Death to Paper Invoices…Are We Serious?
Monday, 29 Jan 2018
Basware Director of Network and Financing Services, Americas and APAC
Member of the US Business Payment Coalition
Member of the e-invoicing Sub-group
Death to paper and OCR processes – there we said it! It's a pretty bold (and controversial) statement on our part, especially considering the current state of the U.S. market. So, how can Basware state so blatantly that paper is soon to go the way of the fax? To better understand this, we need to understand why paper is still so prevalent today, despite all the money and effort spent on purchase-to-pay (P2P) automation.
Today over 40% of invoices are processed through OCR, and less than 20% are sent through electronic formats in the U.S. Add on invoices that are still hand keyed, and we can easily estimate that the majority of the invoice volume today is non-electronic in the U.S.
What's up with all the paper invoices?
The Billentis 2017 E-Invoicing/E-Billing report
lists the U.S. as having an average adoption of e-invoicing, while markets like Latin America have standardized non-paper transactions. Why is the U.S. so far behind? You can point to the differences in our tax laws, where the more complex regulations in the Latin American markets require more information on the invoice. However, the simpler answer is the absence of government regulation. Most Latin American countries have mandated e-invoicing to prevent tax fraud. Other countries have also mandated e-invoicing for business-to-government (B2G) processes (Germany, France, Italy, Spain, etc.), but the U.S. has struggled to formalize such an e-invoicing mandate
. If the U.S. market is still predominantly paper based, and there is no meaningful mandate in sight, our claim that OCR is dead is even more bold. Bold, but very true.
How can OCR technology be dead too?
The simple fact is that every business is looking for ways to streamline costly processes, and do more with less. The challenge has been getting buyers and suppliers on the same page. Many traditional e-invoicing initiatives push a significant amount of change and cost to the supplier. This is probably the single greatest reason e-invoicing has not fully matured in the U.S. market. Passing the burden on to the supplier is not a realistic method of pushing adoption of e-invoicing.
The majority of manual invoices today are received by e-mail. This has been a win-win for the buyer and supplier. The supplier does not have to pay for supplies and postage, and receiving e-mail attachments is faster to process than physical mail for the buyer. This is why e-mail has become the default sending method in the U.S.
A large percentage of these e-mailed invoices are created by an accounting system (Quickbooks, Sage, Microsoft, Oracle, SAP, etc). But the nuance is – these systems also
generate a readable PDF document and that's the game-changer. It's why Basware can make the bold statements that we have.
You see, readable PDFs have a structured text file imbedded in the document – it's different than PDFs that are merely an image of the document. This is why you can copy text from the document, and paste it to another file. Basware has created a solution that allows this data file to be read by the e-invoicing solution, mapped, and converted into a true e-invoice. I’ll spare you any further tech talk, but the point is that this solution allows the supplier to send the same file they send you today
– without changing anything about how they operate or paying any fees. The invoice can be processed, validated, and imported into your AP process without any human intervention, and in a matter of minutes.
So, yes – this means OCR will be replaced with readable PDFs and structured data because this technology actually makes it possible for buyers and suppliers to get on the same page.
Why is the death of paper invoices and OCR technology a win-win?
If I put myself in the shoes of a supplier for a minute, here is what I see:
- My customer is asking me to send the same file I send them today.
- I do not have to pay anything to do so.
- I know my invoice is getting directly into my customers approval process, and not sitting on a desk somewhere.
- I can log into a portal at any time and see the status of my invoice (for free).
- Now that I am sending something that my customer can process electronically, my invoice can be processed faster, leading to opportunities for dynamic discounts and early payment programs.
You can see how this becomes a simple solution for suppliers to say yes to.
On the buyer side, there are huge benefits as well. Lost invoices become less frequent (because they go straight into the AP process). Manual keying and OCR processes become irrelevant. Resources that once spent the day doing basic, repetitive tasks can be repurposed to focus on strategic themes such as removing bottlenecks, managing category spend, etc.
And then, of course there is the cost savings. Manually touching invoices costs time and money. Organizations that I work with have estimated the cost of manual invoice ingestion anywhere from $3-7 per invoice. Obviously each company calculates the number differently, but none the less it is a major cost. The thought of reducing this to mere cents is a major motivating factor!
When is this going down?
Ok; we understand that paper and OCR will not be completely extinct soon. There are scenarios where OCR makes sense. But these cases do not make up the majority of invoices that we process. In truth, most companies should be able to reduce paper to 3-5% of their total invoice volume.
We also understand that PDF e-invoicing is not a silver bullet. But when you can offer your suppliers more options to send invoices the way they want, adoption rates grow exponentially. Eliminating the change and cost a supplier faces is the key to moving from a paper-based process, and I am proud to say that is something that Basware does better than any other e-invoicing provider in the market.
Learn more about Basware AP Automation