Can it be? Finance departments are actually enthusiastic about electronic invoice presentment and payment (EIPP)? You bet. After almost a decade of corporate resistance to creating an EIPP network, the tables have finally turned, and buying organizations are seeking out the efficiencies that come from getting the vast majority of incoming invoices through one electronic channel in one electronic format that flows automatically into accounts payable (A/P) systems.
CFOs are discovering that a lack of effective EIPP is holding back their efforts to drive working capital economics and are issuing orders to find effective ways to introduce EIPP, often in step with other large transformations reshaping the physical supply chain. "We're a lot more positive on EIPP now than two years ago," says Craig Jeffery, managing director of Atlanta-based Strategic Treasurer LLC. "We've seen real growth in the past few months. After years of treading water, a couple of vendors have achieved critical mass."
At the heart of the sea change: New technology-based services that allow companies to receive 90% to 95% of invoices electronically, even if suppliers don't deliver them that way. With this new functionality, companies can finally achieve the kind of optimal timing of payments that permits maximum use of float, early-pay discounts or receivables financing. "This is why the buy side is soaring," reports Andrew Bartels, vice president and research analyst at Forrester Research Inc. in Cambridge, Mass.
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Take Verizon Wireless, a New Jersey-based subsidiary of $88 billion Verizon Communications Inc. that embarked on an EIPP project with its suppliers in January 2006. For EIPP to work effectively, all invoices must come in electronically, but more often than not they didn't at the wireless unit. Through its EIPP provider, Xign, Verizon Wireless can offer its suppliers the ability to convert a purchase order into an electronic invoice or present a new electronic invoice. Xign creates a file of all invoices that can be submitted electronically to Verizon's PeopleSoft ERP system, where they are matched against POs and shipping documents and routed for approval. If there's no PO, a Verizon accounting code is attached to the invoices and they are routed for approval without matching. "EIPP helps us with our working capital management," reports Joe Selewicz, vice president of finance operations at Verizon Services Operations. "We see the invoices as soon as they are entered, before they have been matched or routed for approval. That's visibility we never had with paper. It gives us a jump on accounting and a chance to anticipate discount opportunities."
In the first 18 months, the company was able to get a 40% participation rate from suppliers and aims to increase that to 80% to 90% within a year. "We started with the suppliers with the highest transaction volume and are working our way down," Selewicz points out."We will leverage our success at Verizon Wireless by expanding our use of ePayables to other Verizon business groups."
Besides taking advantage of discounts, EIPP also provides payers with visibility and predictability into cash outflows weeks or even months before they occur. A/P is a huge source of cash outflow, and if invoices can be received, processed and approved for payment on a certain date, that helps treasury forecast cash needs and make the best use of credit facilities or investment opportunities. "With enough time, the paying corporation can take full advantage of prompt-pay discounts when they constitute a superior return on cash. It can offer to pay even sooner for an even larger discount that meets its hurdle rate," says Drew Hofler, senior manager of Sunnyvale, Calif.-based Ariba Inc., an e-procurement leader that has expanded into EIPP.
EIPP solutions have come largely from niche players like Xign, Harbor Payments, TradeCard, BasWare and Ariba. But over the last year, a few of these best-of–breeds have been swallowed up by financial services giants that now see the function as integral to future relationships with big corporate clients. Among the notables: JPMorgan Chase & Co. bought Xign in May and American Express Co. bought Harbor Payments in January.
Before it bought Xign, Chase used to resell it. Back then, "we pitched it as a robust, end-to-end, pretty expensive solution," says Paul Simons, vice president and senior product manager for ePayables at Chase. "We didn't cater to companies that only wanted part of the solution. Now that we own it, we are selling it in a modular way. When we started reselling Xign, it had a supplier network of 8,000. When we bought it, that number was approaching 50,000."
In EIPP, mass is critical. A larger Xign supplier network means that, typically, a paying company will now find vendors that account for 20% to 25% of its spend already in the network, "which means that we can offer them a satisfactory ROI from day one," Simons notes. If they go for the total invoicing solution, they can get 100% of their invoices in one file quickly, he adds. "We still sell Xign as a stand-alone solution," Simons reports, "but we're also integrating it with other JPMorgan capabilities, including our legacy invoice scanning, which grew out of our wholesale lockbox imaging product that morphed into an agnostic document imaging product. We're tying Xign to our p-card product, particularly for A/P Track, which combines p-card settlement with A/P processing. And we're active in the dynamic discounting arena."
Chase is not alone in recognizing the importance of EIPP in financial supply chain management and seeing information exchange as a way to get cash flowing and spotlight a financing role for the banks. Rather than buy EIPP suppliers, some banks have instead concentrated on building EIPP-like technology around their profitable card programs and nurturing buyer-seller networks with beefed up information exchange.
Ultimately, EIPP will require suppliers to sign on, too. But as Chase learned with Xign, once big customers are using EIPP, sellers won't be far behind. "There already are 1,500 to 1,600 buyers using EIPP," notes Forrester's Bartels. "By the time it gets to 5,000 to 6,000, it will start to drive biller acceptance. With a high percentage of customers using EIPP, they will see how they could profit by linking to the same networks."
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