Ok, so there are many email services out there that do not require payment to use them. Instead of money, they are paid for with information about the people using them which advertisers then use to target customers.
As this blog is about invoicing, I am going to focus on the use of email to send and receive invoices, and in this context, whether or not email is really ‘free’.
Accounts Payable: Receiving Invoices
Surely receiving invoices by email is ‘free’? If your organization uses email, then what is the cost of receiving invoices by email? You would imagine that it is free if your email service is from one of the free providers.
And yes, the cost of receiving invoices to your email account is free. Unless of course you exceed the storage limits, in which case there will be a small charge, but in the context of individual invoices, the cost is negligible.
Even if you have your own email infrastructure with servers and storage, the cost per invoice is small, especially in the context of all of the other email traffic. There is a cost but it is not normally very significant.
So the cost of receiving invoices by email is low?
For most organizations, the answer to this question unfortunately is ‘No’. However, the costs are ‘hidden’ and are not immediately obvious. Let’s look at some of the real costs of receiving invoices by email.
In a survey of 1,000 businesses, 92% print all invoices that they receive from suppliers. There are certainly direct costs associated with this such as:
- Printing (including toner/ink, printer depreciation, printer maintenance costs)
- Staff time opening emails, printing the attachments, sorting and collating them
Effectively, suppliers have passed the costs of printing to their customers and have saved themselves postage/mailing costs.
Once printed, supplier invoices normally have to be coded and input onto a purchase ledger. Think about this for a second. Invoices created by suppliers on computer systems are converted to paper format, only to be re-input by their customers onto customers’ computer systems!
The costs of this include:
- Time taken to code and input invoices
- The potential for errors to be made leading to costs to resolve them
Normally to ensure that supplier invoices are correct, they are compared against what was expected to be invoiced. This can be done by comparing invoices to purchase orders for pricing and quantities, and also verifying that products or services ordered were actually delivered.
Goods received notes can be checked against invoices or the verification process may simply be a manual process of routing invoices to designated individuals for approval. This is time consuming and prone to error.
I have already referred to the survey that showed that 92% of respondents indicated that they print supplier invoices received by email. Invoices that are printed incur the normal storage charges associated with paper invoices. Unless emails are deleted, there is also a nominal cost associated with keeping emails on your email system. Again, this may seem like a negligible cost until it comes time to actually find a specific invoice stored in your email system. Then there can be considerable time wasted trying to find the exact invoice required.
Cost of receiving invoices by email may actually be the same as mail/post!
Wow! This comes a little out of left field. Who would have thought that receiving invoices ‘electronically’ by email may actually cost the same as receiving them through the mail/post? Once printed, the cost of processing invoices received by email is identical to the cost of receiving them by mail/post.
So let’s compare the cost of receiving invoices.
For invoices received through the mail (by post), envelopes have to be opened and invoices placed in a bundle for processing.
Compare that to invoices received by email, where each email has to be opened and the attachments printed, collected from the printer and placed in a bundle for processing.
It doesn’t seem like there is any difference in cost between the two, does it?
But what about OCR?
OCR or ‘Optical Character Recognition’ attempts to read data from PDF attachments. In a fully automated system, PDF documents are detached from emails and are passed through the OCR process.
However, I have heard of cases where invoices received as PDF documents in email are first printed, and are then scanned using a scanner.
The problem with OCR is that it is not accurate, and as anyone working with invoices knows, the data needs to be accurate 100% of the time.
In a best case scenario, accuracy rates of over 90% are achieved but I have seen a UK-based company where the accuracy rate was only 56%.
To compensate for inaccuracy, many system require each invoice to be manually ‘indexed’. This means that an operator has to confirm the data that was extracted from an invoice.
The other limitation with OCR is that it normally only extracts header and footer information, e.g. invoice number, invoice date, purchase order number, invoice total, tax total. It is rare for OCR systems to extract line-level data because of concerns over the accuracy of information extracted.
Processing invoices submitted by email via OCR does reduce costs over printing invoices received and manually inputting, them but the savings are not as great as you might imagine.
Accounts Receivable: Sending Invoices
Many organizations latch onto email as a means of sending invoices to customers because it is ‘free’, but is it?
