Rapid advances in technology over the past few decades have forever changed the way companies do business. Globalization has opened the door to expanded markets and created fierce competition. The amount of data required to conduct business and to be compliant with many different governments and tax authorities has grown exponentially. As a result, technologies have emerged to make communication between business partners simpler and faster, and companies have changed many of their standard processes to keep up with the speed of business.
Suppliers and producers have implemented strategies to streamline operational efficiency by reducing or eliminating manual processes that are time-consuming and costly. But despite many impressive strides toward automation, the vast majority of financial transactions for most businesses are still paper-based. These manual processes and a lack of integration among trading partners make it difficult to convert sales into cash like the best of class companies do.
Financial supply chains clogged with large amounts of paper and aging and uncollected receivables can cause business operations to slow to a crawl or be forced to seek expensive loans to deal with cashflow challenges. In a global economy where many other business processes are being transitioned from paper-based to electronic, inefficient financial processes can put a company at a significant competitive disadvantage. To succeed in today’s fast-paced global marketplace, companies need to take advantage of technological advances to optimize their financial supply chains.
Firms with top financial performance earn best-in-class status from business analysts because they are able to convert sales into cash quickly and efficiently. The average days sales outstanding (DSO) for these top performers is 45 days, and the average cash conversion cycle is 15 days. But for firms with inefficient financial supply chains, the average DSO is 63 days and the average cash conversion cycle is 100 days.*
Large amounts of aging and uncollected accounts receivables cause troublesome fluctuations in a company’s cash on hand, which results in a significant competitive disadvantage and a negative impact to their bottomline. Manual paper based processes that are not electronically integrated with business partners are responsible for many roadblocks to top financial performance. Paper invoices are not only expensive, slow and time-consuming to process, but they are also burdensome to archive and store.
Reconciling invoicing disputes puts heavy burdens on company resources, increasing costs while delaying payment. Because accounts receivables are tied up indefinitely, predicting cash flow is difficult. And the problems caused by continuing to handle financial transactions manually are not limited to time and money. Without an efficient financial management solution, companies have difficulty preparing audit trails for closing books and European VAT audits.
Companies seeking to remain competitive in today’s fast-paced global economy need to streamline their financial supply chain. Electronic invoicing helps them meet that objective. Removing manual paper based processes speeds up invoicing, thereby reducing DSO and shortening cash conversion cycles. Companies can quickly free up cash and use it to repurchase stock, expand business operations, and reduce or pay off outstanding debts.
The simplicity of e-invoicing(especially if using an experienced global service provider) allows companies to dispatch digitally signed PDFs or EDI documents immediately, which often reduces DSO and increases cash flow. Because of transparent processes and online archives, invoice loss is eliminated, thereby reducing the need for processing duplicates. Accounting processes are simpler and less time-consuming. All of these improved cash management benefits can help boost a company’s stock price and performance.
Cost-Saving Benefits of E-Invoicing
One of the most attractive benefits of e-invoicing is also one of the most obvious. By eliminating
creating, printing, enveloping, consignment, and expenses for material and postage, companies can realize greater than 50% cost savings in the invoice process. Paper invoices cost a company an average of $5 per invoice to process, while electronic invoices cost an average of $2 to generate. Cost savings are not limited to paper products. Approximately 60% of all inbound customer service calls are related to invoice disputes, which translates to hundreds of hours of human intervention. By greatly reducing the human component required for processing manual invoices and reconciling invoicing disputes, a company can reduce the number of its full-time employees.
Digital signatures, security certificates, and e-invoice archiving regulations guarantee the integrity and authenticity of transmissions, thereby helping companies meet national and legal invoicing regulations in EU countries. E-invoicing solutions produce project-specific documentation including a process description and compliance map. With these templates, companies can create documentation jointly with their customer, including the requirements recommended by the customer’s tax authorities, depending on the country. Compliance regulations are very specific in terms of how invoices must be signed, sent, and archived, and a comprehensive e-invoicing solution makes it easier and more affordable for companies to meet those regulations.
