Technology boosts attractiveness of supply chain financing

August 5, 2008  |  Uncategorized

Corporates are looking at new ways of making the supply chain more efficient and improving key financial ratios such as days’ sales outstanding. Here, Ian Watkinson and Lee Murphy from The Royal Bank of Scotland explore how electronic-invoicing can support these goals.

2008 is proving a pivotal year for electronic invoicing as the discipline begins to enter the mainstream, having previously been classified as a niche service. In a recent survey of European banks conducted by Fundtech, 38% of respondents predicted that between a quarter and a half of their customers would be using e-invoicing within three years. 15% of respondents were even more bullish, estimating that over 50% of customers will adopt it in this period.

The increased demand for e-invoicing facilities is driven by a range of commercial, technological and regulatory factors.

Corporates are exploring new angles for becoming leaner and meaner, having already adopted best practices and management philosophies such as ‘just in time’ delivery
The supply chain itself is becoming dematerialised, as processes migrate to the internet and trade data becomes more accessible to counterparties and banks
The advent of the Single Euro Payments Area (SEPA) presents opportunities to bundle invoice data with new payment instruments
Overview of electronic invoicing

Electronic invoicing is the generic term given to web-based services that allow purchase orders and invoices to be issued, received, approved, reconciled and archived electronically. Separate variations exist for accounts payable and accounts receivable activity, but both allow companies to extract data from the web portal directly into accounting systems to create payment instructions.

IT vendors have been offering e-invoicing services for a number of years, but proprietary data standards, high set-up costs and the imposition of cumbersome practices on supply chain partners all acted as barriers to entry. However, the arrival of new entrants to the market is changing the landscape.

“The new generation of e-invoicing services take the form of independent portals or hubs that sit outside of the client’s firewall.”The new generation of e-invoicing services take the form of independent portals or hubs that sit outside of the client’s firewall. This model is more efficient in that it negates the need to spend time and money on complex integration projects with existing Enterprise Resource Planning (ERP) systems. Instead, the emphasis is on the secure flow of information between the portal and incumbent software.

Data conversion

In order to achieve the smooth flow of information between counterparties and e-invoicing systems, the portals use the ‘any-to-any’ data conversion principle. Supply chain partners can submit invoices in their ‘regular’ format. The portal then extracts the key elements of the document (invoice number etc.), places them into an XML template and translates them into the designated format of the customer.

The use of ‘any-to-any’ conversion tools is one of the main reasons why companies are becoming more comfortable and enthusiastic about adopting e-invoicing. These tools enable suppliers to carry on producing invoices in their usual format and ensure that they do not have to adopt bespoke practices for specific buyers. Conversion tools effectively open up the entire invoicing spectrum, meaning that everyone, from the largest suppliers through to sole traders, can participate without incurring additional cost or inconvenience.

Once the data is in the portal, it is subjected to sophisticated validation checks to ensure that the information is correct and corresponds to purchase orders or other related documents. With validation confirmed, the portal sends the invoice to the relevant person or system for approval and payment.


A plethora of statistics has been produced to highlight the tangible benefits of adopting e-invoicing. Perhaps the most eye-catching output comes from the 2007 EC sponsored ‘European Electronic Invoicing Report’ which asserted that cost savings across the Community could total EUR238bn over six years (see footnote).

Companies looking to achieve cost savings through e-invoicing need to consider several fundamental questions as they assess potential systems and vendors. For example:

Can the system be used in multiple territories?
Is the system compliant with relevant VAT laws?
How flexible is the workflow management system ? can it be configured to suit the specific needs of the enterprise?
Does the system use open standards, thereby opening up the ability to operate with other e-invoicing services and networks in the future?
Does the service have messaging tools to help manage disputes with suppliers?
Can the vendor support the development and execution of a supply chain partner recruitment process?
The last point is particularly pertinent. Without the support of the supply base, return on investment thresholds are unlikely to be achieved. The e-invoicing partner must be proactive in conveying the benefits to suppliers (reduced stationery and postage costs etc.), and helping them through the registration process. Another rule is that suppliers should not have to pay to participate ? any attempt to get suppliers to subsidise the cost of the service could sour the trading relationship and affect the take up and usage rate.

From the point of view of some suppliers, like RBS, e-invoicing also presents an opportunity to deepen client relationships. The rich data stream that is captured by e-invoicing can also be leveraged to offer other services such as supply chain finance itself.

Also known as reverse factoring, this form of finance involves the buyer instigating the financing facility for the seller via its own bank. It effectively allows the seller to benefit from the superior credit rating of the buyer. Management information on the trading history of the parties is key to the process.

The physical and financial supply chains are converging at an ever faster rate. E-invoicing is providing unprecedented visibility of the purchase-to-pay cycle and offering a range of financial and non-financial benefits to customers. The rich data stream provided by e-invoicing can be leveraged in new financing solutions that directly address the rapidly changing needs of buyers and suppliers.

‘European Electronic Invoicing Report’ issued in July 2007 by the EC Informal Task Force on e-invoicing

Ian Watkinson is head of electronic invoicing at RBS and Lee Murphy is product innovation manager for GTS UK, RBS. In 2008, RBS launched its own e-invoicing service using non-proprietary technology. RBS Group operates in over 50 countries across Europe, the Americas, Asia and the Middle East serving more than 40 million customers and employing more than 170,000 people

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