If you plan to introduce electronic invoicing, there are a number of issues to consider. The first is the compatibility of your existing accounting system and, for smaller organisations without a sophisticated accounting package, the additional burden of compliance with an electronic system.

The arguments for e-invoicing are compelling - faster and more accurate processing, significant cost savings, removal of long-term storage of bulky paper invoices with a move to electronic storage, and higher standards of compliance.

When you look at the lifecycle of an invoice from initial processing and printing, to transmission through the postal system to final payment, one of the obvious problems is the time lapse between invoice origination and receipt of final payment.

Big business is driving the uptake of e-invoicing with Tesco, Ford, HP, Barclays, DSG, Kellogg's and DHL all part of the electronic revolution. For the thousands of small suppliers providing products and services to these organisations, there is often no choice but to comply with the transition to e-invoicing.

Although it is not obligatory to comply, this is a decision which could affect long-term status as a supplier. For those that want to comply, it is far from straightforward as there are no universal standards for accounting packages.

While enterprises tend to use one of a handful of accounting packages like SAP, Oracle or Sun, the next tier of business, not to mention smaller and micro businesses, use a staggering array of accounting packages - Sage, Access, MYOB, QuickBooks, Microsoft Office Accounting to mention a few - while the ubiquitous Excel spreadsheet and Word-generated invoice are more commonplace than you might expect.

This raises compatibility issues, one of the reasons why e-invoicing has been slow to take off. Large companies are also loathe to force suppliers to accept e-invoices.

Recently, B2B electronic commerce has been conducted through Electronic Data Interchange (EDI) and while this has been used for invoicing, it has been extremely expensive and hard to implement. Few companies managed to automate more than five per cent of invoice volumes.

"E-invoicing is quite a conundrum. DHL is lucky that it is almost big enough to force its clients to accept electronic invoices," said Formscan managing director Chris Haden.

Formscan's invoice processing system scans incoming invoices, captures the data and links up with clients' accounting software, such as Oracle, SAP or Sun accounting, to validate the data.

"One of the biggest challenges is the validation of data - comparing the data on the invoice with the purchase order. Smaller account systems do not really have an easy gateway to the data. There is a limit on how much automation you can achieve," said Haden

With an initial investment of £20,000, the financial argument does not stack up for smaller organisations, but Formscan does offer an outsourced scan-only service for invoices and plans to announce a breakthrough development for small business users this spring.

"The products and services do scale down to companies handling 10,000 invoices. If you take an example of a £20 million turnover company, we could save them 43 to 47% of the cost of running the accounts department," said Haden. "But, if a business is small, they cannot justify the investment.

"We set up invoice generation for a cleaning company and provided a link to the invoice so the customer has control and can see if the client has looked at the customer portal. If not, an automatic reminder is sent," said Haden.

E-invoicing is not without headaches. "One of the biggest challenges is the validation of data - comparing the data on the invoice with the purchase order," warned Haden. "Smaller account systems do not really have an easy gateway to the data. There is a limit on how much automation you can achieve."

Speeding up the payment process is critical. "One of the things that is really important to SMBs is prompt payment. Once the paper invoice is mailed, it can take 20 days to get into the buyer's system. Between 15 and 20 days is quite common," said Foryszewski."With the OB10 system, the invoice gets there in about 20 minutes and there is a better chance of the supplier paying the invoice on time."

The financial advantages of e-invoicing are two-fold with a reduction in processing costs and faster payment times. A tightly-controlled accounts department can keep invoice processing costs down to £2.50 to £3 per invoice; but for many companies it is likely to cost £5 to £6. Once fixed costs and overheads are applied, an individual invoice can cost up to £25 to process.

An e-invoicing system offers cost savings on processing, printing, paper and postage costs, not to  mention a reduction in keying errors, better cost management and improved cash flow. This can bring down processing costs to less than a pound per unit.

