The Inevitability of E-Invoicing
It wasn’t that long ago that an eavesdropper among a group of purchase-to-pay (P2P) professionals (no doubt there’s a clever collective noun that should be used here) would have heard electronic invoicing (e-invoicing) described as ‘innovative’, ‘a trend’ or ‘leading edge’.
Today, with the world having become intolerant of waste and ineffective processes, e-invoicing is no longer a curiosity but a necessary tool that delivers a level of efficiency and transparency that is now expected, rather than aspired to.
All transactional functions must aim for touchless processing, something that will remain unobtainable for organisations sending or receiving invoices by post, email or via a scanner. There is little positive left to say about a paper or e-mailed portable document format (PDF) invoice.
During a recent webinar with sharedserviceslink.com, OB10 asked participants where they were on their e-invoicing journeys. From the respondents, 72% said that they were either planning or already had a business case for e-invoicing. This technology has arrived.
For those organisations that do not find the lure of straight-through processing (STP) of invoices and improved supply chain relationships sufficiently compelling, they may not have the luxury of choice for much longer. The decision between electronic or paper invoices is no longer up for debate for companies in countries such as Mexico, Brazil and Turkey, or suppliers to the Danish government or Department of Veterans Affairs in the US. E-invoicing is more than encouraged, it is mandated or is about to be. The European Commission (EC) is discussing an e-invoicing mandate for all public procurement across the EU right now.
Governments around the world have picked up on the benefits that e-invoicing offers to their own public sector operations. More importantly they have also realised the impact it can have on their entire economies, as it can stem the loss of tax revenues by preventing fraud and enabling real-time audits.
The case for e-invoicing has always been robust but for many it has remained a future goal. The combination of bottom-up market drivers in search of process performance and the top-down push by governments looking to gain greater fiscal control make e-invoicing the tool for today.
The Business Case
It is hard to justify why a company does not adopt e-invoicing. Companies and their treasury departments can measure the benefits in many ways. At the simplest level, determining the cost of submitting or processing an invoice will quickly reveal the financial benefits automation will bring. E-invoicing requires fewer resources, no transportation or storage costs – depending on your location, and no need to make or answer calls requesting payment-status updates.
For both buyers and suppliers it offers a faster, more transparent and accurate process as data is validated before it even reaches the customer. Invoices can be approved within minutes and paid on time. Relationships across the supply chain become stronger, and tax audits are resolved quickly and smoothly. For multinational organisations (MNOs) with the right service provider, cross-border invoices are kept compliant with local tax and legal regulations.
With some companies already closing down their call centres for invoice-related queries and others recording STP rates at 90%, the case for e-invoicing was secured some time ago.
Governments Take the Lead
Seeing governments spearhead the adoption of e-Invoicing is not new. All administrations have a responsibility to manage their processes with minimum waste, and collect and invest taxes for the good of their economy and people.
Back in 2005, the Danish government made e-Invoicing compulsory for all public authorities and extended this in 2011 to include all suppliers sending invoices to public sector organisations. The Nordics are indeed well known for their enthusiastic use of the technology. Other administrations to have taken similar approaches include Austria, Spain, Greece and certain US government agencies, such as the US Treasury.
The UK central government recently made strong statements about its intention to use e-invoicing for all transactions. While it didn’t go so far as to instil a mandate, it didn’t close the door on the possibility for the future.
At a European level the Commission has taken a number of steps towards promoting e-invoicing. In January 2013 an EU directive came into force to ensure equal treatment between paper and e-invoices. More recently, it set out its plans for e-invoicing, which include the development of a data standard and a goal for all public sector organisations to be obliged to accept invoices electronically.
Lowering the barriers to e-invoicing is clearly welcome, but there are also risks. PDF invoices without a digital signature are now considered compliant, provided that there is a robust auditable business process in place. While this may help increase the volume of e-invoices, it does not help the companies receiving them in delivering the benefits back to their suppliers. There is little difference in receiving data in a PDF to receiving it on paper: it cannot be read by an enterprise resource planning (ERP), or automatically validated for compliance or business rules. Manual intervention is required, which reintroduces delays between invoice receipt, approval and payment.
It will be interesting to which direction the Commission chooses to follow as it works to increase adoption.
Harnessing the Informal Economy
A number of countries, in particular those considered to be emerging markets, have taken an aggressive approach to e-invoicing.
Mexico and Brazil are two of the most assertive countries, as they have mandated e-invoicing for the private sector and not just government bodies. The reason behind such a forceful approach is the huge scale of lost value-added tax (VAT) revenues they suffer each year from companies not paying their taxes. With similar challenges, Italy and Turkey are also turning to e-invoicing for a solution.
In Mexico, for example, the ‘informal economy’ equals the legitimate economy in size, but as the former’s organisations do not raise invoices they do not pay taxes. At a recent meeting of the Asociación Mexicana de Proveedores Autorizados de Certificación (AMEXIPAC), an association for accredited service providers, a representative from the tax administration made the government’s motivation clear: “Mexico needs a stable fiscal policy and budget to survive in the global market. All processes have to be optimised to reap all the benefits,” he stated.
Recent changes to Mexican regulations will soon mean that any company with annual revenues over US$20,000 must submit invoices electronically. In addition, suppliers will not be able to generate their own invoices but will have to use one of the 66 government-authorised service providers. The government will also act as a storage facility for all legal invoices, which will allow it to perform real-time audits of invoices against a company’s tax returns.
At present, the Mexican and Brazilian governments are benefiting most from the mandate. The opportunity here is for companies to take e-invoicing beyond compliance and make the most of the machine-to-machine connectivity they have at their disposal. Although STP hasn’t been the goal, it is well within reach.
As e-Invoicing becomes mainstream, both buyers and suppliers will want to join the networks that not only meet government requirements but also allows them to connect with their supply chains. Network size matters. As a buyer, you want a high concentration of suppliers already on the network and as a supplier, the greater the number of customers present the more value you gain.
The combined pressures of market drivers and government intervention are clearing the path for e-invoicing to become the norm. Just as e-commerce and e-business are now just business as usual for most companies, it won’t be too long before e-invoicing can lose the ‘e’ and just becoming the way we send and receive all our requests for payment.
If your company or treasury department is not yet thinking about e-invoicing, it is in a minority and operating with inefficiencies. While you could put it off until the next quarter or next year, you will soon find that government ambitions either at home or in your key markets will force your hand. Whether by choice or for compliance reasons, the move to e-invoicing will happen. And just as nobody laments the demise of analogue television now that everything is in HD, you will not hark back to the ‘good old days’ of paper invoicing.