Todd M. Albers, Sr. Payments Consultant, Federal Reserve Bank of Minneapolis
A diverse group of business practitioner volunteers are working together to identify an electronic invoicing standard that is best for the U.S. market.
Joining the corporate workforce in the mid-90’s, I remember when my company introduced email in limited release to groups of employees. At the time, it was a big deal to be given a corporate email account. I could communicate with anyone internally on the email system however, sending an email outside of our internal email network was not possible without the IT department stepping in to help. We were working with internal and external islands of communication without integration. Recognizing an opportunity, service providers formed the Internet Mail Consortium to create a set of standards for email protocol rules ensuring interoperability between internal and external email networks. Today, email is universally interoperable and is the most common business-to-business communication tool.
How does this example relate to electronic invoices (e-Invoices)? The e-Invoice process today between businesses is a lot like email was in the 90’s; in many cases, a company is limited to exchanging invoices within its network. To go outside of the network requires business and system integration that takes time, resources, development, and dollars to achieve. As a result, very few organizations reach their goal of 100 percent automation. This lack of integration is indicative of the need for interoperability standards. Out of the estimated 25 billion business-to-business (B2B) invoices sent annually in the U.S., only 25 percent are electronic.
"True e-Invoices are essential to an effective supply chain process and are the first step in straight-through-processing for payments"
Why an Emailed Invoice is Not an e-Invoice
The U.S. market is diverse and complex, with over 800 different accounting technology software and service providers. The result is a very fragmented approach to e-Invoices among U.S. businesses with many definitions, forms and formats. Examples of the most commonly used methods are emails with PDF attachments, supplier portals to retrieve invoices, and machine-to-machine exchange through EDI or XML.
To provide clarity to the market, the Catalog of Electronic Invoice Technical Standards in the U.S. created by the Business Payments Coalition (BPC) establishes a definition for an e-Invoice as “an invoice that has been issued by the seller, transmitted and received by the buyer in a structured digital format that allows for automated processing.”
This definition is important, because email invoicing is prevalent in the U.S. marketplace. Email delivery is a low barrier method that is widely adopted to automate the delivery of the invoice; it is seen as a faster alternative to “snail mail” delivery. However, accounts payable (AP) systems may require additional technology to scan the content and attachments to extract the invoice data for processing. If a business doesn’t have scanning technology, the AP department needs to retrieve and manually key the invoice data into the AP system. Also, email invoices do not always end up in the right place: problems with bounce backs, spam, and incorrect email addresses can delay processing. Essentially, email invoices increase capital and operational expenses by requiring companies to invest in technology. In addition, they perpetuate costly and inefficient manual business processes.
Can e-Invoice Delivery Become as Simple as Email?
Long story short—yes! E-invoices can be universally exchanged between businesses, just like email is today. This can be accomplished by embracing common data definitions, open and non-proprietary technical standards and established business practices. With common methods and models for exchanging invoices, businesses will be able to process more transactions straight-through, reducing operational costs. Other benefits that e-Invoicing has over email invoicing include confidentiality, enhanced security, improved data quality and certainty of invoice delivery for automated processing. Standardizing the connections between accounting software and service providers will create an interoperable “network of networks” using the internet. Businesses will be able to connect directly or use service providers as access points for delivering and receiving invoices. To minimize internal system changes, businesses can leverage existing provider relationships for access.
Moving in the Direction of e-Invoice Delivery Interoperability
Email providers identified the lack of interoperability as a barrier for broader email adoption and created a consortium to create standards that addressed the issues. Similarly, the BPC is a volunteer coalition of software vendors, service providers and corporations working on initiatives to improve B2B end-to-end straight-through-processing. A BPC workgroup is assessing the technical aspects of international e-Invoicing models to determine if they would be appropriated for the U.S. The workgroup will publish its results in 2019. The goal of the BPC work is to define the requirements for e-Invoice delivery interoperability by the end of 2020 for industry adoption.
True (i.e., not emailed) e-Invoices are essential to an effective supply chain process and are the first step in straight-through-processing for payments. Creating an ecosystem in which various systems seamlessly interoperate allows businesses to “connect once and trade with many” and can be the catalyst to achieving widespread adoption by the U.S market. Just like email.
Disclaimer: The opinions expressed in this article are those of the author, and not those of the Federal Reserve System or the Federal Reserve Bank of Minneapolis.