A Complete E-invoicing Solution - Abbey UK Corporate Banking

While e-invoicing has the potential to revolutionise the supply chain, benefitting both buyers and suppliers, uptake has been slow. FDE spoke to Abbey UK Corporate Banking's David Goucher, about Santander Group's joint venture with OB10.

The advantages of e-invoicing, with its speed, efficiency and visibility, have been recognised by European Council Directive 2001/115/EC, which required all member states to have enabling legislation in place by 1 January 2004. Yet, four years on, the considerable economic promise of e-invoicing remains largely unfulfilled.

As many as 40 billion paper invoices are sent from business to business each year in Europe. On average, it takes 59.2 days to settle this environmentally unfriendly mound of paper, with one full-time employee required for every 10,000 invoices. But most critically, at any one time, some €250 billion of invoices are outstanding, tying up an immense amount of precious working capital. Many suppliers are SMEs that can least afford to finance this expense.

Large companies are putting a great deal of effort into improving their financial supply chains, and the start of the single euro payments area (SEPA) later this year will give added impetus to this process. Nevertheless, there remains a lack of stable and efficient e-invoicing platforms, and until now, there has been no e-invoicing solution that links seamlessly with a supplier payments product.

A MORE COMPETITIVE SUPPLY CHAIN

Abbey UK Corporate Banking and the Santander Group have developed a unique partnership with the global e-invoicing network of OB10, revolutionising supplier payments in a way that benefits all parties, eliminating the adversarial relationship between purchaser and supplier. Put simply, this has created a more competitive global supply chain for everyone.

OB10 has built a global web-based payments network that already covers 95 countries. Its any-to-any format system means that suppliers can send an invoice - for example a Sage invoice - which is automatically reformatted to any ERP system.

Uniquely for an e-invoicing network, OB10 also handles the varied tax and regulatory regimes in different countries. In Europe, for example, the system can accommodate states such as Germany and France, which do not currently accept electronic signatures. All cross-border payments are also VAT and other tax compliant.

To this powerful electronic backbone, Abbey-Santander has added its own supplier payments product – Banco Santander’s trade payables backed financing tool, Confirming®, which has been established for over 20 years. Since 2007, it has been delivered in conjunction with OB10 in Spain, Portugal and South and Central America. It already has over 200,000 clients on both the buy and supply sides, handling €50 billion of supplier payments a year and settling 55,000 invoices a day. Purchasing companies also benefit from free international and domestic multicurrency payments.

The process is straightforward: when a supplier’s invoice is passed through OB10’s web portal to a purchasing company, it is approved and a ‘confirmed invoice’ file is sent to Abbey. Suppliers are then paid immediately, for a small fee, and when the invoice matures, the purchasing company settles with Abbey.

One of the strengths of this automated supplier payment mechanism is that it delivers value to both sides of a transaction by creating off-balance sheet, non-recourse finance.

This year, Abbey-Santander plans to extend the product into the UK, France, Germany and Italy. It will then roll it out to the rest of Europe and Asia.

BENEFITS FOR SUPPLIERS AND BUYERS

This product is aimed at purchasing companies of which a large number may be SMEs. Structuring the product from this end is more efficient than solutions that seek to agglomerate suppliers.

The operational benefits to the purchasing company include a financially stable and more competitive supply chain from which it can extract additional value by negotiating lower prices. In addition, every transaction takes place within an established legal and accounting framework and early payment discounts can be captured in line with the purchasing company’s policy, as the invoice reaches the purchaser within 20 minutes rather than several days.

On the cost side, administration overheads and reconciliation are reduced, with fewer supply queries and a higher degree of straight through processing, as the information entering a buyer’s system is accurate. On top of this, there is no fee for making payments.

The benefits to the supplier include the early payment of invoices without recourse, optimising cash flow, improving credit rating, cutting working capital requirements and enabling more accurate cash-flow forecasting. With paper invoices, a supplier has no way of being sure that an invoice has been received until the due date falls. Once an invoice is overdue, there may be disputes, as the purchaser still demands an early payment discount. This product also eliminates the need for credit insurance against the purchaser’s insolvency, further lowering the cost of sales.

The small fee that the supplier pays for the service is highly competitive when measured against the cost of poor accounts receivable visibility, bank-funded working capital and disputed transactions. Indeed, the reduced working capital requirement often results in lower conventional bank borrowing.

Suppliers also have access to additional funding. Unlike factoring and invoice discounted, Abbey-Santander will face finance 100% of an invoice and provide easy access to that finance with analysis of the supplier’s situation. Suppliers are also likely to achieve a lower discount rate due to credit arbitrage.

On top of all this, since this is nonrecourse finance, a supplier can free up its trade debtor limits, increasing sales by doing more business with a customer.

TOTAL E-INVOICING SOLUTION

The Abbey-Santander OB10 supplier payments solution is simple to set up for buyer and supplier companies, providing an efficient and scalable platform on which invoicing, goods receipts and payment approvals and remittance advices pass through seamlessly.

Once a purchasing company has signed up for this service, Abbey contacts all its suppliers. It helps suppliers establishing the interface between their systems and the bank and can offer help improving their processes and systems in the same way that it offers guidance to its purchasing customers.

Over 80% of suppliers choose this system because of its clear advantages. It is not necessary for either party to bank with Abbey-Santander in order to use this supplier payments product – discounted funds can be sent straight to any bank account nominated by the supplier.

Abbey-Santander and OB10 believe that they have produced a uniquely powerful working capital solution, which spells the beginning of the end of paper invoicing.

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