E-Invoicing's Big Government Challenge

The lowest-hanging fruit for payments efficiency is governments, which handle huge volumes of payments and generally lag private corporate payments in implementing automated processing.

In the U.S., the federal government has directed all federal agencies to implement e-invoicing systems by the end of 2018. The deadline may be two years away, but the effort will be substantial. Less than 40% of the 19 million yearly invoices—totaling about $600 billion in government checks—are  submitted electronically, according to the U.S. Treasury, which estimates that paper-based invoicing costs about $230 million yearly to process.

"Most developed countries are ahead of the U.S. in automating government payments, which is why gaining efficiencies is so critical," said Bruce Lawler, a senior advisor to Tungsten, a payments technology company whose government clients include the U.S. Veterans Affairs Financial Services Center (VA FSC). Lawler is also former Chief of Staff to the Department of Homeland Security, and was among the co-writers of the document that created the department.

The VA FSC is an early adopter of e-invoicing among government agencies, offering some form of electronic payments as early as 2007. Electronic payments uptake at the VA FSC has recently accelerated given the pressure from the government. In the past two years, the volume of e-invoices has increased from 29% to 80%, said Ben Sandlin, supervisory financial manager for the VA FSC.

The agency processes and pays commercial invoices for VA affiliated facilities such as medical centers, clinics and cemeteries, handling about 1.2 million invoices annually. It also has responsibility merchant services-like functions for other government agencies.

"It would generally take the FSC three business days to present an invoice for certification," said Sandlin of the paper-based environment. "Today it can be done in a matter of hours."

As the VA FSC nears maturity for electronic invoicing, a key goal for the year ahead is to better enable the technology to work across government agencies to spark broader acceptance of electronic government payments, Lawler said.

"The challenge is the need for interoperability," Lawler said, adding there's some siloing among payment systems at departments such as as the Interior and Agriculture that will have to be overcome. "The government is trying to consolidate and put all of these invoicing requirements into a small number of systems," Lawler said.

That will be accomplished through increasing shared services and cooperation among agencies, which will use technology selected from a list of systems approved by the Office of Management and Budget. The technology powers digital payments on the government's payment portal.

The migration to digital payments includes searching old tapes and records to standardize how past transactions are recorded in the new government-wide payments system. "It's a question of how you standardize the data," Lawler said, adding there are some political hurdles since the OMB list in theory limits the choice of technology companies or the power of individual agencies to seek technology in the private market.   

Each agency must also accept a cultural change.

"The organizational process will change," Lawler said. "There is no paper in this new environment, so invoices that need approval are transmitted electronically. So there are processes that will require adjustment from the accounts payable staffs."

The U.S. government hopes to halve its processing costs by moving to a fully digital payments environment. The European Union is also making e-invoicing mandatory for government procurement via a standard that works across borders, a process that's expected to be complete by 2016. In total, about five dozen countries are in the midst of an e-invoicing migration, according to Bob Cohen, a vice president at Basware.

At the VA FSC, e-invoicing has already saved about 3 million sheets of paper, Sandlin said. "[That's] the equivalent of 360 trees, or enough fuel to run the average car for 26,683 miles, and sufficient energy to run the average home for 127 months."