The Analyst Corner: Payment

Electronic invoice presentment and payment failed to meet its initial predictions. However, recent studies have uncovered a renaissance of interest in Web Invoicing & Electronic Payments solutions as organizations shift their emphasis toward cost containment and productivity enhancement

People have dreamed of a paperless workplace for decades. In the 1960s, for example, futurists predicted that organizations in the new millennium would exchange information in a fully electronic manner. This sounds quaint from our current vantage point, but who knew that getting rid of paper would be more difficult than putting men on the moon? The unfortunate reality is that organizations are still mired in expensive and error-prone paper-based processes.

The results of PayStream's 2004 Financial Automation Survey (FAS) of financial professionals illustrate that organizations continue to experience problems at all stages of the invoice receipt-to-pay cycle. For example, the process of receiving and preparing invoices for processing — invoice receipt, matching and imaging/data capture — causes significant pain to roughly one-quarter of the respondents. Pain increases as a transaction unfolds, building with approval processing and peaking at discrepancy resolution and exception processing.

Making the Case for Web Invoicing & Electronic Payments

A paradigm shift is clearly underway as organizations strive to not only contain costs but also compress working capital requirements and process cycle times. This emphasis on cost containment and productivity enhancement during the past few years has inspired organizations to seek out new ways to automate traditionally paper-based, labor-intensive processes. The need to document and secure these processes to ensure compliance with the Sarbanes-Oxley Act of 2002 has provided further impetus for automation, especially where senior management has been involved.

Figure 1: Relevance of Goals

PayStream's latest research indicates that businesses are turning to Web Invoicing & Electronic Payments solutions that streamline the invoice receipt-to-pay cycle to meet these new requirements for efficiency and control. PayStream's FAS 2004 revealed that companies are increasingly seeking automation to streamline and automate some or all of these functions. Asked about the relevance of a range of technology tools and potential initiatives to their payables automation strategy, 40 percent of respondents said that workflow tools to automate approval processing are critical. Solutions for Web-based invoice receipt ranked close behind with 32.1 percent of respondents having them on their automation calendar for the next year.

Although the adoption of automation remains skewed toward large corporations, some midsize and smaller companies are making great strides toward less paper, even paperless environments. The case of one such company — Memorial Sloan-Kettering Cancer Center (MSKCC) in New York — is fairly typical. Driven by a desire to lower the costs of its current invoicing and payment processes, MSKCC established a system to communicate with suppliers via a third-party system developed by Xign. MSKCC and other early adopters have learned that in many cases automation diminishes the procure-to-pay cycle time from weeks, even months, to just days. They have discovered that by automating each stage of the procure-to-pay cycle, from electronic procurement, programmed exception handling and matching, along with enhanced dispute management and approval workflow, they can not only achieve productivity gains and cost reductions, but also obtain a de facto Sarbanes-Oxley audit trail.

What Is Web Invoicing & Electronic Payments?

Web Invoicing & Electronic Payments solutions streamline the invoice receipt-to-pay cycle by enabling organizations to electronically submit invoices and purchase orders, use sophisticated workflow tools for approval processing and make electronic settlement against approved invoices. The following are the specific components of the Web Invoicing & Electronic Payments universe:

  • Supplier Recruitment & Enrollment: The solution providers work closely with the buyers in the supplier recruitment process through activation campaigns. The solution offers suppliers access to an online portal where they can log in and provide registration and bank account information. Most vendors authenticate the bank account information provided by suppliers before payments are initiated.
  • Invoice Generation & Delivery: This stage includes all the steps a supplier must complete in order to produce and deliver an invoice to the buyer. Web invoicing solutions facilitate the exchange of invoices between buyers and suppliers by supporting several methods of accomplishing this – purchase order (PO) flips, blank e-forms, standard templates, pulling a template from the buyers' enterprise resource planning (ERP) systems, etc.
  • Exception Handling: Invoices submitted are routinely checked for duplicity and mathematical integrity. An additional layer of validation is available for checking invoices against a set of buyer-defined criteria that can be established during the implementation phase or any time thereafter. This process identifies errors and exceptions proactively and notifies the infringing party to correct those errors through alerts.
  • Workflow & Dispute Management: The process that buyers follow to sort, route, review, dispute and approve invoices for payment, including workflow. The system also allows buyers and suppliers to investigate and collaboratively resolve disputes. Comments and other related documents can be attached to transactions to provide further visibility into the approval and dispute resolution process.
  • Payment Processing: The steps that buyers take to initiate, post and execute payment, including payment preparation, processing and submission to their financial institutions. This stage also includes the receipt and application of payments from buyers, including cash application, exception processing, archival, and integration with and posting to accounts payable and other enterprise systems.
  • Reporting & Analytics: This includes the ability of the solution to generate standard and custom queries and reports and provide visibility across transactions to buyers and suppliers. The solutions also provide comprehensive audit trails of all actions taken within the system and vendor self-service options. This wealth of information gleaned from the procure-to-pay process, can be used to comply with regulatory requirements and to provide valuable business intelligence for strategic spend analysis.

How Will Web Invoicing & Electronic Payments Solutions Help My Organization?