Top 14 Misconceptions of EU e-Invoicing
- e-Invoicing means simply sending an invoice via email -True – emailing an invoice is considered as e-invoicing in most countries, but since email is not secure, additional measures are required like e-Signing (compliant to local tax laws) the invoice before sending it
- e-Invoicing is just about exchanging invoice data -Not true -A secure transmission is required to ensure integrity and authenticity is guaranteed with an audit trail. Long term storage in the original format is required in most countries for sender and receiver.
- To archive an e-Invoice I just need to print it – Not True -Most countries require that you archive the invoice in the original format it was received. For e-Signed invoices also the verification of the signature must be archived. The archive must guarantee that documents cannot be changed, deleted, stay consistent and be retrievable via online access.
- Invoices received by fax are always considered as paper invoices – Not True -At least for Germany two different types exist: a) a “standard” fax that can only be fed by entering paper documents and b) a “computer” fax -only in case of A it is considered as a paper invoice in case of B it is an e-Invoice and requires an e-Signature
- Invoice laws are not changing – Not True -A good example for a change is the recent (1.1. 2009) removed requirement for a summary invoice in case of EDI invoices in Germany
- In Germany: after removing the invoice summary requirement for EDI invoices it is now enough to simply send EDI invoices in any format -True – in that the summary invoice is not required, but like before, an EDI Partner agreement must be in place and a secure transport mechanisms must be used that guarantees integrity and authenticity and archiving of the invoice is required including log files that prove transmission and translation
- The EU-Directive guarantees equal requirements throughout Europe – False -As EU directives are implemented on country level, additional requirements exist and directives can also include optional parts, e.g. the 3 invoicing methods that are only implemented in some countries (like UK or Finland). In addition other requirements like SOX compliance can apply for European companies that are listed in the US stock market.
- Since 28.1.2009 a new e-invoice EU Directive was implement and is now applicable – False -It is just a suggestion to change the existing directive and first it needs to be discussed, approved and later implemented by all 27 member states à no change till ~2013
- The planned equal treatment of paper and electronic invoices will make everything easier – Undecided -It is likely that parts of the legislation will be less prescriptive for e-Invoice, but still the requirement for authenticity and integrity will exist; especially in regards to electronic storage.
- With a single rollout all trading partners can be on-boarded – False -The reality is different: as some countries do not accept signed PDF invoices as legal or require specific formats. On-boarding requires a country by country approach. Using a solution provider with out of the box approaches to cover these requirements will help address each countries requirements and ensure the e-Invoice projects does not bog down in complexity.
- Onboarding of Trading partners is normally simple – True/False – The solutions from e-Invoicing service providers can make the process much simplier, but there remains work to be done with your trading partner community. Various challenges actually need to be solved like: basic resistance to e-Invoices, benefits to the trading partner must be communicated, the selection of an e-Invoicing solution should provide all required components also for the trading partner (e.g. verification and/or archiving) at a reasonable price, strict rules to only accept e-Invoice should be applied whenever possible (including penalties if still paper invoices are received or requested).
- All trading partners are connected in the same way – False -Different sizes of companies or invoice volumes requires different level of IT integration or languages requirements. A solution provider can handle these requirements by leveraging its shared platform and providing a variety of connections options.
- Global/International requirements for e-Invoicing are almost the same – False – It is true that consensus exists in regards to the definition of e-Invoices as being the paperless exchange of invoices, but requirements differ per country – in general 3 approaches exists a) e-Invoicing is allowed and rules are defined b) e-Invoices are only allowed after request and approval by the tax authorities (e.g. Japan or Brazil) c) e-invoice is not allowed at all (e.g. Russia or India)
- With e-Invoicing nothing can go wrong and errors have little impact – False-Country specific e-invoicing rules exist and must be followed. The invoice receiver can lose its right to deduct Tax in countries with VAT programs, and some countries have per document penalties for incompliant invoices.
Most large companies that I know seem to engage a global third party electronic invoice service provider to manage their e-Invoicing program and to ensure compliance with all of the regional regulations and tax compliance rules are followed. In fact, SAP has recently announced an investment in a company that provides e-Invoicing for SAP customers.