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EDI for the Small Business Masses

With electronic billing and invoicing, companies can loosen those paper shackles and gain the time to do more business.
David Rosenbaum, CFO.com | US
August 1, 2012

The Roestel family has been plumbing for a generation. 360 Plumbing, the family business in North Bend, Washington, does light commercial and some residential work. Its revenues have grown almost 50% the past two years. The operation consists of Nic Roestel, his father, his uncle (360's president, who goes out on jobs "whenever we need the help," says Nic), and two apprentices. Nic Roestel began going out on jobs with his father when he was 12. After two years of college, he decided to go into the family business full time.

What he hadn't counted on was the "paperwork nightmare - mounds of paper everywhere."

It fell to young Roestel to do the business's accounts, which meant spending a lot of time printing checks, matching them to the invoices for all the stuff 360 Plumbing buys from its suppliers (from PVC pipe to rubber gaskets to porcelain toilets) and needs to get paid for by the contractors that hire the Roestels. The last job 360 did, says Roestel, entailed about 200 invoices. That would mean going through the bill list (250 bills for a single job is not unusual, he says), checking the paper invoices ("five pages of invoices sometimes, mostly line-item-type things"), scanning them into his computer, stuffing them into envelopes, emailing the scan of the files to the account rep at his supplier, and then entering everything into QuickBooks.

That was drudgery for Roestel, who estimates the process took about three hours for each job. But that was before he received an e-mail from one of his two main suppliers, Pacific Plumbing Supply, about a free, cloud-based business bill-payer service called Invoice Central. The product was launched last February by Billtrust, a business-to-business billing provider. Roestel called Pacific's account reps ("to make sure it wasn't a hoax") and signed on. Doing 360 Plumbing's bills now takes him about a half hour, "max."

"Now," says Roestel, "one of our guys picks up stuff at the wholesaler. The wholesaler logs it into Invoice Central. I get a paper copy from my guy. Invoice Central sends me an e-mail saying a bill's been posted to my account. I log in. I pair the paper copy to the account. I enter it into QuickBooks. When the job pays me, I log back into QuickBooks and see how much I owe. Then I log back into Invoice Central. Click the check mark. Invoice Central takes the money out of the checking account [through the Automated Clearing House network] and I get confirmation from the people I've paid and from ACH."

While it would, of course, be better for Roestel if Invoice Central integrated with QuickBooks andthe processes were fully automated, it's certainly better than it was.

"Checking paper copies is a pain in the butt," says Roestel. "Printing up a ream of paper to pay one stupid bill is dumb. We're in the computer age; let's just use them."

But according to an Aberdeen Group study of more than 180 organizations conducted last spring, "inefficient paper-based processes," like Nic Roestel's personal nightmare, still plague accounts-payable operations at least 25 years since large companies first began using computer-to-computer communication: electronic data interchange (EDI).

EDI is used to transfer purchase orders, invoices, shipping notices, and the like back and forth: think Kraft to Wal-Mart. However, setting up an EDI connection between vendor and purchaser is expensive, with the cost increasing incrementally with the number of partners. That's just not economically feasible for smaller businesses, even those much larger than 360 Plumbing, which is one of the reasons why the paper problem persists. And of the organizations large (annual revenues above $1 billion), small (revenues of $50 million or less), and in between that Aberdeen surveyed, 45% reported a "lack of visibility into invoices and AP documents." That can result in cash-flow problems, late fees, and processing expenses, not to mention the inability to benefit from early-payer discounts.

This lack of visibility is an even bigger problem for Roestel's suppliers than for Roestel. "When a small-to-midsize business pays a bill," notes Billtrust founder and CEO Flint Lane, "it rarely includes remittance stubs. You might have 12 or more invoices rolled into one check. The business that receives the check has to figure out how to apply it across all invoices, so remittance information is real important to them. Billers can spend all day figuring out how to apply the payments customers give them."

Indeed, Sherri Norton, credit manager at Pacific Plumbing Supply, one of 360 Plumbing's two major vendors, has been using Billtrust for more than four years as an invoicing gateway for customers. She is now encouraging Pacific's customers to use Invoice Central, and notes that although Pacific will accept lump-sum payments over the phone ("We never want to discourage customers from paying"), it's "certainly more efficient from a bookkeeping standpoint to receive it electronically."

"Back in the day," says Norton, "we were running statements manually once a month and invoicing every day. We had one person dedicated entirely to stuffing envelopes and mailing invoices." Now, she says, "A file is automatically generated at the end of the day that goes to Billtrust with the invoicing. We get notification if something is bad - an e-mail address or a fax number - so we can fix it."


But the biggest benefit Norton sees is time and efficiency, "not paying for a person to manually rip apart invoices and stuff. Not having to purchase envelopes and postage. Our labor costs for processing invoices and statements have greatly decreased. And since we're not dealing with mail time for payments to get here, days-to-payment has decreased. And that's a good thing."

The e-invoicing space is crowded with vendors. As Billtrust's Lane says, "Everyone who sends a bill to your mailbox is a [Billtrust] competitor." But with Invoice Central, says Lane, the biller pays Billtrust, so the small business gets the Invoice Central service for free.

"It's EDI for the masses," enthuses Lane.

 




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