In this blog we aim to dispel the myths around e-invoicing and explain why it should be on the roadmap for all businesses.
It is structured, tax compliant, authenticated invoice data issued from a supplier to a buyer and is the only version of the invoice relevant to the tax authorities and auditors. Whilst paper or other representations of the invoice may exist they are not counted as the legal original.
(Definition provided by Billentis)
According to a Billentis report in 2017, 90% of invoices worldwide are still processed manually. Even where organisations have made progress by receiving invoices as pdf email attachments to reduce paper and processing times, it is not without issues. Detaching the pdf invoice from the email can be problematic. Difficulties arise with zipped attachments, multiple attachments, exception handling attachments that are not invoices, and so on. Once a pdf invoice is successfully separated out the information from it will still need to be extracted – either read and entered by a human, or read by OCR technology and potentially corrected. Both methods are a barrier which prevent 100% straight through, touchless processing.
EDI invoices are a step closer to true e-invoicing but adoption across many industries has been slow and sometimes challenging. Multiple formats, considerable effort required for integration, high setup and transactions costs and the need to create a visual copy of the invoice for processing or audit, are all cited as potential issues. EDI services cater well for some of these problems but may not cover all the bases.
Instead of the Supplier sending a document (in paper or pdf form) which has to be read and interpreted by the customer, the supplier sends data (often in the form of XML) and therefore no interpretation is needed.
The data may be sent direct to the customer (e.g. by email) or via a third party network service provider.
The data can be accompanied by a human readable version (e.g. a pdf document) and often a digital signature which guarantees fidelity can also be transmitted.
Because a true e-invoice is received as data and therefore no manual data entry or OCR correction is needed, validation occurs on receipt and successful invoices are passed automatically into the organisation’s ERP or AP Automation system.
This data includes every detail of the invoice header and of every invoice line and is therefore the perfect on-ramp for touchless invoice processing making automated matching, for example, much more accurate than alternatives, which may not provide 100% accurate line data.
When considering the above it is no surprise that the take up from both suppliers and customers in e-invoicing is on the increase. But there is a bigger driver for this technology which shouldn’t be ignored.
In the 2019 10th Edition of Trends in e-invoice Compliance, Trustweaver estimates that VAT accounts for 30% of public revenues and that 20-30% of the VAT due is not collected by governments because of errors or fraud. TrustWeaver states that ’In Europe, the VAT gap amounts to approximately 150–250 billion EUR every year and globally could be as high as half a trillion EUR.’
Governments around the world have recognised that e-invoicing presents the perfect opportunity to start closing this tax gap and, as a result, more and more are mandating that all invoices should be transferred as true e-invoices with many countries adopting a process based on a ‘Clearance’ model. There are multiple ways different Countries deal with the operational responsibility for this model, for example, some are real-time and some time-constrained, but the end-to-end clearance process can usually be summarized into the following main steps:
Spurred on by the success of early adopters such as Chile, Mexico and Brazil in closing the VAT gap, more and more tax authorities are mandating e-invoicing.
Within Europe, Italy is now fully compliant, businesses in France with more than 5000 employees have had to be e-invoice capable since 2017, and an upcoming deadline is that all EU contracting authorities and entities are required to be e-invoice ready by April 18, 2019. The NHS started adopting structured e-invoicing in January 2016. Government departments, including the Ministry of Defence and HMRC, use e-invoicing extensively and work is underway to transpose the e-invoicing Directive into UK national law during 2019.
While mandatory e-invoicing is gaining pace worldwide, process models, data formats, authentication methods, archiving rules and other factors vary from country by country.
While compliance with global mandates is complex and confusing, any ideas that it is difficult to incorporate e-invoicing into your systems are mis-founded because e-invoicing networks provide a simple solution. They provide a bridge between Supplier and Customer and allow digital format invoices to be transferred, with all the required data, integrated straight into the ERP system whilst managing transmission, authentication and archiving in line with EU country regulations and ensure compliance. Good e-invoice networks also provide ‘roaming’ facilities which ensure that invoices can be transmitted seamlessly even where the supplier and customer are using different network services.
So, if you would like to know how to gain the benefits of e-invoicing and be ready for the arrival of mandates in your trading locations,