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Comparing the Merits of Digital and Electronic Invoicing

If digital and electronic invoicing sound like the same thing to you, you’re not alone. Can an invoice be one and not the other? Absolutely.

With all of the hype surrounding digital (i.e. digitalization, digitization, digital transformation), it seems like the optimal form for invoicing. And yet, it has its limits. A PDF is digital, as is a Word document, a photograph and even a freeform text file. Digital just means that information is stored in ‘soft’ copy rather than on paper. And while an e-mailable soft copy is worlds better than a piece of paper, it doesn’t necessarily leverage the speed, efficiency, or effort-reducing capabilities of computing. Taking a picture of a paper invoice technically makes it digital, but that doesn’t make the data in that invoice accessible to most software programs.

The alternative to a digital invoice is an electronic invoice. Rather than being scans or images of invoice information, electronic invoices contain data directly in a file and, more importantly, in a format that can be accessed and interpreted by software. Electronic invoices change the playing field for companies looking to invest in either invoice automation or the automaton of the end-to-end P2P process, but they aren’t always the friendliest or most convenient format for the humans involved in the invoicing process.

Here are some examples of how the digital/electronic divide plays out in the real world

 

Automating the 3-way Match

Regardless of how far procurement technology has come, there is still no standard higher than the 3-way match: from purchase order to invoice to receipt. A successful 3-way match ensures that that the right product or service is received, that the purchase can be attributed to a specific person or group, and that the correct amount of money is paid for it. With paper and strictly digital invoices, someone needs to manually make the 3-way match, and this requires a significant investment of time and resources. It may even be necessary to enter or re-key data to move invoice details from one system to another. If, on the other hand, invoice information is directly accessible to software designed to match the unique identifiers on all three file types, most matches can be made quickly and without human intervention, leaving only the exceptions – likely to be a tiny subset – to be resolved manually.

 

Moving from Contract to Invoice, Automatically

Both purchase orders and invoices should be associated with a valid contract. If the contract is available electronically, it creates an opportunity for suppliers to remain within one system and to create their invoices directly from the contract. Not only does this reduce the amount of time and effort required for low value-added work, it keeps both the buying and selling organizations on the same page, preemptively increasing the likelihood of a 3-way match once the order is fulfilled and a payment is due. When there are discrepancies or disputes regarding the details of an order, these too can be flagged and resolved within the P2P platform.

 

Improving Supplier Relations and Relationships

When information is stored digitally rather than electronically, it is possible for an invoice to move through the buyer’s system without updates being available to suppliers. If anything is more likely to improve supplier relations than fast payments, it is having full visibility into the approval and payment process throughout. This, too, is improved and enabled when invoices become active files in a P2P system rather than being passed around as soft copy files. Each time the electronic invoice changes status suppliers can be automatically updated, increasing their confidence in the payment process and their regard for the customer.

 

So What's Next?

As hard as it might seem to make a choice today, invoice management options continue to expand. For instance, it is not a stretch to think about combining the photographic capabilities of a standard smart phone with Optical Character Recognition (OCR) technology. If the invoice were arranged in a standardized format, an OCR program could easily extract the metadata required to transition the digital (photo) invoice into a full electronic form, opening it to full automated processing.

Both digital and electronic invoices represent a significant improvement over the paper-shuffling ways of the past. Business today is conducted on the go: in the field, on the shop floor, between locations. Making invoices accessible via digital and electronic capabilities is a critical enabler for requestors, approvers, and suppliers alike. In the face of this opportunity, companies need to weigh the advantages of digital (shareable, mobile device friendly) with the advantages of full electronic (computer accessible) invoices. Either way, invoice management technology continues to evolve and mature with the rest of P2P.

About the author

Kelly Barner

Kelly Barner is the owner of Buyers Meeting Point, an online resource for procurement and purchasing professionals. Her unique perspective on supply management is based on her time as a practitioner, a consultant at a solution provider, and now as an independent thought leader. Kelly has led projects involving members of procurement, supplier, and purchasing teams and has practical skills in strategic sourcing program design and management, opportunity assessment, knowledge management, and custom taxonomy design.

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