The missed opportunity of Self Billing in e commerce

e commerce

I think e commerce and EDI has focused too much on billing clients and consumers (mainly B2C rather that B2B) and not enough on improving the efficiency of processing supplier invoices.

According to research and analysis group, Gartner, typically the cost of processing an invoice in the UK averages between £4 and £25, and in some cases even up to £50, per individual invoice.

You can check the costs for yourself using pay streams calculator.

A typical purchase invoice goes though these stages:

  1. Its checked against the purchase order
  2. Its entered as unauthorised to the accounting system
  3. Its copied and sent to the manager to check the goods were received and were in good order
  4. The manager signs the invoice off
  5. Its status is changed to approved or in query
  6. Queries are sent to the supplier
  7. Authorised invoices are scheduled for payment
  8. Payment is made with a remittance advice
  9. Supplier statements are reconciled to the accounts system

The more suppliers you have and the bigger the volume of either invoices or transactions on invoices, the more complicated and long winded the process becomes.

Although all invoices contain the same basic information they are all formatted and laid out differently.

In some systems invoices are scanned and given a bar code to help index them to accounting system entries.

But it seems to me that many businesses have overlooked what should be a simple solution, Self Billing.

With Self Billing you generate the tax invoice for your supplier and send it to them with the payment.

The following is an extract from HMRC Self-billing:

Putting in place a self-billing arrangement with your suppliers can bring certain advantages for your business:

  • it can save time and money – you can send self-billed invoices electronically so long as you can set up suitable systems
  • purchase invoices are produced to a standard format, making life easier for your accounts department
  • you retain control of how much you’re invoiced for – this can be helpful if your business is responsible for determining the value of the goods or services it receives
  • flexibility – you can outsource the production of the self-billing invoices to a third party if you want to

Your suppliers don’t have to be based just in the UK. You can self-bill businesses in other EU countries or in countries outside the EU.

Advantages for suppliers

If you’re a supplier, entering into a self-billing agreement with your customers can be helpful for your business because:

  • your customer is responsible for making sure that the VAT details on the invoices are correct
  • as part of the agreement with your customer you may be able to specify when you’ll receive payment – this can help with your cash flow

Self billing has been used by the Construction Industry for many years, in fact I created a Self billing system when I worked at Rollalong in 1994, the key issues are:

  • Getting suppliers to agree to join the self billing scheme
  • Getting approval from HMRC
  • Keeping your VAT registration records up to date

But the cost and time savings are significant, the whole process changes and could become:

  1. Purchase Order Sent
  2. Goods received and matched my the manager
  3. Value of Goods received entered to accounting system – this could be automated on matching
  4. Payment made and remittance changed to Self billing invoice

The number of queries are reduced because you aren’t invoiced for things you haven’t had, there is no need to copy and distribute invoices for sign off as this is replaced with stronger goods inward systems.

Why aren’t more businesses adopting self billing?