of these new techniques? If it has yet to seriously embark on these tools, consider taking the lead. It may be only a matter of time before either one of your major vendors demands that you do so—or one of your top brass reads an article and decides that these ideas should be implemented to make your company state-of-the-art.
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