In this episode, AVP of e-Invoicing at Sidetrade, Bryan Pederson and Founder and CEO of Receivable Savvy, Ernie Martin discuss the common pitfalls suppliers face with electronic invoicing, the strong correlation between e-Invoicing and DSO, and the joint effort of the Federal Reserve and the Business Payments Coalition in the U.S. to begin an operational pilot framework to enable businesses to exchange electronic invoices.
In this episode, AVP of e-Invoicing at Sidetrade, Bryan Pederson and Founder and CEO of Receivable Savvy, Ernie Martin discuss the common pitfalls suppliers face with electronic invoicing, the strong correlation between e-Invoicing and DSO, and the joint effort of the Federal Reserve and the Business Payments Coalition in the U.S. to begin an operational pilot framework to enable businesses to exchange electronic invoices.
Welcome to Finance to Futurist. A Sidetrade podcast series on how innovation data and AI are disrupting order-to- cash.
Natalie Silverman:Hi, this is Natalie Silverman for Sidetrade. Welcome to Finance to Futurist. On today's episode, we're discussing the common pitfalls suppliers face with electronic invoicing, the strong correlation between e-Invoicing and DSO and the joint effort of the Federal Reserve and the Business Payments Coalition in the US to begin an operational pilot exchange framework to enable businesses to exchange electronic invoices. Please welcome AVP of e-Invoicing at Sidetrade Bryan Pederson and Founder and CEO of Receivable Savvy, Ernie Martin. Good morning, Bryan and Ernie and thanks for sitting down for Finance to Futurist.
Bryan Pederson:Good morning, Natalie, and thanks for hosting this podcast. My name is Bryan Pederson. For those that don't know me, I'm the VP of product for Sidetrade, focusing on the invoicing and order automation side of our business that we do as part of our whole order-to-cash platform. And today we have Ernie Martin, who I will ask to introduce himself Ernie.
Ernie Martin:Bryan and Natalie thank you for inviting me. I'm founder and CEO of Receivable Savvy, where we leverage research and best practice to help master order-to-cash.
Bryan Pederson:Awesome, thanks, Ernie. To frame up this discussion today I wanted to talk about e-Invoicing. That's really the focus of today's discussion. And traditionally, when it even when you do a Google search on e-Invoicing, it often leads to the accounts payable side of the business and most organizations have gone down this road of invoice automation for their own purposes for the buyer purposes and being able to accept electronic invoices. But the focus today is really on the order-to-cash side is where we're leveraging your expertise and knowledge in this area. And so wanted to start with really on looking on the supplier side of the order-to-cash side, what are the top challenges that you're seeing finance teams face today with regards to electronic invoicing?
Ernie Martin:Yeah, so and that's a good way to start the conversation. Bryan, there are a number of different challenges. Probably the top two or three are there's no consistency around invoicing. So you've got electronic invoicing, you've got paper, you've got email, you've got fax, you got EDI, yes, people still do use fax machines to submit invoices. And so you've got their customers accepting invoices in a number of different ways through a number of different channels. And so they've got to what sign some type of solution and system to accept process and pay those invoices. And so it's a challenge for customers. But it's also a challenge for supplier organizations, because different types of e-Invoicing give you different types of results. Another component that's a challenge for supplier organizations is leveraging technology. And you can even go as far as saying digital transformation, a lot of finance leaders, CFOs, even CIOs, Finance Directors, accounting directors, some really do well with technology, others struggle with technology, because their focus has historically been on the number side. And so that's a challenge as well for a lot of supply organization. So you know, you've got a lot of inconsistency in the marketplace. And even after the introduction of e-Invoicing over the last 25 some odd years, you still have most supply organizations using other things and using other methods. So and that doesn't really bode well for consistency in streamlining processes.
Bryan Pederson:Great answer. So with all of you know, as we move down this road of digitization, obviously seeing buyers push this digitization, why is it that you think then it when probably with data supporting this, why isn't it any better? I mean, we've seen standardization come in, we've seen some file formats come in even industry standards coming in to try and make this easier. But why do you think the industry still struggles with adopting these technologies?
