As part of a drive towards straight through processing (STP) in trade finance, e-invoicing's time may finally have come. Justin Quillinan looks at the various EU and European initiatives underway to provide standards and encourage uptake. Will Europe finally get wired and forge the way forward?

Charles Bryant is a senior advisor to the Euro Banking Association and member of the EC Expert Group on e-invoicing, not to mention a judge for the FST Awards, and he believes that banks can play a key role in the integration of the supply chain for companies around the world by introducing and supporting e-invoicing technology and procedures. It won't be easy though. "It's not something that's going to fall into the lap of banks per se - it's a wide project that banks can play a part in," he says. "Looking at the big picture, e-invoicing is a thing for society at large and it would be misleading to present it as a banking phenomenon alone because, in the supply chain, somebody outside the banking world probably wouldn't even recognise the term straight through processing (STP)."

"In the logistical supply chain those guys are pretty good at shipping stuff quickly through containers and getting documents out and you could argue that the banking industry has been quite slow, sloppy and even slovenly - but it's a complex environment that has required a lot of new process." The time for you to get involved in the supply chain is now though as the EU is currently supporting a number of projects to encourage standardisation - for instance, the public sector action plan on e-signatures and e-identification, published last year, will encourage uptake; work on removing legal uncertainties is ongoing; and a European e-invoicing framework is expected by the end of this year.

Defining the term is of course always a good first start and the EC describes it on its website as the electronic transfer of invoicing information (billing and payment) between business partners (supplier and buyer). The sweet spot for the banks is to be involved in facilitating these trade finance transfers and to ensure that they still get profits out of the process as paper is gradually removed.

The problem
In industry there is still a massive amount of paper floating about throughout the invoicing process - more than 90 per cent of deals are still done that way when you include paper bills and cheque payments, according to the Royal Bank of Scotland. The banking world fares much better with its own internal systems, says Bryant, when it comes to automation and STP, but there's still more that technology can do when aligned with appropriate standards to regulate behaviour.

The European Commission estimates that electronic invoicing has the potential to save businesses approximately EUR64.5 billion per year in Europe alone. It is estimated that roughly EUR500 billion of unnecessary working capital is locked up in the financial supply chains of Europe's top 1,000 corporates, due to poor visibility of payables and receivables. One major reason for this inefficiency is the huge volume of paper in circulation. Getting rid of it is essential and it's no wonder that governments are so keen to encourage uptake, initially in the public sector and then amongst the business community.

Discrepancies and possible solutions
As Andrea Klein, vice president of Oracle's financial services global business unit, points out, Europe is leading the way in this harmonisation work but there are still discrepancies between, for example, the UK and the Nordic countries which take a more liberal view, and others that insist on more traditional documentation.

Bryant explains: "An invoice is not just a request for payment or a summary of a transaction, it's a means by which VAT is collected. When you do your VAT as a company whether you are big or small you are subject to audit and you have to keep invoices for seven or eight years and to be able to recreate the processes that allowed you to claim the VAT, and therefore people have different approaches to that."

He agrees there are discrepancies highlighting the slick invoicing systems for co-ordinating utility bills that currently operate in Scandinavia, Benelux and Switzerland, but have yet to be replicated in the UK. To these ends, the European Commission is working closely with member states on many supportive activities from e-procurement, lifting the burden on business, to a fundamental review of VAT processes. The EC Expert Group is in the second and final year of its work and will produce a recommendation for a European e-invoicing framework by the end of 2009 and the Group - with the help of many banking organisations - is addressing a number of barriers to the spread of e-invoicing. These include the greater harmonisation and clarity in legal and VAT provisions; a way of overcoming fragmentation and interoperability problems; the convergence of the plethora of standards currently in use and finding a way to include more than 20 million small to medium-sized enterprises (SMEs) with simple and easy-to-use solutions. For standards, the concept involves evaluating the use of UN/CEFACT Cross-Industry Invoices (CII) and its representation in ISO 20022. Basic format conversion services are also envisaged.

