Although there is a lot of third-party online billing/invoicing solutions available in the market these days, none of these can be entirely tailored to any one organization’s needs. For this reason, it must be worth spending a little time looking at whether a billing solution can be developed or built with internal accounting staff and IT people. This would mean that an exact specification could be put forward and, if it was executed to plan, this could be integrated with other internal systems. Once the system was up and running, customers would “flock” to it and the cost of sending out paper bills in the mail would reduce considerably. This would all have the potential to save a lot of money-wouldn’t it? In this brief blog post, let’s look at the six major issues that need to be considered in choosing to go down this path.
Before we look at these six issues, let’s briefly consider an organization’s motivation to undertake a project such as this. The typical logic of most companies is “After an order, we interact with customers today by sending out a paper bill, but it is expensive. Putting that ‘piece of paper’ on our own web site will be cheaper and we can still directly interact with our customers via our web site”. Hence, the internal business case might be “We invoice 100,000 customers a year and our current cost to bill by paper is £15 each time or £1.5 million. As the cost of doing billing via our web site will be £10 (including new internal operating expenses), or a 35%/£0.5 million saving an internal capital build cost of £0.5 to £1 million would be justified.” Where this model is flawed is that research tells us that only 4-6% of customers pay at any Biller’s site (for a lot of reasons that we have covered in other blog posts). This means the real cost per invoice ends up being higher than issuing paper and no ROI is achieved. Under these circumstances, a project is on very shaky ground before it starts. However, despite these problems, let’s assume that an organization stills wants to go ahead. What are the issues to think about?
The first issue to consider is can the organization build an application of sufficient scope and quality? After all, few companies would try to build spreadsheet or word processing software from “scratch” these days. These are usually far cheaper and superior to anything that could be developed in house. In general, widely available software designed for mass market consumption is considerably superior to applications developed in house, primarily because of the economies of scale that can be achieved. An online billing solution would not be any different in this regard? In other words, any in-house solution would probably lack the security, features and reporting capabilities needed and would not be as robust, stable or as user-friendly as a professionally developed application built by specialists in that field.
The second big issue to consider is the overall interface design of your potential online billing system.On the surface, an in-house solution provides the greatest scope to design this interface to suit all corporate requirements. However, third-party apps have changed greatly in recent years and allow almost as much customization and any one organization is likely to need. In addition, a third-party app (if well chosen) is likely to have designed in easy payment reconciliation and settlement (to the organization’s accounting system and even their bank –by electronic bill-matching means). This is often missed by in-house system builds or just adds major development costs to the project, thereby making the return on investment much worse than planned.
The third issue to consider is the need to protect an organization’s customers when using the new online billing solution. At a basic level this means bearing the additional cost to purchase a Secure Socket Layer or SSL certificate and to develop a payment plug-in, which necessitates a proper software development cycle (including specification design, build, test and installation). This potential cost alone can finance years of service from an online invoicing application service provider. In addition, as soon as the organization is processing credit or debit cards online, they may need to be PCI compliant (and bear the cost of maintaining this and being audited to meet bank standards). Direct debit mandates (if they are to be made available) are a further cost in this area that need to be taken into account, as these have high admin costs associated with them.
The fourth issue to consider is the immediate and tangible additional costs that are likely to be incurred with an in-house developed solution. A typical online application development project would likely have at least some of the following tasks, if not more: Needs analysis assessment; Application interface design; Database design; Technology assessment, costing and procurement; Server and security setup; Application build and Testing; Trial Rollout; ALPHA and BETA Testing; Full Production Rollout; Ongoing Support and Maintenance etc. Whether these tasks are done internally or out-sourced, projects of this nature will take many months (and possible more than a year) to complete and result in costs of many tens of thousands depending on the complexity of the application and the security level required. For a large organization this may even run into hundreds of thousands or even millions. This is a large capital cost that may not get a real return on the investment for many years.
Quite apart form the direct costs there are also the indirect costs to consider, because many application development project costs are hidden. The use of internal resources to stop working on other projects or tasks or even give up their “normal” job for a while is one example of a hidden cost that often goes unaccounted for. Every hour a development team member spend developing a new billing system, they could be focusing on an organization’s core business activities. In addition, if project development team members are not experienced in online invoice application development, there will be a high learning cost added to the project, and increase the chance the project will be delayed or even fail completely.