Ernie Martin:Yeah, and it's probably twofold. One is the technology is good. So some technology is brand new, some have been around for 2, 3, 5 years. So the first part of my answer is technology is good, but the technology differs from solution to solution. So there again, there is no standardization for the most part around solutions that suppliers use. And so if one supplier uses a particular technology, and they deem that as best practice, there's another type of technology that another organization can use, they could deem that best practice. So you've got, you know, multiple versions of best practice. And so a lot of organizations and a lot of finance leaders struggle with which one is the best best practice. Okay, and so the lack of standardization, but also the second part of the answer is finance leaders struggle with right wrapping their mind and their arms around technology. They're not technologists, they didn't go to school for technology, they weren't trained in technology. So while there's a need to partner with the Chief Technology Officer, Chief Information Officer or someone other than them who has expertise in technology, for the most part, most finance leaders haven't done it. We've seen a lot of good companies do well with leveraging technology, but most haven't really done it to a great degree. So you're going to find some some lag in the marketplace, you're going to see some lag in the uptake of certain technologies, because different technologies have different best practices, and a lot of financial leaders can't really in haven't really wrap their arms in their mind around that technology, because that's not their area of expertise.
Bryan Pederson:Great analogy. And I think, you know, when we look at the ties, and we're, I'm seeing this, at least on my side, is that the CFO, the Office of the CFO often has technology and finance rolling up into that organization. So we are seeing a bit of a shift, I think, with CFOs being more responsible for adopting technology. But with regards to the CFO, one of their biggest metrics is related to DSO and so how do you see the correlation between e-Invoicing and that constant struggle to reduce the DSO today?
Ernie Martin:Yeah, so excellent question regarding DSO and the assumption is that everyone in our industry has an understanding of DSO, its importance, and they measure DSO, surprisingly, many organizations don't even measure DSO, they don't measure other things such as average days delinquent and other metrics that they should be measuring. But what we find is those organizations that leverage technology, such as E invoicing, they see a direct positive impact on DSO. And so those organizations that don't use technology that don't manage and measure DSO, they struggle because their payment terms, even though they may be 30 days, per se, they're finding that their customers pay them sometimes 35 days, 40 days, etc. And so not incorporating electronic invoicing and not measuring DSO really hinders and hamstrings those organizations. But the necessity is that those organizations start to at least measure DSO, because many of them don't even do that.
Bryan Pederson:Good point. And I think what I'm seeing now, and I think part of the challenge of adoption of e-Invoicing is the ever changing and ever growing requirements that are coming from customers and saying, you know, we need you to add more information, we need you to basically code our invoices for us. And so while an organization might go down the road, and I think EDI is probably the one of the most prominent electronic invoicing formats that is out there today and used mostly in manufacturing and retail. With that evolution, we're starting to see more requirements being pushed on a standard. And so with regards to invoicing and DSO, we're seeing some emerging technologies come up as organizations start adopting technologies. And when I say technologies, these are some of the buzzwords that we're hearing now, like RPA, AI, machine-learning and trying to tie this into the e-Invoicing space. But I mean, is it too early to be pushing these technologies into the invoicing when we're still in some cases sending paper or haven't agreed to a standard format? Is there a place for some of the innovation and technologies that are coming out there?
Ernie Martin:So you touched on two different things which are generally related. And so one is standardization, or those requirements that companies have that customers have in order to submit invoices, say electronically. And so different organizations have different requirements in terms of my supplier needs to adhere to these business rules and these requirements, and they tend to differ sometimes from customer to customer. Now, there are some overlap, and a number of electronic invoicing companies have done a good job of streamlining that process a little bit ensuring that when a supplier connects to a network or engages a third party invoicing company that they are built, and the connection is programmed so that they are meeting their customers business rules, but the business rules still differ from customer to customer. And so we did a recent study for client and one of the things that we discovered is that one of the biggest challenges that suppliers have is their customer requirements differ from engagement to engagement to engagement. And so that creates some problem and some challenge for supplier organizations you mentioned, you know, some of the other technology, you know, RPA, etc. machine-learning and so as an independent sort of observer of the industry, because we look at the industry and we see great things happening and there are a lot of opportunities in the industry with technology, invoicing, payment, etc. But one of the things that we do is As we tend to call out where there is inconsistency in, there are some misconceptions. One of the misconceptions is that if you roll out technology supply organizations will automatically run to it. But the challenge is that technology has to benefit in real time objectives and the things that the supplier is actually trying to do. And I'll give you an example. So you could have company A and company B, company A says we've got all this great technology, and it'll do XYZ. And now for the company, and maybe for the customer, it streamlines things. And maybe for the supplier, it may streamline onboarding, may streamline submitting invoices, etc. But you have Company B, if Company B said, Hey, we can do the same things. But we've got 1000 people in a basement manually doing it. And the difference in terms of error rate, etc is negligible, then the supplier inherently will not care, they will not care about the technology simply because a company rolled it out, the technology has to make it easier for the end user. And I always use the analogy of the internet and mobile phones, smartphones. And so you didn't have to talk anybody into using the internet, you didn't have to pay people, you didn't have to do campaigns, everyone saw the value of it immediately. And they flocked to it. Same thing with mobile phones and smartphones. If you have to pay anyone to use a smartphone, even kids are using smartphones, they see the value in it because the benefit is immediate. And it's obvious. Sometimes companies roll technologies out, it benefits them or one side of their customer base, but the benefit to other customers. And sometimes the suppliers is not clear. And it's a nice buzzword. It's a nice catchphrase, but it really has to provide discernible benefits to the supplier in order for them to flock to it. Like people flock to the internet, people flock to smartphones.
