Why businesses must get ready for mandatory e-Invoicing

Why businesses must get ready for mandatory e-Invoicing

By Ken Clark, Director, Product Marketing, Business Network Cloud

In a world where almost every business process is now driven by digital technology, it’s perhaps surprising that something as fundamental as invoicing has proven to be resistant to change and improvement.

It’s true that some companies have been moving towards some form of digital invoicing for a while, often adopting PDFs which resemble the paper invoices we’re used to. But PDFs offer few of the benefits that a fully electronic, automated invoicing approach can deliver.

So why is there still a lag?

Part of the reason for the slow transition is that e-Invoicing remains optional as opposed to mandatory in most countries. In the UK, for example, there is no overarching e-Invoicing mandate. And while some 80 countries around the world do have some form of e-Invoicing mandate in place, with South American countries leading the way, the majority don’t.

However, change is coming fast. In a December 2022 publication, the European Commission proposed to make e-Invoicing mandatory by 2028, and another 50 countries have put the wheels in motion on compulsory e-Invoicing too.

So, with those mandates on the horizon, the transition to e-Invoicing is going to go from ‘nice-to-have’ to ‘must have’ in the medium to long term anyway. But there are many good reasons why companies should consider moving more quickly.

5 reasons companies should move to e-Invoicing now

1. It simplifies tax audits

No matter how you send and receive your invoices – electronic, paper, or fax – there is still a legal obligation in tax law to do so within an auditable and robust process. Part of that means archiving tax invoices in case of long-term audits. Depending on the region, the retention period can be between four to eleven years from the initial transaction date.

That’s where we begin to see the flaws in an otherwise tried and trusted paper-based system. Paper can easily get lost or damaged. An e-Invoicing process, however, sees each step logged and traceable to verify best practices, and sees invoices stored in a secure digital archive that ensures integrity, authenticity, and longevity. These can then be made easily available to tax auditors from an intuitive web interface, simplifying the entire tax audit process.

1. It offers proven return on investment

Gartner’s ‘Top Priorities for Finance Leaders in 2022’ saw e-Invoicing playing a significant role in 5 of 8 key areas in digital business optimisation: reducing costs through automation, improving employee productivity, reducing sales & general admin costs, and optimising cashflow.

With CFOs and finance directors keen to justify the outlay on any technological investments, these benefits more than validate the move to a fully automated B2B e-Invoicing approach. As an example, Billentis has estimated that the total cost of a manual invoicing process in Accounts payable comes to around €17.60 per invoice, while true e-Invoicing can offer cost savings of up to 64% – hard to turn down in good times, let alone in a strained economy when every little helps.

1. It unlocks bottom line cashflow

Automated invoicing is inherently more scalable, prone to fewer errors thereby reducing time-consuming exceptions. Some studies have shown that the average error rate for manual data entry is about 2%. That might seem small, but it compounds over time, with the potential to lead to significant financial losses.

The upshot is that fully automated electronic invoicing means companies can get paid earlier and can also pay their suppliers more quickly – avoiding late payment penalties and potentially benefitting from early payment discounts, too. This generally means more working capital and a reduced dependence on credit, unlocking bottom line cashflow and the ability to invest in growth opportunities elsewhere in the business.

1. It’s already in play

While many countries are only now beginning to embrace e-Invoicing, don’t mistake this for an experimental or untested technology. More than a decade ago, Chile, Mexico and Brazil began to experiment with alternative approaches to electronic invoices to overcome significant tax fraud challenges. This led to Mexico becoming the first country to mandate e-Invoicing in 2011, reducing their VAT gap by 6% within two years.

Today countries around the world are beginning to do the same – but markets as varied as the EU, Egypt, and Saudi Arabia will take very different paths to placing this requirement into law.

Beginning the work of building an e-Invoicing workflow today puts you on a stable footing to operate more seamlessly across borders, regardless of how and when new regulations are introduced. With these new mandates fast approaching, companies that implement a consistent process now will be able to focus on growth instead of adaptation.

1. It’s easier than it seems

Despite the number of perceived challenges holding leaders back from implementing e-Invoicing – data security, integration with existing systems, and perceived complexity of technology – there are global e-Invoicing solutions out there that remove those concerns about technical complexity while also providing access to any expertise that is lacking internally. Also, solutions with a comprehensive multi-pronged approach to data security can enable companies to act confidently in the knowledge that security regulations are complied with as standard.

This kind of outsourced approach makes the switch to e-Invoicing much easier than it seems and can help companies get their transition off the ground immediately.

Get ready for global mandates

The regulatory landscape around e-Invoicing may be a patchwork now, but all signs point to more global mandates ahead. Even so, e-Invoicing offers a number of both direct and indirect benefits that represent a real opportunity for businesses that can make the transition now, rather than later.

By streamlining the invoicing process and reducing various operational costs, as well as improving cash flow generally, e-Invoicing can provide a competitive edge in a tough economic climate, and set the foundations for long-term growth.