Electronic Invoice Brokerage
There is a new business model forming for electronic invoice brokering. This business model has advantages for both customers and suppliers, but there are dangers of a monopoly or a cartel forming in this fledgling industry.
Electronic Invoice Brokerage
Companies are springing up producing electronic invoices.
They sell these new electronic invoicing services to large companies on the basis that it will save them money – they only need to pay a small fee which pales in comparison to the advantages:
- No scanning of invoices
- Invoices only from preferred suppliers
- Invoices have to meet formatting and data quality standards – the purchase order has to be one that is active for that supplier and the invoice is within the bounds of the purchase order.
Once the electronic invoicing company has got the agreement from the large company for an “exclusive” deal (i.e. no more paper invoices will be accepted), then they can charge the suppliers for entering invoices on their system. Sending an invoice for these suppliers used to be free, but now it costs the supplier to invoice.
The large customer company does not mind – at least at first – as their accounts payable costs are reduced.
However, as more companies sign up to this method, the suppliers are gradually squeezed.
- An extra payment for each customer they have through the electronic invoicing company
- An extra payment due to the volume of invoices (as more invoices from the supplier go through the invoicing company)
- An extra payment for support services – now the supplier has no direct contact with their customer’s accounts payable team – only the invoicing company has that. So, to ensure smooth flow of invoices and resolve disputes quickly – the supplier pays another fee.
What Needs to be Done?
As the system is open to abuse, should electronic invoicing by third parties be outlawed?
No – I don’t think so. The advantages of well-run electronic invoicing companies would be advantageous to customer and supplier. However, an unregulated industry could prove very harmful.
So, if we need regulation, what form should regulation take?
Firstly, I think electronic invoicing companies should be licenced by government. It should not be hard to obtain a licence if one has not been granted and removed before. The scheme should enforce guidelines for the invoicing companies to follow.
These guidelines would include the methodology and format of the feeds:
- From customer to invoicing company for purchase orders/preferred supplier lists/payment methods/schedules etc.
- From supplier to invoicing company – for the electronic interface.
- Stipulation that there has to be a useable, free manual interface (via the web or other technology).
- From invoicing company to customer – so that the customer can easily accept multiple feeds and discover all feeds that have invoices available for that customer.
When these items are in place, there can be a free and fair marketplace for electronic invoicing. Suppliers will be able to choose which electronic invoicing company to use, customers will be able to pick up their invoices from all invoicing suppliers. The economies will still prevail, but there will never be a full monopoly by the invoicers.
Invoicing Company Licences
An invoicing company that is found to breach the regulations would lose their licence and could face other penalties if they were negligent or attempting to use shady practices.
The market has found a niche use of modern Internet and web technologies. Government needs to catch up and regulate this market as it forms and develops. Government will need to be careful that they do not stifle the innovation in this sector, but ensure that no one invoicer becomes too powerful.