Bryan Pederson:Interesting analogy. And I think I want to play on that a little bit more. Because I think when smartphones first came out, it still exists today. And not even smartphones, just cellular phones in general, we used to see that your network or your family and friends were on the Sprint network, you get benefits because they're also on the network. Whereas if you tried to go to AT&T or make the call to another network in the initial stages of building this infrastructure for cellular phones and smartphones, there was this different standardization or different requirements. And I think we're seeing this in invoicing today. And I guess the question is now that we see I mean, I can pick up my phone, I can call anyone on any network, I can text anyone that being said, if I'm texting on my iPhone versus somebody on an Android, it's a different experience. Hopefully, we'll see some more evolution on that side too. But there are applications and there are conduits that allow you to interact with whoever it is it doesn't matter what network or what type of phone they're using, but is that where we need to go as an industry to be able to create this interoperability framework in order to transact no matter what system is on the front end or the back end?
Ernie Martin:Yeah, and that's that's very well put, you need standardization the way you just described. And so what's happening now, which many people may not be aware of is the Business Payments Coalition, which is a group working in conjunction in partnership with the federal reserve of Minneapolis is engaged in launching the e-Invoice exchange platform. The e-Invoice exchange framework is a system that has been built in which suppliers, third-party solution providers and customers, you know, those corporates, those Fortune 2000, who have AP departments that they can all use the same system plug in once, and then business documents can be shared back and forth. So for example, a supplier who may have two or three or four different third party solution providers that they're using, because their customers ask them to use it, they can log into the e-Invoice exchange framework once and then connect to all of those different not only solution providers but multiple customers as well. So it's akin to if you remember, I'm old enough to remember when we went to the movies, when I was a kid, there was one movie playing at one theater, there are no cineplexes When I was growing up, so but now you've got Cineplex as you got six, you've got a dozen you've got two dozen theaters and screens in a single building. And so that's akin to the e-Invoice exchange framework where you go into one building, and then you can go see Bullet Train, or you can go see Star Wars or you can go see a number of other movies inside the same building rather than go into one theater. That was great. Now you have to jump in your car, go across town, go to another screen. Okay, so that's the analogy I like to use also for this e-Invoice exchange framework where suppliers can connect once and then also have access to multiple customers who are also on that framework, and that's one of the key issues that suppliers always tell us is in that thing that keeps them from completely and fully engaging in electronic invoicing is the lack of interoperability. And so we've written about it, I've written about it, I've thought about it for years. And so what the Business Payments Coalition is doing seems to be a great first step in that direction.
Bryan Pederson:That's great. And it's great to have a body like that that's recognized almost on an international scale or a global scale. And this is, I guess, the next step that we're seeing now, too, is with government agencies. I mean, we were talking about visibility, we're talking about gaining visibility on the invoicing side for both buyers and suppliers. But now government agencies are also wanting their hand in this and saying, Hey, we want to see what's going on in our country with regards to B2B transactions. So we're at seeing an additional layer of transparency being required. And this is now a requirement. It's not a this is a nice to have technology. And so I think we're seeing government agencies wake up to the fact that having this transparency can give them visibility into the tax. And we see a big VAT if we're talking on a international scale within Europe, South America and other regions around the world. And so is the Business Payments Coalition, also inclusive of these government bodies as well?
