Market view: EDI billing and multi-site organisations

If, as we are led to believe, the price reductions and cost savings following Water Reform in April 2017 may be as little as 1 per cent, electronic data interchange (EDI) billing is likely to be the priority and the key driver in selecting a water supplier.

During electricity and gas competition in the 1990s, cost savings were much larger, and clearly the main priority.

Multi-site organisations are already including EDI in their water tenders as a prerequisite and it is likely that government procurement bodies such as Crown Commercial Services will too This may come as a shock to any water supplier that isn’t listening to their business customers as they could miss the opportunity to tender for a water supply contract which may not be tendered again for 2 or 3 years.

Just like we had in the 1990s with electricity and gas deregulation, competition is a wonderful opportunity for organisations to get what they have been asking from the water suppliers for many years, i.e. ‘Best Practice’ in water billing.

EDI invoicing is common place now. Almost all electricity and gas companies can provide this capability (Table 1) but only one water company can, Yorkshire Water. To their credit they have been providing this since 2003.

Currently, multi-site customers such as retailers, banks, and even housing obtain their electricity and gas invoices through EDI. For water, most have to toil through processing paper invoices or occasionally receive CSV files, each supplier has a differing format that can change without notice and therefore break the process.

It’s important to know that EDI billing isn’t a spreadsheet, CSV file, posting a PDF on a website, or even XML files despatched electronically. It’s also a myth to think this is only something for large companies.

EDI is the computer to computer transfer of invoices between two organisations using an agreed industry standard. HM Revenue and Customs accept EDI as a ‘bill’ but other forms are merely ‘billing information’ and hard copies are required to satisfy tax requirements.

So where did it all start and what lessons can be learnt from electricity and gas competition?

We have BT to thank for leading the way in bringing best practice into utility billing.

Privatisation and deregulation brought with it competition, which resulted in consumer power and the ability to stipulate to a utility what they wanted. The power was shifting from the state owned monopoly to the customer, keen to enjoy the process efficiencies they already enjoyed partnering with suppliers in other business sectors. With an eye to the future competitive market, in 1993 BT invited the electricity companies to produce electronic bills.

The problem for BT was they had more than 36 people processing hundreds of thousands of paper invoices for their 6,500 sites from all the regional utility companies. The information within the invoices was entered into their software system for validation, checking and forwarding for payment. It was also their energy management database from which they were able to carry out benchmarking, exception reporting, waste detection, financial reporting, budgeting and accruals.

In 1995, BT invited all electricity companies to a meeting. It was explained what requirements would be in their forthcoming tender, why they were asking for them, and said that they would work with electricity companies to provide it.

This was to remove all paper billing, replace it with one consolidated bill for all their sites, it should be HM Customs and Excise complaint, to an industry standard format, containing sufficient detail such that all elements of the bill could be checked through their software system.

Three electricity companies were successful. Manual bill entry that took two days to input was now processed in 20 minutes. The data processing was consolidated in to Reading and personnel reduced from 36 people to 12, then halved again after gas companies provided EDI billing in 1999.

The lessons from electricity and gas competition are that water suppliers need to break away from any complacency engendered from a monopoly position, listen to their customers, embrace change and be quick to implement best practice.

So how does the EDI billing process work?

The utility company tags the individual invoices that belong to a customer. There are then typically 2 choices to generate EDI bills:

1) the utility company builds the capability into the core billing system.
2) the utility company uses a third party, virtually ‘off the shelf’ software.

The latter route tends to be favoured by the utilities now as it’s non-intrusive, inexpensive and quick to deploy.

The customer will usually receive the email message into their M&T software which will automatically process it. M&T systems are commonly used by most multi-site organisations to check bills, detect energy waste and to build a database in support of many compliance activities, such as the Carbon Reduction Commitment.

After validating the bills, the software usually sends a file with reduced, but specifically defined information, to finance where it is loaded directly into the Accounts Payable system for payment – usually by BACS or Direct Debit. It is customary that the full EDI ‘parent’ bill amount is paid and any incorrect ‘child’ bills that the customer identifies are cancelled and re-billed in the next billing cycle.

Very occasionally a customer may stipulate that they only want to pay bills that are 100 per cent correct. However, this leads to complications from a HMRC point of view. The customer can protect themselves in their terms and conditions by rejecting the whole consolidated bill if ‘x’ per cent are found to be incorrect and ask for a correct consolidated bill to be sent.

Although it’s somewhat counter intuitive to pay a bill where some individual bills are known to be incorrect, the alternative is fraught with problems.

So what are multi-suite organisations likely to be stipulating in their tenders?

The four main elements, which are important to include in tender documentation so both parties understand and agree their obligations:

• EDI Message, Operating Procedures and Protocols
• Visibility of Charges
• Full Cancel, Re-Invoice
• Change Control Procedures

So how are water companies faring?

The problem with water billing is that it hasn’t moved forward over the last 20 years. When there is a monopoly supplier isn’t it supposed to be the regulator who protects the interests of the consumer?

Currently, only Yorkshire Water can provide an EDI billing capability. Seven water companies provide CSV files and the rest paper billing. Of the seven, all are in different formats, only one has any change control procedure’s, only half have a full cancel and rebill capability and the visibility of charges is mixed.

It seems likely that the new Kelda Retail (Yorkshire Water) will provide EDI billing, Business Stream and Severn Trent will have a capability in Q3 2016 as would Thames Water before they withdrew from the market. Water Plus, we believe are committed, and others we know are likely to follow suit.

Interestingly, Welsh Water, who will not be part of the competitive market in 2017, may consider EDI billing due to the pressure from the Welsh public sector and particularly the Local Authorities in South Wales, who have in turn been asked by the Welsh Government to increase electronic payments and processing.

The energy manager of one Local Authority said: “90 per cent of our water is supplied by one water company. It takes us ages to go through their CSV files, check it, sort out their columns and formats before we can use it. It will cost us £50k to go out to tender and if we can only save 1 per cent that’s £30k. If we can get them to provide EDI billing like we get for electricity and gas we may not need to go out to tender”.

An EDI billing capability is not only an acquisition tool to attract new customers in 2017 it’s a retention one too, to keep existing customers in their own area. Also, if water suppliers who have ‘opted out’ of the non-household market to concentrate on forthcoming household market, don’t provide EDI billing for Housing Associations, Local Authority Housing, University Halls of Residence etc. who want it, and engage with them now to build relationships, they may look elsewhere. These could be plum targets for predatory competitors who can provide it now.

The way ahead seems pretty simple. Listen and hear what customers want. An EDI capability and compliant ‘best practice’ billing systems could be the No.1 attraction for many multi-site organisations. The decisions made now by water utilities on billing may determine their success and destiny after April 2017.