Certainly, when comparing email to the direct cost of sending physical copies of invoices in the post (mail), there are savings to be made but is it free?
The short answer is ‘No’. Email suffers many of the same problems as sending invoices through a postal service and the costs are hidden in the same way that many of the costs of sending invoices in the post are hidden.
Hidden costs of sending invoices by email
Like sending invoices by post, email is a ‘fire and forget’ service, i.e. you send out your invoices and have no visibility apart from a date and time each email was sent. This then leads to costs such as:
- Customers can say they never received invoices and can delay payment as a result
- Requests for copy invoices from customers that genuinely have not received them
- Maintaining an accurate set of active email addresses for customers
These costs are often considered to be part of the way business is done. If I had Euro/Dollar/Pound every time I heard the phrase “it’s very easy to send copies of invoices to customers…all we need to do is to take the call, search on our system, and resend the invoice”, I would be very rich.
Yes, operationally it is very easy to send a copy of an invoice to a customer, but there is a cost of doing this and it is a very inefficient use of time.
In fact, on average 6% of credit control time is spent simply sending copies of invoices to customers. That might not seem like much time, but when you consider that only 17% of time in credit control is devoted to collecting slow paying debtors, you can appreciate that diverting time from sending copies of invoices to customers to collecting amounts due has a positive cash flow impact for a business.
Did our invoices get there?
This is a very fundamental question when sending invoices by email.
You can certainly view the date and time an invoice was sent, but that is not the same as knowing that an invoice was received.
In fact, this is not really any different to sending invoices in the post, because you can tell when you sent them, but can’t tell if they were received.
There are some add-on tools for email that will let you know if an email has been opened but that is not the same as knowing that invoices were received. For example, email authentication systems can often trigger alerts that emails have been opened when in fact they have just been scanned. (If you use one of these tools, have you ever noticed the odd times at which emails are opened, or the number of times an email is opened in a very short space of time?)
Go Beyond Email: Use Email as a Transport Channel
Having outlined that email is not free, let’s look at how the costs can be reduced very significantly.
I recommend that email be used as a transport mechanism but that technology is layered over it to address the shortcomings of email and introduce invoice automation.
Invoice Automation for Accounts Payable
Most suppliers (but not all) have the ability to submit their invoices by email. This provides an opportunity to leverage technology to streamline the accounts payable process. Technology can:
- Protect your organization from ransomware and virus attacks
- Validate the source of every invoice
- OnePosting can extract line level detail from invoices attached to emails
- Screen invoices to ensure they comply with legal requirements
- Match invoices against purchase orders and/or goods received notes
- Route invoices to their intended destinations
- Place invoices in relevant ‘approvals’ queues
- Reject invoices that do not comply with minimum billing specifications
- Store invoices in full compliance with regulatory requirements
- Output approved invoices to the relevant purchase ledger
Used in this way, email with additional technology layered on top can generate very significant financial benefits. In some cases this can be as high as 1.7% of revenue/turnover.
If you want to find out how this is achieved, why not provide us with some details and we can calculate the financial benefit you will achieve.
Invoice Automation for Accounts Receivable
An increasing percentage of customers are willing to accept invoices delivered to them via email. In order to maximize the benefits achieved, it needs to be combined with additional technology that addresses the shortcomings of email with features such as:
- Delivery tracking (to make sure invoices get to email in-boxes)
- Access tracking (to make sure invoices delivered were accessed)
- Group related documents together (to minimize number of emails received by customers)
- Provide online access (for customers to retrieve current or historic invoices)
- Drill down from invoices to backup documents (to confirm invoice details)
- Electronic query facility (to record and resolve issues)
- Online storage (minimum 7 years to comply with legal requirements)
- Multiple recipients (give customer finance teams visibility of invoices sent to sites)
- Print option (at least until customers switch to electronic invoice processing)
- Download in PDF format (so that customers can keep local copies if they want)
There are very significant benefits to be gained, especially if customers are encouraged to switch from paper to electronic invoice delivery.
Even where invoices are currently delivered by email, there are still financial benefits to be gained by layering technology on top of email to address its shortcomings.
To find out what specific financial benefits your organization would gain, let us help you calculate them.