23 October 2017
Friso De Jong

E-invoicing eye-openers

Friso De Jong - EEI Platform

38Posts 158,585Views 28Comments
Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

'Real costs of paper versus e-billing?' By Jon Warner

24 February 2011  |  6354 views  |  1

This post was posted on the EEI Platform by courtesy of the original publicist Jon Warner, CEO of  PaySwyft (UK). Because of its added value its now on Finextra.

"The question posed by this heading might seem to be quite simple at face value, but when we think about it, the answer is not exactly a straightforward one. This is because we are not always aware of the real costs of performing this quite complex task in all of its steps (whether it is done by traditional means or by online means).

In addition, while direct or tangible costs are relatively easy to identify, indirect costs are less easily identifiable and some of these are often very well hidden. Let’s therefore look at what tends to fall into these three categories of costs when comparing traditional paper-based billing versus full on-line or digital billing.

Direct Costs

At face value most people would estimate that a few “direct” costs are involved in paper-based billing. These may include:

•Invoice bill/file preparation/printing
•Paper invoices/bills
•Printing (ink or cartridge replacement)
•Offering basic payment options (debit, credit, other at standard fees)

Costs will fall as bill volumes increase for most of the above but even if they do postage or franking at about £0.40 to £0.45 pence will always be the biggest fee here. And the others will typically add as much as 30 to 35 pence making for a total of £0.70 to £0.80 of direct costs. Of course, if a merchant emails invoices (with a PDF attachment), instead of physically mailing them this may fall in half perhaps.

Indirect Costs

Costs are often deemed to be “indirect” because they are either fixed and/or cannot be wholly charged to the billing costs (especially if it is only part of a person’s job). However, even proportional costs add up here. Indirect costs may include:

•Customer service manpower to handle calls/queries
•Accounting/Reconciliation manpower
•Lost invoices (and the time taken to deal with this)
•Undelivered bills (and the time taken to deal with this)
•The cost of bill storage (space rental or fixed costs)
•Bill query handling time

Once again there may be some economies of scale in the above but all of these items (except bill storage perhaps) mainly involve having staff on the payroll or at call. Even at 500 bills a month, at least quarter a person would typically be involved in issuing and reconciling invoices and another quarter in handling queries, re-issuing bills or handling “special requests” related to invoicing or payments. If the cost of this person (or two part-timers) were £12,000 a year (£8,000 plus 50% salary/overhead burden) or £6,000 each, this £1,000 a month would amount to £2 per bill.

Hidden Costs

Costs are often deemed to be “hidden” because no-one is scrutinising or controlling them (they go unmeasured or unaccounted for or are lost in general overhead or the broad costs of doing business). Hidden costs may include:

•Extra or hidden payment transaction fees (which may be fixed or higher than necessary)
•Invoice/billing run or payment processing errors
•The need for a higher than wanted or necessary float/overdraft at the bank
•Possible added customers or more business from having more payment options
•Quicker settlement/cycle time (by use of SMS or email alerts)
•Easier training of staff/opportunity to focus staff elsewhere with time saved
•Potential cash-flow acceleration
•Easier/cheaper compliance and audit work with digital billing
•Lower/No cost digital marketing opportunities
•Overall incremental “Green” benefits/credits

The benefits to an organisation of the long list above are obviously much harder to calculate but a variety of studies in recent years have suggested that these can conservatively add up to as much as 3% of revenues or as much as 15% of profit. If we assume our little company doing 500 bills a month has an average transaction or “ticket” value of £40, turnover per month is £20,000 or £240,000 per annum. If we assume that profit is 15% of this or £36,000, this all means that the cost per bill is somewhere between £0.90 to £1.20.

So in summary, if we add all of these costs together which have a total traditional or paper-based billing cost of £3.60 to £4 or 9.5% of the revenue collected each time (£40 average ticket value). Now that’s a quite a serious amount of money for this little company not to take pretty seriously! But what about your company?-what is 9.5% of your revenues? And when you have calculated it in cold hard cash, can you afford not to investigate the potential to save as much as half of this as recurrent savings every year by moving to digital billing?"

Comments: (1)

Michael Wright
Michael Wright - Striata | Secure Document Delivery - London | 15 March, 2011, 23:44

As someone who is asked about these costs regularly - I think that Jon may be on the high side of some of the numbers. 

But even if the numbers are in reality 50% of the totals above these are still heftly costs for any business to bare.

For most of our clients, reducing the Days Sales Outstanding by 1 day will immediately pay back their electronic billing investment. However we are able to show that the costs saving on the postage alone makes the ROI less than 6 months.


Be the first to give this comment the thumbs up 0 thumb ups! (Log in to thumb up)
Comment on this story (membership required)

Latest posts from Friso

Spain deploys seven standards for technical interoperability

28 October 2011  |  4976 views  |  0 comments | recomends Recommends 0 GroupElectronic invoicing

Dutch B2G e-invoicing adoption falls behind expectations

11 October 2011  |  3457 views  |  0 comments | recomends Recommends 0 GroupElectronic invoicing

Discussion: 7 facts and myths about PDF invoices

29 September 2011  |  6639 views  |  0 comments | recomends Recommends 0 GroupElectronic invoicing

8 Crucial Tips to Avoid paying Fake e-invoices

15 September 2011  |  4493 views  |  1 comments | recomends Recommends 0 GroupElectronic invoicing

Ladies and gentlemen, the EESPA has landed

13 September 2011  |  4430 views  |  0 comments | recomends Recommends 0 GroupElectronic invoicing

Friso's profile

job title Chair
location Amsterdam
member since 2010
Summary profile See full profile »

Friso's expertise

Member since 2010
38 posts28 comments
Friso writes about
Post-trade & ops
Friso's blog archive
2011 (33)2010 (5)

Who's commenting on Friso's posts