The fifth issue to consider is system-side issues. In other words, an in-house billing system (which is likely to be available 24/7) will inevitably have system costs that can easily be overlooked when initial specifications are done by an organization. There is the cost of the space and setup required for a secure and sufficiently large and secured server. This hosting environment will need careful protection (in maintenance terms and against hacking) proper virus protection and firewalls. In addition, back-ups will typically need much more care than other applications that may be running in the organization.
Last but not least such a project must consider the overall risks that are involved. Recent research suggests that over 35% of all technology projects fail in large and sophisticated companies (who have well-trained IT departments). Although this means that almost 65% succeed, this is not to say that even they were not over time or over budget before they “succeeded” of course. If an organization is therefore not a “large and sophisticated company”, chances are a new online application development project is at even greater risk of failing and/or being late/going over budget.
Conclusion
It is clear that developing an in-house online billing and payment system is a highly time sensitive, high cost and high risk undertaking. Some organizations may be tempted to start the process but may lack the expertise to specify it properly, build it to plan, run it cost effectively and maintain it well (and with the necessary level of security, compliance and control).
With all of these issues to consider, as well as the fact that third-party systems are now so well-developed (and in many cases available on a pay-as-you-go basis) this looks to be an easy decision, especially when given serious thought. In answer therefore to the question we asked at the outset- Should an organization design its own online billing solution? We think the answer is simply No (or at least only if it thinks it can overcome all of the obstacles mentioned above).
Wednesday 18 January 2012
Tuesday 3 January 2012
How many bills or invoices are sent out each year and to whom are they sent?
Electronic billing has been around in one form or another for over a decade now but according to the Swiss billing research firm Billentis, the penetration of e-bills versus traditional bills remains relatively weak. They estimate the proportion of e-bills to be anywhere between 4% and 9% of the total invoices sent out, but even this range applies only in relatively large businesses (and is increasingly invisible in medium and small businesses), making the overall take up perhaps nearer half of these figures. Furthermore, the proportional take-up of e-billing varies greatly in the two major parts of the market-the Business to Consumer or B2C market, and the Business to Business or B2B market. In this brief article, the aim will therefore be to try to quantify the relative size of the billing market, or perhaps more simply to determine just how many individual bills or invoices are sent out each year and to whom they are sent.
The table below illustrates the typically billing flows, in percentage terms, in these two major market sectors (B2C and B2B) and according to whether a company is large, medium-sized or small.
Although bills can be sent from one consumer to another (C2C), this is a relatively small market (estimated to be less than 1% of all bills). The two large sectors are therefore between businesses and their consumers (B2C) and between businesses (B2B). The B2C and B2B market is close to 50/50 but the B2C market is slightly larger in transactions but quite a lot smaller in terms of transactional value. Let’s look at these two markets in a little more detail individually.
The B2C market
As the above chart shows, large businesses send out the greatest proportion of B2C bills (43.3% of all bills). Medium sized companies send out only 5% and small or micro companies only 1.7%. In the UK as an example, the estimated total volume of bills is around 5 billion per annum. This means that large companies with more than 250 employees send out 2.165 billion bills. Given that the UK adult working population is around 26 million, this means that each consumer gets 80 bills a year on average, from a large organisation of one form or another or around 7 bills a month. They get a further 1.5 bills from medium and small companies, making an average of 8.5 bills a month in total.
As a different example, in the US, the estimated total volume of bills is around 42 billion per annum. This means that large companies with more than 250 employees send out 18.18 billion bills. Given that the US adult working population is around 130 million, this means that each consumer gets 140 bills a year on average from a large organisation of one form or another or around 11.5 bills a month. They get a further 2.5 bills from medium and small companies, making an average of 13 bills a month in total. The higher average consumer bill volume versus the UK may be explainable by two major factors. Illegal workers in the US are not counted in the adult working population figures and the US has Federal and State based system businesses, making for less truly national “super-billers”. For example, in a large utility may bill a large % of the UK population for its gas and electricity needs (a task that may involve a hundred utilities in the US). This makes the average bill volume artificially higher than it may be in reality, perhaps by as much as 15%.
