I would prefer it if you do not send me invoices anymore…and by the way, I will pay you faster…”
What supplier wouldn’t gladly accept such an offer? After all, the supplier gets the benefit of a shorter cash to cash cycle time and of the buyer taking on the entire administrative burden. Nonetheless, adoption of self billing is still limited, so maybe it is not as easy as it sounds.
What is it?
Self-billing is a procurement model where accounts payable and purchasing “close the loop”. Normally, the procurement loop begins when purchasing creates a purchase order – proof of their commitment to pay for certain goods or services. The next step is the creation of a goods receipt upon physical receipt of the good or service. After that accounts payable waits to receive an invoice, matches it with the purchase order and goods receipt and then finally pays the supplier. But what if both accounts payable and purchasing agree? Why wait for an invoice to pay your supplier?
With self billing, a buyer in effect issues an invoice to himself. The buyer treats the created invoice as an account payable, and the seller treats it as an account receivable. Obviously, additional factors (e.g., taxes) add complexity, but the core concept is simple.
What makes it interesting?
Self billing can save time and money because invoices are sent electronically. The output is standardized leading to more efficient process for accounts payable. Within the Procurement technology market, there are plenty of systems available to support this way of working. For buyers specifically, self billing allows for greater control of the value which is invoiced. This extra control decreases errors in two or three way matching situations and avoids time consuming credit invoices. For suppliers specifically, self billing can ensure that the buyer takes responsibility for any value added taxes (VAT). To satisfy payment terms, a paying schedule can be arranged that suits both parties.
Important to remember, self billing definitely has tax implications. Buyers and Suppliers that wish to implement the model must be sure to address the prerequisites of all relevant tax authorities.
What are the enablers?
An important enabler for self billing is stability due to the intrinsic record-keeping obligations associated with procurement. Many procurement software packages, including the big ERP systems, offer self billing functionality. For example, the Services Procurement module of Oracle’s PeopleSoft system includes self billing functionality. In fact, adoption of self billing has been high within the Services Procurement module. This leading practice process, based on approved timesheets or milestones, enables approval of payments including creation of electronic three-way matching. This avoids the time, cost, and errors associated with paper-based processes.
“...Just wondering how long it will take until we can take the next step to driving increased value – self billing.