UK SMEs could process up to £500bn worth of invoices electronically
In the second of three guest posts (read the first one here), Emmanouil Schizas, Senior Economic Analyst at the Association of Chartered Certified Accountants (ACCA), and a participant of the statistics working group for the European Multi-Stakeholder Forum (EMSF) on e-Invoicing, explains how the SME Finance Monitor, an independent survey financed by the UK’s leading banks, is helping develop our understanding of those SMEs most likely to adopt e-Invoicing.
The 5,000 small-to-medium-sized enterprises (SMEs) that took part in the BDRC SME Finance Monitor Survey Q2 2012 were the first to respond to questions related to e-Invoicing. The findings revealed that close to a third (29%) are using some form of electronic invoicing. While we can’t calculate the volume and value of invoices sent electronically on the basis of this data, we can estimate that the turnover of potential users would equate to around £500bn per year. This in turn gives us an indication of the potential size of the e-Invoicing market among the UK’s SMEs.
We must interpret these findings very cautiously, however, as some companies may simply be sending normal invoices as PDFs or in other formats and consider this to be electronic invoicing even though they must then be printed and processed manually. This is not true e-Invoicing; it does not allow for straight-through processing.
When we focus on the companies most likely to embrace e-Invoicing based on the variables that correlate most closely with e-Invoicing adoption, our estimate of true adopters falls to just 3% of SMEs, which accounts for £129bn of the original £500bn – and even these are unlikely to send e-invoices to all their customers.
Characteristics of the e-Invoicing adopters
While the survey is still of limited value to anyone attempting to gauge the size of the e-Invoicing market in the UK, it does give us valuable insights into the characteristics and behaviours of those companies most likely to convert to e-Invoicing.
Typical e-Invoicing adopters are businesses that are:
- Selling business to business
- Engaged in quality control or work to a recognised quality standard
- Engaged in e-commerce or maintain a website for trading
- Registered as companies
- Involved in international supply chains
- More experienced in maintaining formal policies
There is a range of policy-type behaviours that appears to be unrelated to the use of e-Invoicing and yet seems to be correlated, such as the existence of written HR policies and the regular use of corporate credit cards. The most likely explanation is that those businesses that are more proficient at setting up internal policies appear to find it easier to make the changes required to fully adopt e-Invoicing.
Technology isn’t the barrier
The survey’s findings suggest that the obstacles to e-Invoicing adoption among SMEs are not technological or economic but more behavioural. A supplier might have all the necessary incentives to adopt e-invoicing but be unable to make the leap because the customer stimulus is missing or because it is not well organised within itself.
Suppliers don’t drive adoption
Perhaps most importantly, the data make it clear that SME suppliers don’t take the initiative when it comes to adopting e-Invoicing. The drive usually cascades from further up the supply chain when a major customer makes e-Invoicing a condition of doing business.
This is not news to service providers and the wider industry, but it’s important to remind policymakers. The UK government recently encouraged companies to change the way they manage their invoicing processes. And the strongest government statement on the matter to date came from the Department for Business, Innovation and Skills when it endorsed the use of e-Invoicing as a means of reducing the risk of late payment. Finally, the Business Minister, Michael Fallon, convened a workshop last year to look into obstacles to adoption.
If the government is looking for arms to twist to drive adoption, it will need to go after the big fish.
One of the survey’s aims is to assess the size and growth of the e-Invoicing market and identify relevant themes and trends. Given that the survey only started collecting data in Q2 2012, it is still early days. But our results are beginning to reveal just how big the opportunity is when looking at the untapped potential for e-Invoicing. These are the sort of figures that will get politicians thinking.