In terms of value, there are no accurate figures relating to the average bill size or amount. However, it is estimated that the average “ticket” in the B2C market is around £65 to £75 (or $75-$95 in the US).
The B2B market
As the above chart also shows, large businesses send out the largest proportion of B2B bills (11.6% of all bills) to other large companies but medium sized companies (employing 50 to 249 employees) send out almost as many at 10% and even small companies account for 7.5% of the total. However, the picture is complicated further by the additional B2B billing that is done between Large, medium and small companies. Hence, in aggregate, large companies send out 15.8% of all bills (11.6%+1.7%+2.5%).
Once again using the UK as an example, this equates to 790 million bills. In the US this would be 6.64 billion bills. Just to complete the picture, medium companies in aggregate send out 18.3% of all bills and small companies in aggregate send out 15.9%. Although this makes the B2B transactional volumes very similar, in aggregate the medium sized companies send out proportionally the most bills.
In terms of value, accurate figures relating to the average bill size or amount are even harder to come by, as companies have very high variations from very low amounts (such as £15 0r £25 for example) to very high amounts (running to thousands or hundreds of thousands in some cases). In addition, there are no formal records kept in terms of average B2B invoice amounts. However, it is broadly estimated that the average “ticket” in the B2B market is around £1500-£2,000 (or $1250-$2500 in the US).
The penetration of ebilling
Once again, definitive figures are difficult to find when it comes to the penetration of ebilling. However, in the B2C market, it is large companies that have made the most progress, led by utilities and telecommunication/mobile phone companies typically. Here, the estimates are that penetration has been in the range 7-9% in Europe, and a little less (6-8% in the US). In medium companies, these numbers are reported to be less than a third of these figures or only 2-3% penetration and in small companies, considerably less than 1%. This leaves a lot of upside potential to switch to ebilling of one form or another across all three organisational size levels.
In the B2B market, it is apparent that accounting software and separate specialist billing software has made some significant inroads into large companies. However, this has largely translated into accounting system driven invoices (or email based invoices with PDF attachments, which are but fully digital bills of course) and as often as not, this has therefore become an additional channel to paper-based invoices, with many organisations reluctant to eliminate physical invoices too quickly. There are also many additional complexities in the B2B market when it comes to billing. This includes integration with purchase order systems, dealing with credit noting, bill line-item dispute handling and multiple decision-maker issues for bill sign-off. This is not to mention the accurate and legal handling of taxation issues. All of this means that the decision to take up ebilling in the B2B space usually involves quite high up-front capital expenditure (on new or changed software), long integration times, changed internal processes and the need to cover monthly fees (e.g. software maintenance and per user etc). There are alternatives to this approach but as yet, interest and take up has been very low.
Summary
A lot of bills are sent out every year in any country with a reasonably well-developed economy. However, it is important to understand that the B2C and B2B markets are very different in terms of transactional volumes, average “ticket” sizes and needs. It is also important to recognise that volumes vary greatly in large, medium and small companies, and their relative interest in making their invoicing practices more efficient will often be very different. This means that the potential for electronic billing take-up is still very high (perhaps as much as 95% of all bills are still not fully digital) but the route to increase overall levels of ebilling take-up needs to be carefully planned for each market segment, in order to be successful.
The table below illustrates the typically billing flows, in percentage terms, in these two major market sectors (B2C and B2B) and according to whether a company is large, medium-sized or small.
Although bills can be sent from one consumer to another (C2C), this is a relatively small market (estimated to be less than 1% of all bills). The two large sectors are therefore between businesses and their consumers (B2C) and between businesses (B2B). The B2C and B2B market is close to 50/50 but the B2C market is slightly larger in transactions but quite a lot smaller in terms of transactional value. Let’s look at these two markets in a little more detail individually.
The B2C market
As the above chart shows, large businesses send out the greatest proportion of B2C bills (43.3% of all bills). Medium sized companies send out only 5% and small or micro companies only 1.7%. In the UK as an example, the estimated total volume of bills is around 5 billion per annum. This means that large companies with more than 250 employees send out 2.165 billion bills. Given that the UK adult working population is around 26 million, this means that each consumer gets 80 bills a year on average, from a large organisation of one form or another or around 7 bills a month. They get a further 1.5 bills from medium and small companies, making an average of 8.5 bills a month in total.
