PROCUREMENT OPTIMIZATION BLOG

Our world is digital. There is no question about it. Smartboards, smartphones, tablets, connected TVs, connected fridges – you name it! Our everyday lives have gone digital, but B2B business processes remain somewhat archaic as paper still reigns supreme over payments and invoices. The simple fact that 64% of B2B payments are still made with checks says it all.

“It has been done like that for hundreds of years, why change?” Maybe because it is dated, or because it creates security risks. Maybe simply because it will reduce errors or because it is environmentally friendly! This list of reasons is endless.

The Global Mandate for Digitization

With an increased awareness of the benefits of going digital, the digital revolution has now shifted to target B2B transactions. This is slowly turning into a global mandate for digitization resulting in benefits like reduced cost per invoice and quicker turnaround on payment processing.

Although this is exciting news for B2B transactions, there is still a lot of necessary growth needed before full global digitization can be achieved. In fact, the global e-invoice and enablement market, which was estimated at $3.6B in 2017, is forecasted to reach $17.5B by 2024.

Even with such a bright future forecasted in the digital revolution, today more than 90% of all invoices worldwide are still processed manually.

What is Government Mandated e-Invoicing?

The mandated charge toward digitization was led by many countries, primarily as an attempt to tackle tax evasion and fraud – not necessarily with the objective to streamline business processes. Because of this, there are many aspects of true digitization that are not enforced by the mandate. One such aspect is global consistency.

For example, European countries have strict requirements with a minimum of information (including invoice number, business name and contact details, business registration number – tax or VAT, transaction date, customer’s name and contact details, breakdown of items and their unit cost, any taxes charged, and total invoice amount). In the USA, on the other hand, while there are some state-by-state variations, there are no overriding legal requirements for invoicing of customers.

A “one size fits all” approach would be the ideal solution. Unfortunately, that type of uniformity simply does not exist due to the different rules of each jurisdiction – especially in countries where VAT or the equivalent is charged. This results in additional invoicing requirements such as itemizing VAT according to the customer’s country of residence, showing your VAT number, showing the customer’s VAT number, and showing the nature and type of services provided. To top that off, VAT rates and rules around exemptions are not harmonized.

Consequently, your best option is to supply a completer and more detailed invoice rather than a cut back version which may leave out key requirements. You want to apply the concept of “invoice anyone, anywhere.”

Why is This Being Done?

Electronic invoicing alleviates not only the inevitable human errors that come with manual invoicing, but also the associated costs. Studies show that e-invoicing can reduce costs by 60 to 80% compared to paper invoices.

Additionally, e-invoices are easier to process than their paper counterparts. For example, they reach customers faster and storage is significantly easier. In fact, because digital invoice storage does not require physical space, it can be done centrally at a very low cost. Potential annual savings are expected to be as high as €40 billion across Europe in the B2B field alone.

Additional benefits from e-invoicing include:

• Faster and more accurate payment from customers by reducing the time an invoice is in transit
• Decreased late payments (which cost small and medium-sized businesses as much as $3 trillion globally and 40% of those businesses experience direct negative impacts from late payments)
• Reduced printing and postage costs
• Faster and cheaper processing of information in electronic format through automated integrations between systems
• Full visibility into data (All the necessary information is available at each step in the transaction process, meaning businesses don’t have to worry about lost data)
• Higher security to mitigate fraudulent activity

However, some roadblocks can appear:

• A wide range of formats using too many different standards can hinder the smooth transfer of an e-invoice between systems (This puts the ability to achieve full benefits and cost savings of e-invoicing at risk)
• Many country-specific rules governing the validity and acceptability of e-invoices in legal, financial and administrative terms makes their use difficult in cross-border transactions

Where is This Happening?

While there is a clear momentum towards electronic invoices, there is no common global approach yet, which makes it practically impossible to predict the end of paper invoices.

Latin American countries lead the charge to deploy electronic invoicing for B2G, quickly followed by many European countries. They first made electronic invoicing mandatory for all transactions between government entities and suppliers. In Spain alone, the country’s business-to-government (B2G) platform now has 9,000 public administrations registered and processes 900,000 invoices every month. A recent study by Billentis anticipates a compound annual growth rate of 32% in the use of e-invoices in the 2017-24 period in LATAM, and up to 62% in Asia.

