With the entire world focused on the US debt ceiling debate over the past few weeks many suppliers have become increasingly nervous about the federal government’s ability to pay its bills. Fortunately, three weeks ago the US Treasury announced a new program which would enable suppliers to be paid even faster than they have before. And the program does not involve raising taxes or cutting social programs. By the end of 2012 the Treasury Department will implement the Internet Payment Platform (IPP).
The key to the IPP program is the requirement for suppliers to exchange information electronically with government agencies. Agencies can send electronic purchase orders for items they buy such as computers, furniture, office supplies and professional services. Suppliers can respond with order acknowledgements, shipping notices and electronic invoices. The official press release stated:
“Treasury estimates that adopting IPP across the federal government would reduce the cost of entering invoices and responding to invoice inquiries by as much as 50 percent or $450 million annually. These government-wide savings equal roughly one quarter of the $2.1 billion of the efficiency savings that the President’s 2012 Budget called upon agencies to identify.”
IPP is an example of Business-to-Government (B2G) technology which has been growing in usage since the late 1990s. For example, the Department of Defense’s Wide-Area Workflow platform processes more than 7 million invoices a year from over 90,000 vendors. B2G technologies have become widely used in many European nations in the past few years.
Starting in 2005, Denmark mandated that all vendors selling to the public sector submit invoices electronically. Since then Norway, Sweden, Spain, Switzerland, Finland and Italy have all signed mandates shifting public sector invoicing to electronic formats.
Paper invoices are fraught with problems which cause delays. Paper invoices can get lost in the mailing, routing, workflow or approval process. Because there is no validation on a paper invoice before it is submitted, the bill may not have all the necessary information for approval.
For example, the invoices may not have the appropriate accounting information required to enter the expense in the general ledger. Or the supplier may not have provided the address or bank account number that the payment should be routed to.
The quantities, prices and descriptions of items on the invoice may not match what was on the original purchase order or shipping documentation. Each of these problems creates an exception scenario that requires contacting the supplier for resolution. Exceptions lead to additional cost for the government and risk of delayed payment to the supplier.
Electronic invoicing reduces the likelihood of lost invoices by creating an audit trail of each step in the workflow. Invoices entered via the IPP web site can be validated to ensure all of the required fields have been entered. Electronic invoices can also be automatically matched to the purchasing and shipping documents. The result is the removal of manual handling of invoices. This straight through processing accelerates approval and payment cycles.
IPP is an already in use by the Department of the Interior; the Small Business Administration; and the Bureau of Engraving and Printing. The Department of Agriculture and Social Security Administration are in the process of deploying IPP. The vision for IPP is for all government agencies to use the platform. Such a shared service model would not only reduce costs for federal agencies, but it would simplify for processes for suppliers. Companies selling to the US government would have a single portal by which to receive purchase orders, submit invoices and check on payment status.
Doing business with the government remains a complex art attempting only by those who know the system. Unfortunately, the complexity deters many suppliers from engaging in government sales, which lowers competition. As taxpayers we all benefit from programs which encourage competition and lower prices for federal purchases. IPP is a great example of a cross-agency solution which will not only increase competition, but help to reduce budget deficits in the coming years.