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Tridel Corporation
The Zero Invoice System
For the First Time in the Construction Industry, Suppliers Are Paid As They Finish Work Rather Than Waiting for Payment of Paper Invoices
Challenge
In most industries, a supplier submits an invoice to a corporate customer and it is paid. Simple. Not so in the construction industry.
Invoices presented to contractors by suppliers and sub-contractors are routinely disputed. A supplier might deliver an order of 10 tons of concrete to a construction site, but when the invoice is due to be paid, the site supervisor says that only 9.8 tons were delivered. The issue ends up in court. This sort of thing happens every day in the construction industry. At Tridel Corporation of Toronto, which for 35 years has been one of Canada's leading builders of condominiums, 69 per cent of invoices from suppliers were disputed.
That was before the Zero Invoice System.
Tridel set out to design an in-house system for invoice processing and payment, hoping to:
- Receive paperless invoice submissions;
- Reduce the number of disputes over invoices;
- Integrate an electronic construction schedule with progress billing;
- Deliver the highest level of accuracy in payment to suppliers;
- Ensure a more efficient payment process;
- Solidify and enhance strategic partnership with suppliers so as to deliver a better quality product at a competitive price.
Solution
More than just processes have changed at Tridel - the entire business model governing its relationship with suppliers has changed.
With the Zero Invoice System, suppliers don't deliver paper invoices to Tridel, then wait to be paid or see if there's a dispute. Tridel sends them a notice that a product or service has been delivered satisfactorily according to mutual agreement, then pays promptly because its system reconciles the supervisor's checklist with the supplier's invoice. There are no more month-end rushes to receive project managers' and construction site superintendents' signatures on invoices and progress billings.
The Zero Invoice System works this way:
Suppliers are connected to Tridel's offices by a virtual private network over ISDN lines. The system is also accessible by 35 site offices and 500 head-office users. The contractors send invoices to Tridel's bookkeeping department before the work is done, not after. The invoices specify that a certain amount will be paid for the delivery of a product or service when completion is confirmed.
Lump sum contract costs are broken down into a progress-billing schedule, which is connected to a custom-designed electronic construction schedule. At the construction site, supervisors mark off completed work on the electronic schedule. The system automatically reconciles the schedule with invoice payments. Project managers no longer have to manually confirm invoices, construction site superintendents no longer sign off on work completion, bookkeepers spend less time processing invoices, and suppliers receive precise payments according to pre-approved pricing.
The deployment of electronic schedules at construction sites gives all stakeholders access to up-to-date information. Tridel is developing a trade portal as a result of this innovation, to enable suppliers to interact seamlessly with the purchase order system.
The Zero Invoice System greatly relieves Tridel's bookkeepers. The company receives more than 65,000 invoices annually, generated from purchase orders. With the new system, each purchase order is loaded into the database containing exact information about unit prices and supplier part numbers. At month end, an electronic invoice is exchanged to automatically reconcile items ordered and quantities received. This electronic exchange means that one invoice can correspond to many purchase orders, resulting in a dramatic drop in the number of invoices and disputes over inaccuracy.
Results
The Zero Invoice solution has completely redefined the way invoices are processed across Tridel. The number of invoices processed has dropped by 93 per cent, so the company can handle a higher volume of bookkeeping work with fewer staff.
With the computer-assisted invoice reconciliation and advanced reporting tools, Tridel can now offer suppliers a higher degree of service and control, with fewer accounts having payment disputes. The number of invoice discrepancies is down to 10 per cent of the total. Tridel estimates it is saving almost half a million dollars annually in dispute-resolution costs, not counting legal fees.
Using the old method, Tridel overpaid 43 per cent of its invoices. In the test project for the Zero Invoice System, there was barely a percentage point difference between what the suppliers billed and what Tridel expected to pay.
Key supplier relationships have improved as a result of timely payment and a reduction in disputed invoices. Tridel operates considerably more efficiently and the solution helps boost its ability to compete.
Innovative use of technology
Many software vendors focus on automating invoice-approval processes using document engines and workflow. These solutions try to apply cutting-edge technology while still using the old method of invoicing. Tridel has reversed this, first analyzing the process and then changing it by applying technologies.
The Zero Invoice System is easy to implement, has a low cost and requires minimal end-user training. Client-server applications were developed in Visual C# with a Microsoft SQL server back end. Web-based applications were developed in Visual Studio .NET making use of ASP.NET technology. Collaborating partners connect to Tridel offices through IIS servers hosted by Bell Canada's Fusepoint.
Tridel believes that the concept of invoice payment reversal could be applied to magnify savings and productivity in other industries that involve highly interrelated firms.
A 2006 CIPA Winner!
For its exceptional application of information technology to solve real-world business problems and transform industry processes, Tridel Corporation has been awarded a 2006 CIPA Gold Award of Excellence in the Organizational Transformation, For Profit category.
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