The EC Expert Group aims to create a genuine 'equality of treatment' of paper and electronic invoices and has already produced a Code of Practice to guide users and their advisers and hopes that a new Invoicing Directive will be accepted by member states in the months ahead. The Euro Banking Association (EBA) lists six reasons why e-invoicing is an important public policy objective as well as a clear trend in the business world. They are:

• Market studies indicate multi-billion Euro cost savings
• It is a political priority for the European internal market and will be facilitated by the Single Euro Payments Area (SEPA)
• Process efficiency in a networked world will bring faster and smoother supply chains
• As a 'key in the lock' to STP it will lead to a decrease in invoicing and payment errors
• It supports the green agenda by getting rid of paper
• It will release human and enterprise resources for more productive use.

As the credit crisis has shown, financial institutions and multinationals operate around the globe and their fortunes - or lack of them - are inextricably linked.

Alan Koenigsberg, who runs JP Morgan's global card and e-invoicing business, agrees that doing electronic invoicing, procurement and settlement is extremely important in reducing risk and driving up business efficiency - he uses such systems to optimise the relationship between buyers and suppliers online for clients all over the world. He accepts that the EBA has 'some interesting projects afoot.' "But creating standards just for the sake of it without understanding the benefits and who the users are is not a productive exercise."

He cites a hypothetical case of a small business owner in Paris who is still doing the books on a paper ledger and questions whether they will automatically adopt e-invoicing because the standard is easier. On the other hand he says: "I have large corporate customers all over the world who use e-invoicing and will continue to do so because they have evolved sophisticated treasury management, supply chain and logistics systems."

While applauding the work of the EBA and Expert Group, Koenigsberg queries whether enough is known about who the standards will be aimed at and whether they will be worth it for everyone. "I question whether or not this is the right thing to do right now," he adds.

The paralysis induced by the credit crunch means that many banks are just struggling to return to profitability at the moment and longer term projects perhaps take a back seat for some. But the danger of this, as always, is that somebody else will come in and steal the electronic trade finance business. Disintermediation is possible if banks don't grab this chance to firmly ensconce themselves even more firmly at the centre of trade finance as paper is eliminated.

The technology
E-invoicing, as the name suggests, is based on electronic communications technology - hardly a new concept as Electronic Data Interchange (EDI) has been used to harmonise supply chains by big corporates for more than 20 years. Newer formats such as XML will have to synch seamlessly with legacy systems to become widely acceptable. The Expert work on ISO 20022, UN/CEFACT CII, and format conversion services should help with this. Faisal Kahn, director of banking and insurance at 3i Infotech, Western Europe, puts it simply: "We are now trying to reach agreement on a slightly different technology base. EDI was all about value added networks and people connecting computers to each other but now it's about the internet and more cost effective ways of doing things than could have been defined years ago."

Kahn thinks that European standards could prove to be a "bite-sized chunk" because people largely trade in Euros, providing a synergy between banking and industry. His company offers a number of specific solutions for the banking and financial services arena under the brand name Kastle, which deal with core banking, through lending and treasury applications. But when asked even if Europe was to 'get all its ducks in a row' would there ever be an e-invoicing system working in harmony around the world, he quips: "Maybe not in my lifetime, but I have no doubt that it will come."

Oracle's Klein believes that for e-invoicing to be successful, systems must be built on common industry-wide standards and that Europe is leading the charge thanks, in part, to SEPA, which has already laid out common standards for payments in the region. But she has concerns that other regions have been slower to implement the technology as they struggle without a cross border standards framework in place. "Integration enables banks to deliver new products and services quickly and cost effectively, increasing bank revenue and improving customer satisfaction," she adds. "E-invoicing is critical to the growth of the global supply chain and banks can play a key role in this."

A big challenge, however, is that most banks are still struggling with legacy IT infrastructures that are not capable of delivering a 'holistic' view of the business. In addition, banks typically manage their payments function as a series of departmental silos, run by separate units with disparate technology. All of this will have to change and the standardisation work will have to be successful if banks are to become truly wired.

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