e-Invoicng – Top 14 misconceptions with EU mandates
Paper invoices have been at the core of financial transactions for as long as sellers and buyers have existed. Manually preparing an invoice and mailing it to a customer is second nature to most companies and the business world has been moving along for centuries using paper invoices and account ledgers. But in the last few decades as business operations have spread out to cross geographical borders and time zones, companies have begun to realize that manual operations – particularly in regard to financial transactions – are slowing down success and growth.
Inefficient Financial Supply Chains Can Grind Business to a Halt
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, and the amount of data necessary for doing business 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.
Because of these manual processes and a lack of integration among trading partners, companies are finding it increasingly difficult to turn sales into cash promptly. Financial supply chains clogged with large amounts of aging and uncollected receivables can cause business operations to slow to a crawl
while waiting for the financial pipeline to get moving. In a global economy where many other business processes are being transitioned from manual to computer-based, 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.
Successful Financial Management is Key to Staying Competitive
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 can cause troublesome fluctuations in a company’s cash on hand, which results in a significant competitive disadvantage. Manual processes that are not integrated with business partners are responsible for many roadblocks to top financial performance. Paper invoices are not only expensive and time-consuming to send manually, 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.
Optimizing Financial Operations with e-Invoicing
Companies seeking to remain competitive in today’s fast-paced global economy need to streamline their financial supply chain, and e-invoicing helps them meet that objective. Removing manual 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 allows companies to dispatch digitally signed PDFs or EDI documents immediately, which increases cash flow. Because of transparent processes and online archives, invoice loss is impossible, thereby eliminating the need for processing and sending 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.
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. Paper invoices cost a company an average of $5 per invoice,
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 is that 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
- A secure transmission is required or other means need to be used to ensure integrity and authenticity is guaranteed with 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
- Most countries require to 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
- 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
- In case 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
- 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
- Germany: after removing the invoice summary requirement for EDI invoices it is now enough to simply send EDI invoices in any format
- True is 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
- 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 as a full 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
- 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
- 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
- The reality is different: as e.g. some countries do not accept signed PDF invoices as legal or require specific formats it requires a country by country approach
- Using a solution provider with out of the box approaches to cover these requirements will ensure an e-Invoice projects does not stall after the pilot
- Onboarding of Trading partners is normally very easy
- Various challenges actually need to be solved like: basic resistance to e-Invoices à benefits to the trading partner must be communicated up front, the selection solution should provide all required components also for the trading partner (e.g. verification and/or archiving) on a 0 or at least reasonable price, strict rules to only accept e-Invoice should be applied where ever possible (including penalties if still paper invoices are received or requested)
- All trading partners are connected in the same way
- Different size of companies or invoice volumes requires different level of IT integration or languages requirements à a solution provider can handle these requirements by leveraging its shared platform with offers a variety of connections options
- Global/International requirements are almost the same
- True is 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
- Country specific e-invoicing rules exist and must be followed
- The invoice receiver will lose its right to deduct Tax in countries with VAT concepts
- Some countries have per document penalties for incompliant invoices
Thorough reviews and leveraging experienced service providers is recommended