OB10

OB10 is an electronic invoicing solution designed for large buying organisations and their suppliers. Its target audience is corporations and public sector organisations that receive over 100,000 invoices a year.

"Organisations have a diverse range of suppliers from IBM to Manpower, down to the guys who clean the windows. OB10 acts as a third party mediator - the large buyer joins OB10 and then asks its suppliers to join," said Foryszewski. "If you have 5,000 suppliers, a whole bunch will not have a billing system and some will be using MS Word to print an invoice."

Suppliers without a specific accounting system can sign onto the OB10 web portal using pre-allocated individual accounts and produce online invoices which are submitted directly for payment.

If a supplier has a billing application, OB10 extracts the data from applications from Sage to SAP. How does this work? The supplier sends the data to OB10 in an XML, CSV or print file, and OB10 takes on the mapping and compliance issues to comply with the particular customer processes. The buyer receives the invoice as a PDF and as a data file for upload onto its accounting system. It is a true machine-to-machine application.

There are two pricing models for OB10. For portal users who create invoices online, it is a pay as you go billing system. The integrated solution is based on an annual fee and a transaction fee per invoice, based on a sliding scale.

infoWEB

Xenos offers e-invoicing functionality for presenting electronic documents online though its infoWEB software, which integrates with financial back office systems so that there is no re-engineering or disposal of legacy systems. InfoWEB software translates the data into and out of different programmes.

Xenos managing director Jeff Mills said: "The big companies are dictating how small and medium businesses should comply. They either charge a fee to convert the data from supplier invoices or they need a format to translate the data.

"Most e-invoicing is based on EDI but everyone wants to move to XML. When EDI is updated, suppliers need to update their systems. The new XML format going forward is how people want to go."

Xenos implemented info-WEB at a financial services company which was using a mainframe to print thousands of pages of invoices before posting them around the country. The printers were removed from the process and the automated system slashed paper and transport costs, before accounting for business process benefits and financial savings.

Mills said: "We always have the same issue with customers - identifying the total cost of invoicing. You need to look at the systems and processes."

Entering the entry-level accounting software market in the UK for the first time, Microsoft is launching Microsoft Office Accounting on 10 March 2008. It comes in two versions, Express and Pro. Express is available as a free download; the Pro version for up to three users costs £149.99 and is designed for companies with up to 25 employees.

Targeted at the users of Sage 50 as opposed to Sage Instant, Accounting Pro's price point and full compatibility with the MS Office suite will make it an attractive proposition, likely to disrupt the existing market.  

"Accounting Pro is positioned as an entry-level product - it is powerful and easy to use, and the look and the feel is very similar to Office. The Pro version has a customisable dashboard - one of the key issues for small businesses is managing cash flow," said Microsoft senior product manager Gareth Arnold.

"With accounting products you need to reflect the needs of the specific market and the software is accredited by ACCA and complies with all accounting regulations and HMRC rules and standards. 

"The electronic invoicing capability is available for all users and it is a task-led action. You can send an invoice automatically as a digitally signed PDF and a Word attachment. You can also put on PayPal buttons to get paid electronically.

"The major benefit for small businesses is not necessarily the creation of the electronic invoice; it is tracking and managing where the money is. Every time you fire up the system, it gives you a dashboard of what is outstanding. It can automatically create an email or letter to chase up an invoice," added Arnold.

From January 2006, HMRC announced that businesses could use electronic invoices without notification of the change.

When you decide to implement e-invoicing, you can run a controlled trial using a dual system of paper and electronic invoices. Once the trial is over, you must stop running the dual system and the electronic invoice becomes the legal document for VAT purposes.

There are a number of HMRC conditions for electronic transmission. Companies can invoice electronically where the authenticity of the origin and integrity of the invoice data are guaranteed. This can be achieved with an advanced electronic signature, electronic data interchange (EDI) or by controlling the invoice data by security links, access controls and message transfer protocols (ie http-s, SSL, FTP).