Organizations like MSKK and Delta Airlines that utilize a Web Invoicing & Electronic Payments solution experience a wide range of benefits, depending on the type of solution they deploy. While MSKK's chosen implementation began with payment transmission to suppliers, others like Delta Airlines were focused on a system that delivers invoice receipt and "PO flip" functionality.

In general, technology adopters benefit in the following three areas:

  • Processing Efficiency: Invoice and payment automation solutions contribute to processing efficiency by removing paper from the equation. Invoices enter processing queues more quickly, and easy access to invoices online and workflow tools accelerates their approval. Review and approval tasks can be routed automatically to individuals distributed across the organization based on clearly defined and highly customizable business rules. Further, these solutions facilitate transaction research, discrepancy resolution and reduce response times to supplier inquiries.
  • Lower Costs: Invoicing solutions enable organizations to trim their full-time equivalent (FTE) requirements by automating the procure-to-pay process. Second, they provide a tool to eliminate late payment penalties and capture a higher percentage of prompt payment discounts. Finally, electronic payments reduce the costs associated with printing and mailing paper checks and the losses incurred from fraud.
  • Enhanced Visibility and Control: Web Invoicing & Electronic Payments solutions provide complete visibility across the entire transaction to both buyers and suppliers through audit trails and other reporting capabilities. Additionally, they provide secure storage for invoices and support corporate policies and compliance with regulatory requirements. These solutions also improve the speed and accuracy of decision making by allowing users to easily access accurate and up-to-date information.

Where Is This Market Headed?

PayStream's research shows that the adoption of Web Invoicing & Electronic Payments solutions will grow rapidly over the next five years. The total number of transactions handled through a Web Invoicing & Electronic Payments solution is expected to increase from the current 1.6 billion to 6.9 billion in 2010, resulting in a Compound Annual Growth Rate (CAGR) of 31.25 percent. This translates to an increase in transaction value passing through these networks from $2.2 trillion in 2005 to $8.9 trillion five years from now — an amazing CAGR of 36.81 percent.

Figure 2: Forecasted Growth in Adoption of Web Invoicing & Electronic Payments

The accelerating adoption of Web Invoicing & Electronic Payments solutions is not surprising given that the savings from automation are significant. In addition to the cost savings enjoyed by organizations, we believe that the need to adapt to changes in the regulatory environment (i.e. Sarbanes-Oxley and Check 21) and a desire to achieve payables goals will provide the momentum for automation.

The following factors will also shape the evolution of the market:

  • Shared supplier networks encourage collaboration: Shared supplier networks provide more value than point-to-point solutions by supporting many-to-many relationships between buyers and sellers. A buyer or seller who enrolls into the network can immediately start transacting with all other members on the network without having to register separately for each trading partner relationship. These shared networks will minimize buyers' risk by enabling them to achieve a critical mass of supplier adoption more quickly and easily.
  • Imaging and Web invoicing will cross-pollinate: Imaging and Workflow Automation solutions have evolved to meet organizations' internal needs around invoice receipt and management. Web invoicing solutions provide similar functionality and are explicitly designed to facilitate buyer-supplier collaboration. However as the Internet expands into all corners of business communication, the distinction between internal and external breaks down. Both types of solutions will flourish for years to come, but cross-pollination is bound to occur.
  • Multiple solution models will co-exist: There is not a single model for Web Invoicing & Electronic Payments. Solutions are available in software form, as well as on an outsourced basis. Likewise, some vendors emphasize a modular "mix-and-match" approach while others concentrate on providing a set solution. There is also tremendous variability in terms of solution focus. Some vendors focus tightly on specific aspects of the invoice receipt-to-pay cycle, while others strive to provide the functionality as part of a larger enterprise content management (ECM) or business process management (BPM) offering. Industry consolidation notwithstanding, this diversity will continue.


The benefits of Web Invoicing & Electronic Payments are clear. However, all solutions are not equal and neither are every organization's needs.

Technology buyers should keep the following factors in mind when deciding on the best solution to meet their organization's needs:

  • Financial Automation Goals. Organizations that have been slow to adopt other financial automation technologies but want to take an incremental step forward should consider electronic payments as a starting point. On the other hand, organizations that are comfortable with technology and want to accelerate the pace of improvement in their invoice receipt-to-pay cycle should think about an application that delivers full-cycle functionality.
  • Adoption Readiness. Every organization does not stand an equal chance of succeeding with automation. Differences in culture, financial resources and human capital mean that certain organizations are more likely to succeed. Individuals investigating Web Invoicing & Electronic Payments should determine how their organizations stack up in each of these areas. As a rule of thumb, an organization's overall use of financial automation technologies relative to its peers provides a rough indicator of its readiness to adopt such solutions, especially in their more challenging end-to-end form. So, if electronic supplier invoicing processing "sounds space age" to your organization, it probably is not a good fit.
  • Process Complexity. The higher the complexity of an organization's invoice receipt-to-pay process, the greater the payoff from automation. An organization should consider the number of suppliers and invoice formats it receives, as well as its overall invoice volume and the complexity of its average invoice when evaluating Web Invoicing solutions. Finally, the steps required to process, approve and pay invoices are also critical and will have a direct bearing on their choice of a solution.