In the first part of this series, we focused our considerations on the state of the European invoice market, as reported by new figures gleaned by a global study conducted by Billentis. In this, the second part, we will now take the remainder of the globe into consideration, as well as the typical evolutionary phases of electronic invoice adoption, of which Latin America are continuing to prove exemplary for the rest of the world.
Adoption of e-invoicing doesn’t occur overnight. On the contrary, the process is one of slow evolution and maturity, whereby it is most often the case that, due to high-volume low-value demand, it is a B2C model that paves the way for larger B2B and then mass-market adoption.
The Phases Explained:
Phase 1 – B2C Supplier Direct: Large organizations (telcos, utility sector, card issuers, etc.) have tremendous expenditures for printing and mailing bills. Due to their competitive industry, they are pushed to reduce their costs significantly. They offer the bills electronically to their clients, often on their portals for download after log-in. The rate of acceptance by clients is limited, except if clients receive incentives for changing to e-bills, if they are punished with penalties for paper bills, or if they are pushed to accept the bills via email.
Phase 2 – B2C Networks: Some clients will not wish to log-in to each supplier’s website. They prefer a single point of contact (aggregating website, online banking) for bills of all their suppliers. Some billers enhance their scope by using, in addition to their portals, a network service or switch to a push-model (send bills as PDF email attachments).
Phase 3 – B2B Large Corporates: Enterprises can benefit most with electronic and automated processes in their role as issuer as well as recipient. As soon as legislation permits paperless invoicing (in most countries, except some in Africa and Asia), large organizations are typically the innovators for e-invoicing. They push their large trading partners, followed by mid-sized and small ones. Due to the high benefits for issuers and recipients, e-invoicing in the B2B and B2G segment is typically more successful than in the B2C segment. However, it is still a challenge for large organizations to push a high number of mid-sized and small trading partners to exchange invoices electronically.
Phase 4 – Mass Market Adoption: The public sector is in an excellent position to initiate the breakthrough in the mass market. In many countries, 45 to 65% of local enterprises are suppliers to the public sector. The government has the power to push these suppliers to send invoices electronically. They are also in the position to modify the legislation in a user-friendly way, if necessary. Even in countries where the public sector is inactive regarding e-invoicing, the market does move forward rapidly. An increasing number of providers meanwhile offer a broad range of solutions for all types of users and for fair conditions.
Asia and Pacific Region
(Note: The author of the Billentis report allocates Turkey, Russia, Belarus, and Ukraine to Asia, not Europe)
With regards to the above graph, most Asian countries find themselves in evolution phases 1 and 2. India and Japan are the notable countries in this part of the world, which, despite their major importance in the world economy, they are nonetheless lagging in both legal framework and adoption. There are some exceptions, however. Singapore, Hong Kong, Taiwan, and South Korea are the leaders in this region, all of which are in phase 3 of the evolutionary model.
Australia and New Zealand
In a similar position is Australia and New Zealand. Many Australian companies are in phases 1, 2, or 3, though it is fair to say that increasingly Australians are embracing the e-commerce phenomenon, and are becoming more and more confident in electronic B2B transactions.
Pushed by the National E-Health Transition Authority, the healthcare industry is increasingly exchanging health information and related messages like invoices electronically. A limited number of businesses achieved a considerable adoption rate regarding electronic business messages and invoices within their ecosystem. At this stage however, the majority of invoices in most other industries remains paper-based, or as PDF directly via email.
The vast majority of countries are in phase 1 in Africa. The exception is in South Africa, where there is a robust, albeit still nascent, market for e-invoicing. A regulatory e-invoicing framework has been in existence for many years, and was modernized in 2012.
Elsewhere on the African continent, Morocco is comparably slightly further advanced than the rest of Africa, however, paper and PDFs are still expected to lead the way for many years to come.
Here, the implication is that the U.S. is clearly past the early adoption phase of e-invoicing, and that the interest in the topic is rising. Surprisingly, however, there are only around 150 e-invoicing network operators in place. Approximately 19% of companies are using these networks, with the number expected to rise to 41% within the next two years.
Because the U.S. does not have VAT, but a sales tax system, invoices are not considered any different from other business documents. It has therefore taken some time for the value of E-Invoicing network operators to become recognized on the U.S. market, but now the number of such operators is expected to increase steadily in the coming years.
Chile may be identified as the root of the Latin American market model and its development. Other markets like Argentina, Brazil, Costa Rica, Guatemala, and Mexico are among the early adopters and some of them overtook Chile due to strict obligations for the usage of E-Invoicing in that country. Meanwhile, almost all other countries in Latin America are rapidly evolving.
What sets Latin America apart from the rest of the world is the fact that the countries here do not dwell for too long in phases 1 and 2, instead moving very quickly to evolutionary stages 3 and 4. Governments are on board in these countries, often proving to be the initiators of the market.
What’s driving this growth, however, is the reduction of tax evasion through real-time or near real-time invoice validation by tax authorities. This is achieved via means of mandating an electronic invoice loop between supplier, the tax authorities, and the buyer.
Typical characteristics of E-Invoicing in Latin American countries are:
- Unique/sequential invoice numbers provided by the tax authorities
- Use of digital signatures based on suppliers’ certificates, issued by approved or state-run Certification Authorities
- Imposed XML standards for tax authority clearance
- Steady reporting to the tax authorities: either in real-time prior to issuance or at least monthly
- Consider the classical invoices, but also other tax documents like credit notes, debit notes, receipts respectively “boletas de ventas” or “tickets” as they are also named
- Increasing integration with the physical supply chain e.g. simultaneous print-out of ancillary transport documents based on a pre-approved invoice
- After review/approval of suppliers’ invoices, tax authorities put a visible “stamp” to the E-Invoices. It is either a country-specific alphanumeric code (Mexico) or a barcode (following the standard CODE-128C in Brazil, PDF417 in Chile or any QR Code)
- Recipients often have to validate that the invoice was pre-approved by the tax administration
- Tax authorities validate either the invoice data real-time or data-mine to check invoices later
- General archiving period is 5 years
Although the legal requirements are among the strictest worldwide, some countries in Latin America have taken over the global leadership role. Not only do some of them already have good market penetration rates (Brazil with 90%), but their model is also inspiring larger countries in Asia and likely soon in Southern and Eastern Europe.