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Financial Supply Chain

In the world of international trade, the process of exchanging payments, information and documents between buyers, sellers, banks, and other involved parties is becoming increasingly important for financial institutions. This community aims at presenting views and innovative ideas related to this financial supply chain space.

7 Reasons Why E-Invoicing Is About Finance

07 March 2012  |  4439 views  |  0

Much of the debate on E-Invoicing has been about the obvious efficiency savings to be gained by automated electronic processes compared with manual paper based processes. Whilst E-Invoicing is a compelling proposition on its own - there are several levels of significant additional benefits that are there to be realized once an E-Invoicing service is in place. 

The higher-order advantages of E-Invoicing are related to managing finance and as such should form part of a corporates operational finance procedures for managing working capital.

The main reasons why E-Invoicing enables corporates to better manage their working capital are: -

  • Reduction is DSO: In our experience implementing an E-Invoicing solution reduces the Days Sales Outstanding by up to 10 days. The real time communication of structured data, the tools assisting query resolution and automated workflows enabling rapid approval and payment of invoices means corporates get paid quicker with less hassle.
  • Improved Visibility of Receivables: In a fully dematerialized world, the current status of electronic sales invoices can easily be tracked.  The sender knows whether the recipient has received the invoice, has viewed it, queried it, approved it or scheduled a payment.  Such detailed knowledge on the status of receivables is summarized in a number of reports that provide the seller with clear expectations of future cash in-flows. 
  • Flexible Management of Receivables: If there is a temporary squeeze on working capital, any outstanding receivables can be brought forward with financing mechanisms such as Invoice Discounting or Factoring.  Finance is advanced to the seller by a third party financing institution based on the strength of the seller’s future receivables. E-Invoicing provides an efficient mechanism for bundling and presenting receivables data to rapidly secure cost-effective financing.
  • Improved Payables Reporting: The use of electronic purchase orders (PO) and the automated linking of these POs to the received E-Invoices provides an accurate and timely view of an organizations payment liabilities. The accurate assessment of receivables and payables provides more reliable cash-flow forecasts, which in turn reduces the amount of working capital required. The released capital can be put to work more effectively in other areas in the business, either to fund growth or fund an early payment scheme....
  • Early Payment Discounts: A corporate with sufficient capital can make better use of their cash by paying suppliers quicker in return for a small discount. A typical 2% discount in return for payment within 10 days provides a return of about 36% AER - where else would a corporate get similar returns? Paying quicker means approving invoices quicker. An automated accounts payable process with electronic purchase orders, electronic invoices and matching tool enables a corporate to be in a position to pay within days, not months.
  • Increasing DPO with Supplier Financing:  With E-Invoicing, the early approval of purchase invoices (typically within 5 days instead of 23 for paper based invoices) means there is sufficient time to implement alternative financing mechanisms for the invoice before the due date. The approved invoice becomes a payment obligation that can be financed by a third party - with the funds being collected from the buyer at some future, flexible date. This provides the buyer with control over their Days Payables Outstanding and consequently their working capital.
  • Transparency and Risk Reduction: A full and historical 360 degree view of the corporates activity with their trading counter-parties provides financing institutions with an up-to-date and accurate view of the corporates business. The level of transparency improves risk evaluation and may result in an organization accessing finance at more competitive rates.

Increasingly E-Invoicing is seen as an essential tool and a pre-requisite for effective working capital management.

E-Invoicing and financing are becoming more integrated than ever before.

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