Invoice related offerings for different customer segments

Invoice data can be used for different use cases for different customer segments. The below figure summarizes the invoice related services for the different customer segments. The introduction of the figure is bottom-up, as the simplest service can be provided for retail customers. The additional service layers will be added by complexity.

Figure 1: Invoice management service layers for different segments

Retail customers – invoice inbox and invoice repository

For retail customers the invoice or bill is an accompanying document for the payment and is important for claiming warranty regarding the goods bought. The other reason it is important, because it has detailed information about the consumption of goods/services, for example utilities, which provides important insights into the spending patterns of the customer both for the customer itself and the bank, too.

For the retail customer it is very convenient to store all invoices and bills in the bank because it is a safe place to store them and they can be retrieved in case it is needed for warranty purposes.

If the customer has invoice data in the system, it is easy to provide the invoice document also for loan approval for BNPL or consumer loans for high value goods.

Invoice data is an important data source, as having access to retail customer invoice data increases the quality of the data used in the PFM applications and ensures a more in-depth insight into the customer’s consumption habits.

Corporate customers – reconciliation automation and integration of e-invoicing request-to-pay

For corporate customers the biggest pain is the automation of transaction reconciliation between invoices and payments. Corporates have their own ERPs and generate invoices themselves. For corporates the bank can provide automated reconciliation services and treasury/liquidity planning based on invoice and transaction data combined. Therefore, in case of corporates, the bank will only need to have access to invoice data but will not produce them.

With the integration of e-invoicing and request-to-pay a new generation collections solution can be offered to corporate customers, who are large invoice issuers. This service can be a substitute for the direct debit service with enhanced invoice presentment and payment features. Besides, the integration of e-invoicing and request-to-pay solves the 100% accuracy automatic data reconciliation of invoices, payment requests and payments.

On the receiver side of bills sent by corporates will be the invoice inbox and invoice repository solution for retail customers described above.

The offering for corporates includes the following:

1. Low-code integration layer for the corporate ERP and the bank
2. Data transformation of the invoice data of the corporate into payment request data structure
3. Presentation of invoices and payment requests sent along with related payment statuses
4. Reconciliation engine for automatic reconciliation

SME customers – end-to-end digital invoice management as a beyond banking service integrated with banking

Beyond banking has become one of the buzzwords in the last years in banking. As banking data becomes available to 3rd parties and non-banking competitors tap into banks’ traditional business with payment services for their customer base and launch embedded financial solutions, banks also need to define new value propositions for their customers.
When defining the customer pain points, most banks identify invoicing and financial administration as one of the most important pain points for SME customers.

A 2019 survey by McKinsey (Beyond banking: How banks can use ecosystems to win in the SME market) pointed out that SMEs spend a significant time and expenses on non-core business activities. SMEs’ pain points are related to financial administration and time spent on financial administration/banking. These two expenses make up 25% of the average SME deposit balance. Adding IT (talking about digital offerings) expenses the result goes up to 34%, which shows the significance of these non-core activities. Anything that can help reduce these will help SMEs in a great deal.

Figure 2: Operating expenses/deposit balance for SMEs (source: McKinsey)

 

Sending e-invoices saves a lot of time for SME companies, especially if they store the issued invoices in the bank. Having invoices and payments in the same place transaction enables automatic reconciliation within the online bank. The automatic reconciliation helps the business with a real time view of unpaid and paid invoices and the cash-flow position of the company – without the need to call the accountant and asking them to send mostly lists that are not fully up to date.

When one talks about e-invoicing, usually only the invoice issuance process comes into mind, however the supplier invoice management and payments can be even more burdensome. Receiving, processing and paying an invoice digitally saves time and pain for SME owners.

Until businesses received their invoices only on paper, they were able to manage a unified invoice processing system, because each invoice was treated in the same way, as humans processed all invoice data. Electronic channels began to complicate the situation. Nowadays, an SME user must log in up to various systems to download and process and archive (having electronic signature and timestamp) their invoices, which again takes time for the SME owner. Therefore, enabling invoice delivery or sending invoices along payment requests would save this time for SME owners, if they can receive their invoices in their bank.

The digital storage or archiving invoices will become increasingly relevant for SMEs as they must be able to accept e-invoices because of the e-invoicing mandates. Currently a lot of SMEs do not accept e-invoices, because they do not know what to do with the e-invoice and how to store them in a tax compliant way. Banks are very well suited to provide bank grade safety systems for processing and storage.

Dashboarding and providing real time overview of the company’s liquidity situation is invaluable for SMEs, but dashboards are just as good as the data that they work from. Therefore, it is important to have access to all invoices, including customer and supplier invoices to be able to provide accurate information and reliable insights.

As you can see from the above from a service perspective the SME segment has the most complex needs, but the impact is also the highest on the customer and provides several cross-sell and upsell opportunities such as invoice finance or for value added services such as request-to-pay.

In case of the SME segment the bank can decide whether:

1. it only provides a solution for processing supplier invoices and customer invoices generated from 3rd parties,
2. or it also provides an online invoicing solution for SMEs.

Generating invoices from the bank’s own invoicing system

The bank can choose to set-up its own invoicing system. In this case the bank will be the service provider and will have the opportunity to define the scope of the invoicing service and the customer journeys for the SME customers.
If the bank decides to do so, it must comply with the minimum requirements of setting up an online invoicing service for the local invoicing regulation, and if there is already an e-invoicing regulation or continuous transaction controls regulation present then the bank must comply with these also.

Service offering for SMEs

A full invoice management offering for SMEs will consist of the following layers:
1.Invoice inbox and invoice repository
2. Business processes for invoice approval and payment
3. Integration layer for the 3rd party invoicing service providers and the bank. SMEs can use multiple invoicing solutions, so if the SME wants to see all its invoices in one place, or the bank provides invoicing in partnership with 3rd party providers, then this integration layer will be necessary
4. Online invoicing solution to issue invoices from the bank’s system
5. Data transformation of the invoice data of the corporate into the payment and financing request data structure
6. Reconciliation engine for automatic reconciliation
7. Business dashboard

Decide if launching your own online invoicing is for you

To decide whether starting an online invoicing solution should be launched by you, you need to consider the following:

1. How much is the invoicing service is a core to your SME strategy?

An online invoicing solution should be launched if invoicing is an integral part of your SME strategy, and you want to provide beyond banking services for your SME customers. Such strategic objectives can be:
a.) Become the primary/only bank of the customer
b.) Provide an end-to-end service around financial administration/become a financial one-stop-shop for SME customers
c.) Increase customer loyalty

2. What are the resources that you can devote to set-up and maintain such a solution?

The level of IT and solution design involvement can be minimized from the bank’s side with Partner HUB’s white label “as-a-service” offering, but strategically you will still need to integrate the use case into your SME Banking strategy.

If there is no clear alignment with your SME strategy and/or you cannot devote the necessary resources on the long term to the project, then it is better to initiate integrations with 3rd party providers. However, this will still require understanding the use cases related to invoice data.

In this case access to invoice data can be provided from the invoices or through integrations with 3rd party providers.

Although these partnerships will not realize a strategic advantage that can derive from providing an end-to-end service for SMEs, it will still realize the benefits of working with invoice data, without the additional burden of managing an additional non-banking service line.
In this there is no universal right or wrong solution, the chosen path should be in line with the SME strategy at the given resources for the specific bank.