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Comparing Apples to Avocados: Why Use an Expert to Automate Your Payables Operations

avocadoI recently read an article on the Purchasing Insight blog by Pete Loughlin titled “Back to basics – the difference between price and cost,” where he talks about price and cost using travel booking as an example. The article stated: “Booking your own travel is like fitting your own kitchen. An expert will get it fitted better and quicker. Doing it yourself may be satisfying, but it takes time and your time isn’t free. Will the price of the kitchen be less? Of course it will. But the real question to ask is, will it cost less?”

This got me thinking. Doesn’t the same argument hold true when it comes to automating your payables operations as well?

It may appear to be “cheaper” to do electronic invoicing in house instead of using a technology provider. After all, you made a huge investment in your ERP application and need to get as much value out of it that you can. So why pay someone $1-2 per every transaction, for example, which can run into a couple of million dollars every year if you are processing 1 million invoices.

But that is just the “price” that you are examining. Have you given any thought to what it might actually “cost” to manage this initiative in house using internal resources?

Let’s start with some of the things that could contribute to the cost of an in-house electronic invoicing project:

Technical Infrastructure:

Many electronic invoicing solutions these days are cloud-based, with no need for software installation on the client or supplier side. These software-as-a-service (SaaS) solutions often enable clients to pay for usage based on number of transactions, thereby helping to reduce the overall cost of ownership. SaaS solutions also provide the additional benefit of having access to functional enhancements without going through the expense and hassle of software upgrades.

If you are using your ERP system or other proprietary software for electronic invoicing, you may need to consider whether you need additional licenses to the application, given that invoice approval can be spread across a number of different users. What is the cost of these additional licenses? Also, what is the cost of installing and maintaining the application on the different users’ desktops? How expensive and complicated is it to upgrade the ERP system to get access to any enhancements to the electronic invoicing functionality? Finally, do you have the business and IT resources need to implement and support this over a period of time?

Supplier Participation:

When you use an electronic invoicing vendor, there is usually an established network of suppliers that are willing and accustomed to submitting electronic invoices using the standard invoice submission methods available from the vendor. Complementary to the supplier network, vendors also typically provide supplier enablement services – which include identifying the right party contact at the supplier organization, contacting suppliers to recruit them and enabling them to use the network, as well as performing any integration required between the solution and the suppliers’ back-end applications.

Using an in-house or ERP system to receive electronic invoices means there would likely be no existing network you can leverage. Your organization would need a team of individuals to manage all the activities that are part of the supplier enablement process, from running activation campaigns to integrating suppliers. Also, suppliers may be less inclined to participate as they see this as a one-off connection, not something they can leverage across multiple customers.

Training and Support:

Employees and suppliers need to be trained to use any new application. Who is going to train users when the solution is launched and do it on an ongoing basis as new users are brought on board if you follow the in-house solution route? And what do users do when they cannot log in to the electronic invoicing solution or do not understand how to use some of the features? They can call the support number listed within the application, but depending on the complexity of your processes and the solution being used, these calls can number in the tens of thousands every year. And if you have users in multiple geographies spread across the globe, you may need around-the-clock support. If you are not using a third-party vendor, does your organization have the technical resources to support a help desk 24/7?

Focus on the Core:

One final question you may want to ask yourself before you make a decision: Is electronic invoicing the core of your business? Every organization has finite resources – whether they are business, capital, technical or human resources. Do you want to target your limited resources toward your core and growing your business, or do you want to spend them instead on automating your back-office operations?

If all the above arguments have still not convinced you that it may be better to leave electronic invoicing to the experts, maybe this final example will help. A 20-oz. bottle of soda could cost you anywhere between $1.25 and $1.99, depending on whether you buy it at your local grocery store or the convenience store at the gas station. Would you save the $1.25–1.99 if you made it yourself? Of course. But is that all it’s going to cost you to make a bottle of soda? Do you have the expertise, the equipment, the ingredients and the knowledge to actually make the soda and make it at a price point lower than what the manufacturer is selling it for? Definitely not. It all comes down to expertise and economies of scale. The same applies to electronic invoicing as well.




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