Mexico has been the leading country worldwide in terms of e-invoicing since 2017. All processes relevant for taxation have now been fully digitized and e-invoicing has been mandated for government to business (G2B) and government to consumer (G2C) invoices since mid-2017. Mexican organizations exchange approximately 10B e-invoices on an annual basis. E-accounting has also become mandatory for companies and individuals. All monthly salary slips must be sent electronically. Besides efficiencies in archiving and reducing paper, e-invoicing and e-accounting have led to a reduction in tax evasion, with the country raising tax revenues by more than a third.

Brazil introduced the Nota Fiscal Eletronica para Consumidor Final (NFC-e) project as early as 2011. NFC-e is in operation in the majority of Brazilian States and around 1.4M Brazilian businesses are issuing e-invoices for goods.

Chile, Colombia, Peru and Argentina have all taken steps to introduce and mandate e-invoicing, so it is not surprising that the Latin American model inspired countries in Asia and Europe to go digital as well.

At inception, EU countries introduced many e-invoice formats used across the EU causing unnecessary complexity and high costs for businesses and public entities. Hence, the European Commission decided to introduce a European Standard for e-invoicing. The deadline for EU countries to transpose e-invoicing Directive 2014/55/EU into their national laws and comply with the European standard on e-invoicing was April 18, 2018. Public authorities across the EU should now be able to process e-invoices respecting the European Standard.

The European Standard was developed to include all of the following aspects:

• Legal framework focusing on the need to guarantee the origin and authenticity of electronic documents
• Unique legislation to transpose this directive to each member state’s judicial framework (developed by each member state individually)
• Facilitation of the benefits of e-commerce between businesses (but is not mandatory in the B2B area)
• Modernization of e-government systems and speeding up collection times
• Electronic signature requirements that call for e-certificates issued by authorized bodies to validate the pertinent electronic document signature processes

In France, the mandatory submission of e-invoices for public procurement started gradually in January 2017, with the target to be fully enforced by January 2020. Due to compulsory legislation, a national unique invoicing portal called “Chorus Pro” has been developed to allow all suppliers of the public sector to submit their invoices, check the current status of the invoice, and track the payments. Using Chorus Pro is free of charge for suppliers and contracting authorities.  Three channels can be used to send their invoices: manual entry of invoices directly on the platform, upload / download PDF or XML invoices, and EDI (Electronic Data Interchange) in direct connection or via a service operator. 11M e-invoices did transit through Chorus Pro in 2017, and 13M in 2018. Currently, there are 80,000 public entities and 150,000 suppliers registered to use the platform.

The Current and Future State of Digitization

The process of switching from paper to electronic documents (especially invoices), is now well under way throughout the world. It aims at increasing efficiency and transparency. It will result in faster payments and lower operating costs. However, the fundamental issue of format has yet to be discussed, harmonized and implemented. There is no turn-key solution being developed, making it extremely difficult to deploy efficiently and quickly. Government mandated efforts also fail to take into account important business strategies and additional cost-saving benefits of true digitization.

The global market currently anticipates managing 550B invoices a year and that number is expected to quadruple in size within 15 years. Additionally, only 10% of today’s volume is exchanged electronically. In fact, it is anticipated that paper will still be a factor for at least another 20 years before the trend starts significantly fading away.

While these government mandated digitization efforts have made a positive impact around the world, it is uncertain exactly when this will be able to take effect on a true global scale. Also, because a majority of the emphasis of these programs center around tax regulation, companies must ask themselves how many savings and efficiencies are being missed if they only comply to the mandate without finding a full digital solution for themselves. Because of this, another digital revolution has started – the push to find P2P solutions for paper and PDF invoices.

To learn more about the push for P2P smart invoice processing and what companies are doing to drive their digital push outside of the government mandates, read our recent case study here and keep an eye out for our upcoming eBook titled “Paper & PDF Invoice Digitization for P2P.”

This upcoming eBook highlights several important topics including:

• The true cost of paper and PDF invoice processing
• Paper’s impact on the benefits of P2P automation
• Necessary aspects of a fully digital smart invoice processor
• The benefits of an integrated approach to digital transformation

For more information about the global mandate for digitization or Shelby’s smart invoice processing solution, contact us at info@theshelbygroup.com.

Arnaud Colignon, Head of Digital Invoice™