We are already in mid-March, and 2018 is seemingly just another year. Or is it? Last year we saw we were arriving in the post-invoice economy. Is the invoice ready to be retired?
In early 2017, we put the forces we saw impacting business-to-business commerce into words and stated that we had arrived at a new era. We described it as ‘cash agile’ – a new paradigm for the post-invoice economy.
For many, the idea of post-invoice economy felt overly dramatic and dark. “It can’t possibly be true: how could we live without invoices?” or “Invoices won’t disappear anytime soon. It’s just not going to happen.” Well, that was some of the feedback. Others understood that we were not saying invoices would disappear altogether, rather that in the post-invoice economy, the role of the invoice would simply be different and diminished.
Let me first give you a quick recap (feel free to read the whitepaper, which describes cash agile in full).
3 trends and converging technology driving the shift
Around us, technology and trends are converging, which is already reducing the overall number of invoices and also further automating invoice processing for both accounts payable (AP) and accounts receivable (AR) functions. Take a look at rules-based matching of invoices to purchase orders (PO) as an example. It has been around for a while now, and can pretty easily deliver 60–90% straight-through-processing rates, while more recent advances, such as Machine Learning and AI, will drive the automation even further.
On top of that, consider self-billing, evaluated receipt settlement (ERS), PO call-offs, direct debit and increasing use of virtual card numbers (VCNs) and purchasing cards (pCards), which can all serve the purpose of removing invoices in the source-to-pay process. Thirdly, while I don’t know how close we actually are to a new world order with blockchain, I do know that blockchain has the potential to remove invoices entirely. Blockchain enables the use of smart contracts to intelligently verify the different steps in the supply chain, which will allow us to skip invoicing and go straight to payment.
All of this has led us to believe we are now in a time and a place where we have one foot in the past and one in the future. We are straddling a highly-disruptive time in space, and we are calling this new present/future the post-invoice economy. To successfully manage this shift, new thinking is required, and that is our ‘new paradigm’ – which is really just a fancy way to say ‘new thinking’.
Where does new value emerge in the post-invoice economy?
One of the main characteristics of the post-invoice economy is the commoditization of the invoice handling processes. As described above, rules-based matching, machine learning and AI and the potential of blockchain spell the diminishment of heavily transactional and easily automatable processes. As they diminish, they will offer less and less value to an organization looking for competitive advantage through best-in-class business processes.
So where will the value emerge in the invoiceless future? In the new paradigm, the focus turns to cash management and procurement. We describe this new paradigm as ‘cash agile’ due to the nature of these two value drivers. Procurement and cash management have the need to manage spend and cash outflows and inflows easier and more intelligently, and with a tighter alignment within the organization, but there is also much more to it.
Creating cash agility with procurement and cash management
Let’s consider procurement first. The gains available through effective procurement far exceed those available through transactional efficiency. Best in class procurement functions are able to reduce the cost of goods or services purchased by up to 9% (Hackett Group: Procurement World-Class Performance Advantage Report).
Additionally, capable MRO (Maintenance, Repair and Operations), a central procurement function in some organizations, ensures production continuity by preventing machine and equipment stoppages in addition to the avoided costs associated with breakage vs. maintenance. It can reduce procurement related costs by as much as 15% (Deloitte: Smarter MRO).
How about cash management? Unlike the limited process efficiency gains that are possible in AP and AR, effective cash management can really pay. Firstly, we see proof points such as a 36% APR offered through early payment programs (think dynamic discounting and the classic 2% 10 / net 30 early payment option).
Another angle, and more of an issue for finance function these days: fraud. A typical organization is losing on average 5% of its revenues annually as a result of fraud (ACFE: Report to the Nations). For a billion-euro company, being able to cut the 5% down to 2%, for example, would mean a tremendous add to their top line growth and also make them much more competitive.
With the recap behind me, I want to launch into the burning question of the overall story about the post-invoice economy: is the invoice ready to be retired? What is the value of the invoice as a legal document? How close are we to doing away with the invoice entirely?
Consumerization of B2B commerce
Looking at the ongoing consumerization of business-to-business commerce, I think there is a strong case to be made for the trends toward invoicelessness in business-to-consumer trade further seeding themselves into B2B commerce as well.
Consider direct debit – no invoicing there, and direct debit already is a B2B payment standard in Europe (SEPA Direct Debit). Or personal credit card purchases – no invoicing there either, the payment is made at the point of purchase, and we are issued a receipt, should we need the VAT record for our taxes.
Virtually the same opportunities exist today in B2B commerce through pCards and VCNs. With pCards, payment is made at purchase typically for a select cost category or vendor (e.g. office supplies or travel). pCards work great in situations where you don’t want to overburden the process with requisitions and purchase orders – but what about when you do want a transparent order–approval process in place? This is where the virtual cards come in. Virtual cards can allow the same type of invoiceless as pCards, which satisfies the needs of the supplier by inducing early payment (and even extended payment for the buyer). They can also be used to avoid fraud as the payment amount reflect the PO rather than any supplier-issued invoice.
So, the question I brought forward was are we ready for the invoice to retire? Is intelligent automation and other new technology combined with the consumerization in B2B commerce enough to describe a convincing future, where invoices do not exist and flying cars do? If you are not ready to give up on the traditional invoices just yet, I think you can rest easy for a couple years more. But the trends are highly visible. The technology is advancing incredibly fast. The reality may be that invoicelessness is not an ‘if’ but a ‘when’.
In fact, there’s more to the story and although I wanted to discuss self-billing in this post, it’s already so long, that I think I’ll leave it for next time. Give me a couple weeks and we will continue the conversation.
Rowan has more than 10 years of experience in the purchase-to-pay arena. During this time, he has managed the go-to-market for a diverse set of portfolios including Accounts Payable Automation, B2B Networks, Financing Services, eProcurement and Product Information Management.
Why not read more about the post-invoice economy? Download our whitepaper: Cash Agile – the New Paradigm for the Post-Invoice Economy.
Or watch a webinar for a CEO perspective on the topic and find out where to focus your attention in the coming years.