Invoicing historically is outside the sight of a banker. Why is it then that it is worth it for bankers to start thinking about it?
There is one definite answer for it, access to INVOICE DATA.
Both words of the expression are equally important, but as banks can have a natural reaction as “What do I have to do with e-invoicing?”, let us start with the DATA part.
We encourage you to forget about the INVOICING for a moment and focus on DATA:
Structured data are prerequisites to set up digital processes and digital-only customer experience.
When you set up a new digital service, such as a digital-only payment experience or lending product what do you need as inputs? The answer is structured data. You can ask your customers to input data manually or get hold of data in an automated way. If there is an automated way, would you risk your customer leave the process, just because it requires too many manual data inputs? I am sure, your CX team would vote for the latter.
Invoice data provides the convenience of all necessary data for payments and digital lending.
Digital invoice financing, supply chain financing, and payment and reconciliation processes all should use digital data inputs whenever available.
If the customer has an outgoing invoice and would like to finance it, it should be enough just to click on the invoice that needs to be financed in the online or mobile bank. This 1-click action should initiate all other processes within the bank – and could provide a real-time pricing and loan decision for that specific invoice when integrated with the bank’s scoring system.
In the case of supply chain financing or dynamic discounting programs at corporates, digital invoice data flows through more organizations with approval workflows attached along with a financing request. The availability of digital invoice data is the input that can help the whole business case digitalize. There is a huge unrealized potential in these products, which cannot be utilized mostly because digital invoice data is not accessible.
- Can we agree that the more data we have is the better? – I think if I asked this question on a presentation, the answer would be congruent “yes”.
- Can we agree that the more detailed the data is then it is better? – Again, I think today nobody would answer with a no.
Even if we do not know how to use the data, more and more detailed data is better for analysis.
How can you use invoice data for modeling?
You can incorporate data into cash flow, risk, and segmentation models for the bank and for the banking customers the bank can provide useful dashboards as part of a BFM solution and share some of the insights from the models with banking customers.
I think the above provides enough reasons, but let us go all in and get ready for the INVOICE part:
Beyond banking services for the SME sector:
Beyond banking has become one of the buzzwords in the last years in banking. As banking data becomes available to 3rd parties and non-banking competitors tap into banks’ traditional business with payment services for their customer base and launch embedded financial solutions, banks also need to define new value propositions for their customers.
When defining the customer pain points, most banks identify invoicing and financial administration as one of the most important pain points for SME customers.
A 2019 survey by McKinsey (Beyond banking: How banks can use ecosystems to win in the SME market) pointed out that SMEs spend significant time and expenses on non-core business activities. SMEs’ pain points are related to financial administration and time spent on financial administration/banking. These two expenses make up 25% of the average SME deposit balance. Adding IT (talking about digital offerings) expenses the result goes up to 34%, which shows the significance of these non-core activities. Anything that can help reduce these will help SMEs a great deal.
Sending e-invoices can help save a lot of time for SME companies, and they can store the issued invoices in the bank. Having invoices and payments in the same place, the transaction reconciliation can happen automatically within the online bank. The automatic reconciliation can help the business with a real-time view of unpaid and paid invoices – without the need to call the accountant and asking them to send mostly lists that are not fully up to date.
When one talks about e-invoicing, usually only the invoice issuance process comes into mind, however, the supplier invoice management and payments can be even more burdensome. Receiving, processing, and paying an invoice digitally can save time and pain for SME owners. Therefore an important aspect is e-invoicing interoperability.
Until businesses received their invoices only on paper, they were able to manage a unified invoice processing system, because each invoice was treated in the same way, as humans processed all invoice data. Electronic channels began to complicate the situation. Nowadays, an SME user must log in up to various systems to download and process, and archive (having electronic signature and timestamp) their invoices.
Due to the reasons listed above, it is very important that the bank system supports invoicing interoperability with other invoicing services and invoicing networks. The bank’s service should be implemented with such a technology that can manage integrations without or with minimal IT development with public utilities, large companies, and invoices issued by other invoicing and accounting software products.
The digital storage or archiving invoices will become increasingly relevant for SMEs: if you have ever undergone a tax audit or other internal process can you know the value of having all relevant documents in place. It is hard to quantify the feeling of safety that all your invoices are in place, and you just have to export them in case of a tax audit – in addition to the actual time saved when looking for the paper originals of the invoices. Currently, a lot of SMEs do not accept e-invoices, because they do not know what to do with the e-invoice and how to store them in a tax-compliant way. Banks are very well suited to provide bank-grade safety systems for processing and storage.
API based services for the corporate segment:
Not only the SME sector requires digital solutions: in the corporate segment coupled with the in-house digitalization, enterprises are waiting for new API-based services from banks, which can enhance the efficiency of the financial administration processes and ensure an automatic data exchange for transaction reconciliation, which is a time consuming, and yet unautomated area of transaction banking. The availability of invoice data can give a boost to supply chain financing and providing dynamic discounting solutions as both corporate customers, their suppliers, and the bank can work with invoice data as a shared asset on the same platform.
Request-to-pay (RTP) in bill payments
There are tremendous opportunities in the integration of digital invoice management and request-to-pay. Request-to-pay integrates invoicing and payments, as the invoice is a request-to-pay. If one can generate a request-to-pay from an invoice automatically, then reconciliation can be automated. The efficiency increase potential combining invoice and payment data can reach up to 95% compared to paper-based processes for enterprises. This is clearly an area where banks can deliver substantial value for their customers. RTP will most likely start in the B2C segment, where RTP-s can be approved in the mobile banking applications or online bank, and only the 2nd wave will be the B2B usage. For them, bill management is more about paying and monitoring bills. However, the need to receive and manage all incoming bills in one place is becoming commonplace. If the bank makes it possible to present bills in internet banking, those bills will certainly be paid through the bank and the transaction revenue will remain entirely at the bank. Furthermore, the bank can acquire the data needed for PFM solutions through this channel. Request-to-pay will also be a valid case as a means of paying bills.
As you can see invoicing is much more than a financial administration process. The digitalization of invoice management opens up new business opportunities for banks to provide a better banking experience for their customers.