Electronic invoicing is typically an innovation that enjoys important positive network effects. The more companies we get into the electronic invoicing network, the more valuable is the technology for the nodes in the network. Just like telephone network, fax network, facebook etc. Metcalfe's law states that the value of such a network is proportional to the square of the number of connected users of the system (n2). I see that the only way to guarantee the participation of most companies to the network is the four-corner model, and efficient and effective interoperability between the operators. This is not the case in the US where it seems that the three-corner model is dominant (along with EDI practices) and network-based electronic invoicing almost non-existing.
I got the impression in E-finance forum (http://www.e-financeforum.com/ ) last week that also in Sweden it is not guaranteed that four-corner model is working. There are some point-to-point and EDI connectios and some operators work together. In some presentations they mentioned Finland as an example how B2B einvoicing should be set up.
Recent EU statistical research showed that - PDF and e-mail is still predominant- Third party model e-invoicing is ramping up- Four corner model are almost never used, not even with cross border e-invoicingIt seems to me that four corner model e-invoicing has a long way to go. Maybe we should be looking for a realtime invoice exchange where providers can tap into. A hybrid version that sits in between the 3rd and 4 party models.
For four-corner model to work, one of the following conditions must be met:
1) there is some kind of pricing model which supports the co-operation of the e-invoice operators
2) the number of potential e-invoicing parties increases significantly by this four-corner co-operation
It is useful to understand, that althogh four-corner model thrives in Finland, mere number of operators in Europe poses some administrative challenges for this model, if financial incentives are not present.
When we look at telecom companies or even the layout of the Internet, we see that the international model is not four-corner but rather inter-cornered: the number of intermediators when communicating for example between Italy and Finland (by phone or via internet) is seldom one or two.
Four-corner model is technologically viable solution for local co-operation. But will it suffice as a pan-european solution is something that should be investigated.
Just like payments and telecom and much more are based on the competition enhancing four corner model so will e-invoicing. Of course it will take some time to get the commitment and create the rulebooks needed to enhance take-up, interoperability, competition and innovation. This will surely be a focus area for the EU commission's next steps.
As rightly observed above we still mostly live in the "prehistoric" 3- corner/early 4-corner era - but this will have naturally change as all operators must be committed to improving the end-customer value and also make this very important Single Market a reality - much more important than SEPA..
I believe that in the future B2B invoices will be sent directly from the supplier to the customer. This requires a strict standard and strictly standards-obeying implementation of the software which sends and parses invoices. This is perfectly possible - for example, look at the SMTP protocol for e-mail - I think we can accomplish something similar in invoicing.
There is no need for an operator between the suppliers and clients. Such operators add extra costs, extra delay and introduce yet another component which could fail.
I have designed the Simple Invoicing Protocol SINV which does not need any operators. The supplier and the customer are identified via e-mail addresses, so the addressing system management does not need a central party. Invoices are sent as formatted e-mail messages, which the receiver can parse automatically and read into their invoice approval work flow automatically. There are no invoicing operators and therefore there are no transaction fees at all.
I think that one of the major underlying factors is movement towards service oriented architecture. And this is something that cannot be seen only as an internal tendency - in an interlinked reality some services are internal and others are external - division between the two is dictated by it's significance to the company's business. We all know the mantra of "concentrating in core competences".
Altough it is possible in physical world to deliver your mail by yourself to the recipients, most companies tend to buy this as a service. In a similar maner, we must recognise the business processes and systems in electronic invoicing (or rather, "purchase to pay" or "order to cash" - processes). Because some data mapping, content translation, validation, maintenance, infrastructure etc. is always present when exchanging information between companies, each company has to evaluate the most efficient way to produce these services.
Using an operator is only way to gain scale advantages for any company planning to engage e-invoicing. With operator you pay per usage, by yourself you are stuck with the similar administrative overhead which started the ICT outsourcing trend in the first place.
Of course one could question the logic of buying such a small portion of process from a service provider. But looking at the services provided by these companies (operators), I think the answer is that e-invoicing is only a subtle beginning for what is to be a much larger service portfolio in the future.
