E-Invoicing is not only big business, it is big for business. The European Commission describes the need for the mandatory implementation of an EU-wide electronic invoicing network in no uncertain terms:
“Electronic invoicing – e-invoicing – is electronic transfer of invoicing information (billing and payment) between business partners (supplier and buyer). It is an essential part of an efficient financial supply chain and it links the internal processes of enterprises to the payment systems. The ongoing creation of Single Euro Payment Area (SEPA) offers an ideal launching pad for a successful European e-invoicing initiative with the savings estimated at around EUR 64.5 billion per year for businesses.”
The savings, indeed, are tremendous. Paper-based invoices are an inefficient and unnecessary expense right across the board – from the transportation requirements for delivery, to the physical archiving and storage of the documents, to the printing and the cost of the paper that they’re printed on, to the manual labor that is required for processing.
It is no secret that the European Union (EU) has been dragging its heels over the widespread adoption of e-invoicing – but it may well come as somewhat of a surprise to discover just how long the process has been in a state of stagnation.
Writing for Tungsten, The Global E-Invoicing, Invoice Financing, and Analytics Company, Lucy Ashdown was indeed particularly shocked to discover that “it’s been 18 years since the EU and the OECD first created initiatives to eliminate barriers for e-invoicing.”
“Unfortunately,” Ashdown continues, “while their Brazilian and Mexican counterparts are taking bold decisions and rolling out mandatory e-invoicing, including standardization across nations, and bringing huge financial gains as a result of their ability to collect taxes more efficiently, EU representatives continue to sit around debating the advantages and disadvantages of e-invoicing.”
Ashdown is right – the true e-invoicing experts in the world most definitely can be found in Latin America. Brazil, for instance, has an incredibly strong market penetration rate of 90%, with the likes of Chile, Mexico, and Argentina also proving to be dedicated adopters of the electronic invoice. The question remains – why is the rest of the world so slow on the uptake?
Slow Moving Progress
In Latin America, the ICT (information and communications technology) tools that enable the automation of businesses processes are in full swing. These processes started to appear in invoicing over the last decade or so, with structured electronic invoicing now the norm, not the exception, in these regions.
In Europe, adoption has been much, much slower – though there are a number of EU Member States that have begun to legislate in this field. Recently, Italy, Spain, and Germany have started to make e-invoicing mandatory for public procurement – i.e. business-to-government (B2G) transactions. In fact, as Ashdown notes, “progress has been made in the EU, with a decision to mandate e-invoices for business-to-government (B2G) across all 28 member states by 2018.”
A step in the right direction, certainly, but nonetheless still somewhat sluggish, especially when compared to the progress already achieved in Latin America.
Germany – A Closer Look
As the largest economy in Europe, Germany is surely the country that should be leading the way for the rest of the continent in terms of electronic invoice adoption. But is this actually the case?
Crossinx – an international network for electronic invoices and business documents – recently carried out a representative survey in the German public sector (126 municipalities in 14 federal states) in March of this year. Here is an extract of the findings:
• Just 8% of German municipalities already use e-invoicing
• An additional 19% plan to implement e-invoicing during the coming two years
• 73% of respondents do not have any plans to implement before 2017
• 90% of respondents not yet using e-invoicing answered that they are absolutely not familiar with the topic
In recent years, a combination of PDF+XML invoices have gained ground. Either this happens with two separate files, or a XML data set is embedded in the PDF. This seems to be an appropriate way to fulfill the requirements of large, mid-sized, and small enterprises. It could be a way to reduce the current dominance of just image-based PDFs.
Another study was recently conducted by ibi research concerning e-invoicing and related topics. The findings of which are summarized below:
• Despite rising market adoption, there is still much potential to exploit
• The main driver for substituting paper with electronic invoices is cost reduction (expect 60+% savings) and efficiency increase of the organizational internal processes
• 48% of respondents trace back the increase of e-invoices directly to the legislation change in the European Union
• Many businesses still feel unsure regarding the legal requirements; just 48% feel that they have sufficient information about digital invoice preservation
• 69% of the interviewed businesses print received e-invoices for the internal workflow; just 26% process fully digitally
• 35% of invoice issuers and 40% of receivers prefer e-invoices to paper invoices
• 57% (versus 44% in 2011) of businesses mentioned issuing e-invoices by email
With the largest economy in Europe, Germany is at the forefront of the EU’s e-invoicing initiative. The German FeRD is the German representative to the European multi-stakeholder Forum for Electronic Invoicing. With 90% of the Crossinx, respondents who are not yet using e-invoicing claiming to be completely unaware of the initiative, these bodies certainly have a long way to go before the country sees anything like the 90% market penetration that is currently boasted by Brazil.
Sweden – A Closer Look
The Swedish government is considering mandating e-invoicing to the public sector, forbidding paper invoices, and will implement the EU Directive on e-invoicing in public procurement into national law by 2018. But in January of this year, the government decided to task the National Financial Management Authority (ESV) with investigating the consequences of the Directive, as well as to provide suggestions as to how it should be implemented and what measures would be necessary.
ESV Positive To Legislation Regarding Compulsory E-Invoices To The Public Sector
ESV cites that substantial efficiency and cost savings would be made following the transition to e-invoicing, as well there being positive environmental outcomes.
The report also notes that SMEs in particular are likely to experience an initial increase in costs as a result of the Directive. Therefore, ESV recommends that the government should exempt smaller companies from having to comply with the standards, but to combine with “financial incentives for the exempted small companies to send e-invoices.”
Long-term savings – in terms of efficiency, productivity, as well as costs – are of course the ultimate goal of both Germany and Sweden, and indeed any nation or business planning to make the switch to e-invoicing. Financially incentivizing smaller companies to get on board is the common solution, which will be easily off-set against the larger savings that will be made by the government across the board.