How Can We Accelerate Electronic Invoicing?
While Finnish companies were the first to shift to electronic payment transactions in the 1990s, the use of e-invoicing did not evolve as expected. According to various estimates, e-invoices currently account for 10-20% of business-to-business invoicing and 1-2% of consumer invoicing in Finland. Forecasts made in recent years have often suggested that the share of business-to-business e-invoicing would reach over 50%, but such a figure remains a distant prospect.
Nonetheless, companies are well aware of the benefits of e-invoicing: it enables automated reception, processing, posting and archiving of invoices, and thus generates savings in time, labour and costs. Many companies have gone digital with regard to their purchase invoices by scanning paper invoices, and some are even receiving e-invoices but do not, however, send them themselves.
More and more companies actually have the capacity for e-invoicing. At the end of 2007, the e-invoice address service maintained by the Finnish Information Society Development Centre Tieke included more than 14,000 companies, and it has seen annual growth of 30% over the last few years. What factors could further promote the adoption of e-invoicing?
Every year, a total of 450 million invoices are sent in Finland, with 200 million destined for companies. By shifting to e-invoicing, companies would have the potential to generate savings of up to €2.8bn. During my research1, I interviewed Finnish electronic and online invoicing experts. The interviewees believed that the most important growth driver for the e-invoicing market lies in demand, i.e. the invoice recipients’ behaviour is the most significant factor.
Our customer companies clearly share this point of view. Sales invoices are not often converted into an electronic format because the customers have not requested it. Indeed, the benefits of e-invoicing chiefly concern the recipient, who can automate and accelerate the processing of incoming invoices. On the other hand, becoming an e-invoice sender does not require any major system changes. In this respect, business-to-business invoicing could be enhanced significantly, and companies should actively request, or even demand, e-invoices from their suppliers.
Regarding attempts to increase demand, the experts considered a proactive approach by the state and the public sector as important. The obligation to use e-invoices in one sector would also accelerate their adoption in others, as already evidenced in other Nordic countries. In the Finnish public sector, the recommendation to use e-invoicing has been in force since 2003.
If e-invoicing is an eligibility criterion for selecting a municipality’s suppliers, even the smallest entrepreneurs must be provided with an easy and low-cost method of using e-invoices. In this regard, the development of online banking and the appearance of e-invoicing services provided by banks are playing a major role.
E-invoicing in Finland took its first steps in the business-to-business context. If consumers had been the first to be urged to become users of e-invoicing, however, the current situation might be completely different. At any rate, nearly 70% of Finns pay their invoices using online banking.
The experts interviewed accorded a surprisingly low importance rating to the e-invoicing of consumers as a driver of the e-invoicing market’s development. More than half of Finland’s invoice transactions are destined for private persons, but only a fraction are sent as e-invoices. Any change of direction made by high-volume invoice senders would be rapidly visible in the invoicing market. The actions of large invoice senders play a key role in the promotion of consumer e-invoicing.
Since the use of e-invoicing by consumers is related to the benefits it entails, they should be offered the right incentives. In the spring of 2008, the motivation of consumers made the headlines in Finland when the telecommunications company, Sonera, announced that it would charge its broadband customers €1 if they wanted to receive paper invoices. Customers and the Consumer Agency denounced the act as a misdirected measure. Indeed, rather than using a stick, it would be preferable to try a carrot. After all, consumers feel that they are entitled to a discount on e-invoices, since the sender saves in mailing and printing costs.
An unresolved issue in consumer e-invoicing is related to the attachment of marketing material to e-invoices. Many companies have revealed this as the reason for continuing to send customer invoices on paper.
In the forthcoming years, environmental values are likely to become major drivers of e-invoicing. Paper consumption and traffic emissions due to the transportation of invoices may well find their way into companies’ sustainability programmes. For the moment, companies remain taciturn about the ‘greenness’ of their e-invoices. However, since ‘Green IT’ is making a breakthrough, promoting more ecological system solutions, the image value of e-invoicing may lead to a remarkable increase in its use.
The interviewees in my research considered one of the main drivers of e-invoicing to be its compatibility with the company’s existing IT and operating systems. In payment transactions, Finnish companies are used to the imposition of standards as well as competitive tendering and changing their banks and service providers. On the contrary, the shift to e-invoices has been operator-led, while intense competition has resulted in a true jungle of formats and multiple operator-specific practices. In addition, banks have introduced their own e-invoicing services into the market at considerable intervals and, for instance, their readiness to receive consumer e-invoices only became more common at the beginning of 2007. Large invoice senders did not show enthusiasm for a service capable of reaching only some of their invoice recipients, depending on their bank selections.
In fact, the players may have slightly worsened the situation for themselves. The lack of smooth co-operation between various players during the early stages of e-invoicing must have affected companies’ interest in the issue. Since then, however, banks and operators have developed e-invoicing through a common forum.
A strong collaboration forum is still required, as the e-invoice is not clearly owned by a certain market player. In addition to operators and banks, key actors include large invoice senders, developers of financial administration software and, for instance, the EU authorities with their influential role. Dialogue between stakeholders should also be further increased in order to avoid complexity and conflicting operating models shunned by companies.
1This article is based on the author’s Master’s thesis written for the Department of Business Technology, Helsinki School of Economics.