Vesa Kotilainen wrote:
Because some data mapping, content translation, validation, maintenance, infrastructure etc. is always present when exchanging information between companies, each company has to evaluate the most efficient way to produce these services.
90% of the data elements (fields) are the same for every invoice. But it is the 10% of fields that consume 90% of the configuration costs... I believe that there exists a set of fields that covers the needs of 95% of the companies. I believe that the company-specific quirks of the remaining 5% can be solved by for example flexible accounting fields in the invoice message.
I believe that the killer application for electronic invoicing would be if Passeli (a common accounting software for small companies) adopted Simple Invoicing Protocol SINV. That would enable cost-effective invoicing for small companies - and not just sending invoices from small companies to big ones, but small companies could receive invoices as well!
SINV is not limited to small companies, big companies could solve their complex accounting quirks by using flexible fields that could contain an accounting code.
With operator you pay per usage, by yourself you are stuck with the similar administrative overhead which started the ICT outsourcing trend in the first place.
No you are not stuck. Consider a small company. They could receive support for SINV as an upgrade to Passeli, for example. That upgrade would have all the mappings configured. All that is needed would be to enter the invoicing e-mail address of their customers!
Consider a big company using SAP. A standard template could be installed that adds the basic support for SINV. Adapting that to support special accounting needs would not be a big task for a SAP user.
With an operator you are stuck with their rules. With SINV you and your direct business partner make the rules. This enables invoicing with zero transaction costs.
But looking at the services provided by these companies (operators), I think the answer is that e-invoicing is only a subtle beginning for what is to be a much larger service portfolio in the future.
Don't wait for future vapourware, ask today when your software will support SINV!
Interesting discussion!
Intermediaries are sustainable only if they provide added value to the market. In this case, I believe that we need operators as intermediaries to transmit electronic invoices (Vesa gave good arguments for this). In the end of the 1990s, many consultants predicted that most retailing companies would vanish as people would buy all goods directly from sellers via Internet. These consultants forgot that retailers (intermediaries) provide services and add value by building a selection of goods to choose from, bringing the goods closer to the consumers, enabling comparison between goods, enabling the consumers to tryout goods (e.g. clothes) etc. Similarly, I believe that e-invoicing operators add value to the market by providing tools to scalability and reach. I cannot see the e-invoicing progressing without operators.
What is the value added by e-invoicing operators? I can generate an invoice in Finvoice format and I could send it via e-mail or FTP to my customers directly. If only the customers could parse that email or read my file from their FTP server we would not need any e-invoicing operators at all! For some strange reason my customers can't read a Finvoice file that is sent to them directly, they can only receive them from their operator! Why?
I would not compare retailers and e-invoicing operators. Retailers add real value by buying containers of Chinese goods which results in lower logistic costs than if everybody would order small parcels from China. E-invoicing operators do not help in invoicing logistics - on the contrary, they add costs and delay and introduce yet another component in the system.
I can't see the counterpart of selection (collections), comparison or tryouts with e-invoicing operators. So again, what is the value added here?
A peer-to-peer community based on Simple Invoicing Protocol SINV is scalable. A single server could send easily thousands of invoices to thousands of partners. Or millions.
Could you elaborate on the tools on reach? How can an e-invoicing operator provide more reach than SINV? Because addressing in SINV is based on e-mail addresses, you can easily set up new partners worldwide. But in the Finvoice model you have to configure the IDs (which are based on the business code) to the sender, receiver and e-invoicing operators' (perhaps many of them) systems.
I do not believe there will be any software left in SMEs and increasingly also in large enterprises the much better solution is to move to software as a service with cloud computing moving in cloud services.
It does not make a difference whether a company handles invoicing with their own servers or with cloud computing. Even with cloud computing a company has the choice of using an e-invoicing operator or a peer-to-peer protocol.
But cloud computing would make life easier for SINV users because there would be less variations on software versions, which means better interoperability. This assumes that several customers of the same cloud use the same software versions.
