E-Invoicing By Decree – Threat Or Opportunity?

Olivia Vorstheim

Companies are taking advantage of the digital economy to become more agile and achieve better insights. This has long been the main reason for businesses to replace paper invoices with their electronic equivalents. Tax authorities and governmental organizations are not staying behind: the use of electronic invoicing is being enforced by law in an increasing number of countries. These regulations are designed to combat fraud and help governments save costs in their procurement and tax administration processes.

At first sight, the need to comply with national e-invoicing standards looks like a burden, especially for global organizations doing business in multiple countries. However, the enforcement of national standards is also an opportunity to boost the adoption of e-invoicing in the economy and leverage a platform for electronic document exchange to comply with the challenge of increasing digital compliance requirements.

The advantages of electronic invoicing for business process automation have been well proved in the last decades – e-invoicing in the sense of structured billing data that can be automatically read and processed by the receiver. It does not include images, PDFs, or non-structured data that might be transferred electronically but is not suitable for process automation.

  • The use of electronic documents in the procurement side of the process allows for faster and more reliable processing that leads to considerable savings by reducing effort on manual operations and in complaint management.
  • By reducing the processing time of incoming invoices, buyers can benefit from early-payment discounts.
  • On the other side, the invoice’s issuer benefits by reducing the costs of manual processing and paper and by achieving early payments and satisfied customers.

These clear benefits for both parties involved in the billing process have motivated many companies to invest in e-invoicing solutions and to join procurement networks in recent decades.

For many years, investing in electronic invoicing was a business decision based on an ROI calculation. In the past couple of years, the adoption of electronic invoicing has dramatically increased due to a clear trend for countries enforcing the use of electronic invoices by law. Even though there may be different reasons behind this enforcement, the impact for companies is pretty similar: they need to invest in infrastructure or services in order to comply with new regulations. And all they seem to get from this investment is a means to avoid penalties or get an assurance that their invoices will be paid.

Trends in mandatory e-invoicing

The first countries enforcing the use of electronic invoicing were Brazil, Argentina, and Mexico, followed by Chile, Peru, Colombia, and practically every other country in Latin America. Most of these countries require that before you issue business documents, such as invoices or delivery notes, you must register these documents electronically at the local tax authorities. The detailed requirements vary from country to country, including in some cases the registration of further documents like tax certificates or payment receipts.

In some cases, the electronic invoice is used only for registration or reporting purposes, while in others it has completely replaced the paper invoice as the legal document and single source of truth. Many countries in other regions (for example, Turkey, Hungary, and Spain) have adopted similar regulations. Such regulations have proved to be very effective to combat fraud and increase tax revenue that used to get lost in the black economy. Mandatory e-invoicing has become a cornerstone of the digitalization of statutory reporting obligations for taxpayers.

  • These obligations are clearly evolving from the manual submission of aggregated information at specific time intervals to the online submission of transactional information in real time, according to EY Tax Insights.
  • A parallel trend is the enforcement of electronic invoicing for public administration suppliers. The main driver behind this trend in Europe is the EU directive 2014/55EU that mandates public administration entities to receive and process invoices electronically. As in the private industry, the digitalization of the procurement process can bring considerable economic benefits, but it depends on the other party – the sender of the invoice – adjusting to a new billing process, as well. By mandating that suppliers submit their invoices electronically, the public administration can maximize the benefit of its digital transformation.

These two trends are combining: the Italian administration introduced in 2014 the obligation to submit invoices to the public administration via a central platform as a means to fulfill the EU directive mentioned above. From January 2019, the obligation to use the same platform will be extended to all invoices, practically replacing the periodic reporting of sales and purchasing transactions currently in place.

Impact of mandatory e-invoicing

The enforcement of electronic invoicing is not good only for tax administration and the public sector. In the long run, its benefits can outweigh its downsides for private companies and the economy as a whole. Why? Because regulations facilitate the adoption of electronic invoicing for the purpose of business process optimization through the introduction of national standards.

The introduction of national standards creates the need for a different approach to support e-invoicing. National standards and central exchange platforms reduce the need for format translation and facilitate the exchange of electronic documents within a country. This has been the case in some of the Nordic countries, where the implementation of PEPPOL, an EU standard for public procurement, has extended beyond its initial use for business to government and is also being adopted by private companies.

Invoicing support for local regulations

Implementing national standards enforced for statutory reporting purposes demands a deep understanding and correct interpretation of legal requirements linked to the exchange of electronic documents in each country. This is particularly challenging for global companies and conventional electronic data interchange (EDI) providers trying to extend from classic e-invoicing to e-invoicing driven by digital compliance requirements. At the same time, classic tax reporting solutions struggle with the obligation to submit transactional information to the authorities in real time and without manual intervention.

Beyond digital compliance toward digital transformation

When the first e-invoicing obligations were introduced, companies relied on local service providers to fulfill them. Companies provided solutions for a few countries, as mandatory e-invoicing was initially considered a country-specific requirement relevant only in exceptional cases. The solutions were mostly driven by local organizations, focused on local requirements, and based on individual solution approaches.

After some time, the complexity from increasing the number of counterparts and solutions for international corporations created the need for a global platform that could be easily extended to support new countries and processes. Digital compliance requirements mandate the online exchange of electronic documents with authorities and business partners according to country-specific regulations.

A platform for the exchange of electronic documents that is seamlessly integrated with enterprise software can cover multiple country-specific regulations in a standardized way. However, the use of a common platform has other advantages:

  • Maximizes reuse for a faster time to market. This is particularly important, as the time between the publication of the detailed requirements and the legal deadline when companies must comply with them is normally very short, and the number of obligations increases every year. For example, the following scenarios have been released in the last 18 months:
    • VAT books reporting for Spain (“SII”)
    • E-invoicing for Colombia
    • E-invoicing and e-payment for Mexico
    • E-invoice registration for Hungary
    • E-invoicing for Italy
    • E-invoicing for Germany
    • E-invoicing for Belgium
    • E-invoicing for the Netherlands
  • Simplifies user experience. A single user interface for multiple countries and business processes allows users to easily adopt and manage new processes. Seamless integration with the enterprise software backend allows full automation of the submission and reception process without the need for manual intervention.
  • Minimizes effort for implementation and support. Since most of the capabilities can be built generically and made available to all country scenarios, the effort required for supporting new countries can be reduced. Once the solution has been implemented for the first country, further implementation projects need only to add the country-specific packages.
  • Leverages the ecosystem. Legacy solutions can take advantage of the standard integration between the platform and the backend systems to provide additional coverage and services on top of standard scenarios.

Broad benefits of a common platform

National standards for e-invoicing enforced by law are not only useful to provide transparency and enable savings for governments. They also boost the adoption of e-invoicing by businesses, helping companies take advantage of the digital economy to optimize their billing and invoice management processes. With a common platform, customers are able to fulfill digital compliance regulations in a reliable and cost-effective manner and move a big step forward in their digital transformation by extending the use of e-invoicing beyond the scope of the local regulations.

Learn more

For more information, please watch this video. 

To learn more on this topic, read Digital Tax Disruption Looms: Safeguard Your Financial Projects From Disruption.

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Olivia Vorstheim

About Olivia Vorstheim

Olivia is domain owner for the Digital Compliance Domain within Globalization Product Management at SAP. The purpose of this group is to support companies across the world in complying with regulations mandating the online exchange of information according to country-specific regulations. Olivia started her career in the technology department of a global SAP customer, Boehringer Ingelheim, holding various positions in Mexico, France, and Germany.