As a different example, in the US, the estimated total volume of bills is around 42 billion per annum. This means that large companies with more than 250 employees send out 18.18 billion bills. Given that the US adult working population is around 130 million, this means that each consumer gets 140 bills a year on average from a large organisation of one form or another or around 11.5 bills a month. They get a further 2.5 bills from medium and small companies, making an average of 13 bills a month in total. The higher average consumer bill volume versus the UK may be explainable by two major factors. Illegal workers in the US are not counted in the adult working population figures and the US has Federal and State based system businesses, making for less truly national “super-billers”. For example, in a large utility may bill a large % of the UK population for its gas and electricity needs (a task that may involve a hundred utilities in the US). This makes the average bill volume artificially higher than it may be in reality, perhaps by as much as 15%.
In terms of value, there are no accurate figures relating to the average bill size or amount. However, it is estimated that the average “ticket” in the B2C market is around £65 to £75 (or $75-$95 in the US).
The B2B market
As the above chart also shows, large businesses send out the largest proportion of B2B bills (11.6% of all bills) to other large companies but medium sized companies (employing 50 to 249 employees) send out almost as many at 10% and even small companies account for 7.5% of the total. However, the picture is complicated further by the additional B2B billing that is done between Large, medium and small companies. Hence, in aggregate, large companies send out 15.8% of all bills (11.6%+1.7%+2.5%).
Once again using the UK as an example, this equates to 790 million bills. In the US this would be 6.64 billion bills. Just to complete the picture, medium companies in aggregate send out 18.3% of all bills and small companies in aggregate send out 15.9%. Although this makes the B2B transactional volumes very similar, in aggregate the medium sized companies send out proportionally the most bills.
In terms of value, accurate figures relating to the average bill size or amount are even harder to come by, as companies have very high variations from very low amounts (such as £15 0r £25 for example) to very high amounts (running to thousands or hundreds of thousands in some cases). In addition, there are no formal records kept in terms of average B2B invoice amounts. However, it is broadly estimated that the average “ticket” in the B2B market is around £1500-£2,000 (or $1250-$2500 in the US).
The penetration of ebilling
Once again, definitive figures are difficult to find when it comes to the penetration of ebilling. However, in the B2C market, it is large companies that have made the most progress, led by utilities and telecommunication/mobile phone companies typically. Here, the estimates are that penetration has been in the range 7-9% in Europe, and a little less (6-8% in the US). In medium companies, these numbers are reported to be less than a third of these figures or only 2-3% penetration and in small companies, considerably less than 1%. This leaves a lot of upside potential to switch to ebilling of one form or another across all three organisational size levels.
In the B2B market, it is apparent that accounting software and separate specialist billing software has made some significant inroads into large companies. However, this has largely translated into accounting system driven invoices (or email based invoices with PDF attachments, which are but fully digital bills of course) and as often as not, this has therefore become an additional channel to paper-based invoices, with many organisations reluctant to eliminate physical invoices too quickly. There are also many additional complexities in the B2B market when it comes to billing. This includes integration with purchase order systems, dealing with credit noting, bill line-item dispute handling and multiple decision-maker issues for bill sign-off. This is not to mention the accurate and legal handling of taxation issues. All of this means that the decision to take up ebilling in the B2B space usually involves quite high up-front capital expenditure (on new or changed software), long integration times, changed internal processes and the need to cover monthly fees (e.g. software maintenance and per user etc). There are alternatives to this approach but as yet, interest and take up has been very low.
Summary
A lot of bills are sent out every year in any country with a reasonably well-developed economy. However, it is important to understand that the B2C and B2B markets are very different in terms of transactional volumes, average “ticket” sizes and needs. It is also important to recognise that volumes vary greatly in large, medium and small companies, and their relative interest in making their invoicing practices more efficient will often be very different. This means that the potential for electronic billing take-up is still very high (perhaps as much as 95% of all bills are still not fully digital) but the route to increase overall levels of ebilling take-up needs to be carefully planned for each market segment, in order to be successful.
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