To establish authenticity, you have to ensure the accuracy of the invoice data; prevention or detection of possible data corruption during transmission; and prevention of duplication of processing by the recipient.

Additionally, you must have a recovery plan in case of a system failure or loss of data, and maintain an audit trail.

Electronic invoices, received and sent, have to be stored for six years. If you use a third party to outsource electronic invoices, you are responsible for all the legal obligations relating to contents, storage and production of the invoices. It is advisable to include this information in outsourcing agreements.

E-invocing is the logical step in a move towards a paperless office and offers financial savings as well as environmental benefits, but implementation problems mean that adoption rates are still very low.  

Electronic transmission                        Electronic invoicing is the transmission and storage of invoices, without the delivery of paper documents, by electronic means. The rapid electronic transmission of documents in a secure environment allows for:
- Structured data for auditing
- Improved traceability of orders
- Less reliance on paper
- Reducing storage
- Reducing handling costs
- Rapid access/retrieval
- Improved cash flow
- Improved security
- Easier dispute handling

Following rapid growth in the business, Oyez Straker Office Supplies UK (OSOS) noticed an escalation in the number of paper invoices that required processing and it was clear that an alternative to paper processing was needed.

OSOS had already implemented EDI links with two suppliers, but at a high cost, making this approach inappropriate for its supplier base of 1,500 vendors.

OSOS financial accountant Andrew Mobbs said: "EDI is an expensive solution and requires significant IT resource to implement. It took OSOS three months to set up just one link so it was simply not scalable."

Having met with a number of suppliers, OSOS selected OB10. The OB10 service extracts invoice data directly from a supplier's billing system and sends it to OSOS' in- house accounting system. 

"We did not make the use of e-invoicing compulsory, but we expect key trading partners to adopt the solution to maintain their ‘preferred supplier' status," said Mobbs. "For new suppliers, the use of OB10 is a condition of doing business with us.

"Essentially we were looking to increase control over our processes. In the past, we suffered from invoices getting lost or delayed in the post, which meant we were dealing with a high number of supplier grievances. As we were handling large volumes of paper, we had poor visibility of invoices coming in to OSOS.

"OB10 provided an immediate solution because we had guaranteed receipt of invoices and also there was complete transparency for suppliers."

The accounts payable team was the first to feel the benefits. "By month three, we were already receiving a large number of invoices electronically. It created a real culture change," said Mobbs.

The second objective was to improve purchase order (PO) compliance. "By kicking back invoices that do not contain POs, suppliers soon get the message that this is an important part of invoicing OSOS. We achieved PO compliance almost overnight."

Within a year of implementation, 70 per cent of invoice volumes were received electronically. OSOS has also reduced purchase ledger costs by 30 per cent and achieved return on investment within 11 months.

DHL, the international express and logistics company, has implemented the Accountis EIPP (electronic invoicing presentment and payment) system.

DHL e-billing programme manager Brian Thumwood said: "Printing, posting, delivering and managing many bulky complex paper invoices, in a variety of formats from multiple back-office systems across Europe each month, was an expensive and time consuming process. This wasn't just an issue for us, but also for our customers, who were a primary driving force behind the implementation of our e-invoicing system." 

DHL had a number of key criteria when looking for an e-invoicing system; it had to be proven, compatible and allow the company to generate and manage VAT compliant and multilingual e-invoices.

With the Accountis EIPP system, all DHL's paper invoices from 13 European countries will be generated and delivered electronically, resulting in a much faster and cost-efficient process for DHL and its customers.

"Instead of receiving bulky, complex paper invoices, DHL customers can now either receive their invoices as digitally signed PDFs, or view them online by accessing a secure DHL-branded customer portal.

"From the portal customers have access to all invoice data, including detailed document history. They can also view the invoices in a variety of formats for easy download into their accounting or finance system.

"By removing slow manual processes, such as re-typing of invoice data, the EIPP system has made invoice processing quicker, more accurate and safer for customers."