Ernie Martin:What the Business Payments Coalition is doing is specifically focused on operations in the US with an understanding that there may be multinational organizations who may be located elsewhere, but they have transactions in the US. Okay, so that part of the answer is yes, it does impact other organizations that may not necessarily be housed or headquartered in the US. But as we know, there are a lot of US companies that have AP and AR operations offshore somewhere as well. But you're right in that continuous transaction controls, those mandates that are coming fast and furiously by a number of countries. Europe is on fire right now, South America has always been sort of ahead of the curve a little bit in terms of implementing those. But even though those are in South America, and in Europe, they're impacting us companies as well, because again, a lot of those companies have AP and AR operations offshore in Germany, and Finland and in other countries in Europe. And so what the business payments coalition is doing is I would equate it to a cog in a larger machine. It's focusing on us primarily transactions happening in the US, although it may include other companies that are multinational. So if you take that, along with what's in place in Europe, other countries implementing CTC requirements, you've got peple in Europe. And so they're doing a lot of the same thing in Europe and have been doing that for a few years now. And we're sort of just catching up. Each region has their version of interoperability model, if you will. And so the US, it's the business payments coalition in conjunction with the Minneapolis Fed.
Bryan Pederson:Interesting, and I guess, with the mandates that we see in South America, like you said, they're probably the most long standing players in this space. And I think I've influenced some other parts of the world. Do you see the framework that the BPC business payments coalition is setting up to be then adopted by North American government bodies? Mexico, I think Mexico is actually already there. But the US and Canada with this framework in place, will that make it easier for them to go in Institute regulations and mandates?
Ernie Martin:Yeah. So that in terms of how far reaching Business Payment Coalition's work will be, is yet to be seen outside of North America, apart from those multinational organizations that already have maybe a presence here at this point, I certainly wouldn't dare to try to speculate about what may happen in North America or Central America, North America as a whole. But you know, it may happen. But I think the first step is because the what's happening with the invoice exchange framework is it's currently in the in the pilot phase. And so going into next year, the hope and the plan is to then transition that into production and what that means as organizations in real time will be able to use the framework to then to connect into began transacting and exchanging business documents. So I think once we get into 2023, and beyond 2023, other things I think may be considered, but I certainly don't have any special insight as to what may or may not happen in North America as a whole. I wish I did. I could probably make a lot of money doing.
Bryan Pederson:Couldn't we all? Yes. So with all that in mind focusing on in summarizing this topic, I mean, as an organization that might just be looking at starting their e-Invoicing journey and looking at you know, some of the pitfalls that they want to avoid. It does sound like a daunting task and pushing the government mandates aside, we still have challenges within just our own customer base. What advice would you give to an organization that would is looking to head down to security and what are the maybe top three things that they should look to do right out of the gate?
Ernie Martin:Yeah. And so what I would recommend is begin to wrap your mind around transforming your organization around or to cash release invoice to cash. And starting with electronic invoicing is a good first step, every piece of data that we have, and studies that we've done show clearly that the use of e-Invoicing positively impacts DSO. Okay, and so we can also see in our research data that organizations that use paper that use email which tends to still be popular, even with all the technology available, and also other methods, QuickBooks small businesses use QuickBooks, etc. But the invoicing has the greatest impact on DSO and lowering DSO. Also, organizations should start to really embrace incorporating metrics and KPIs into their invoice game. And so again, the key issue for a lot of organizations, whether they be small businesses, or fortune 500 is how quickly am I going to be paid how liquid is my organization and making sure that you've got a streamline process from invoicing to collections to cash application and making sure that not only are you invoicing properly and accurately so you don't have challenges down the road, but you're getting paid when you expect to get paid? We ask oftentimes suppliers do they want to get paid early? And so some suppliers say yes, but most suppliers say at least pay me on time. They value predictability more than anything else. And the thing that delivers predictability is leveraging the right type of technology but also leveraging things like e-Invoicing like automated collections, and like really good methods around cash application.
Natalie Silverman:Thanks, Ernie and Bryan for your insights into the future of finance. For Sidetrade, this is Natalie Silverman.
Conclusion:This has been another episode of Finance to Futurist, a Sidetrade podcast series. Make sure you catch every episode by subscribing to our podcast on Sidetrade.com or through your podcast platform of choice. Thanks so much for tuning in. This podcast is brought to you by Sidetrade, and is for general information purposes only. All rights reserved.