In recent weeks, we’ve examined the rapid expansion of business-to-government compliance in countries that rely on VAT tax income. While Latin America is the current hotbed for such legislation, similar mandates are cropping up worldwide as countries prove the effectiveness of financial legislation in maximizing tax revenues. The reach of these mandates is far – affecting sales,procurement and even HR. Though many companies see compliance as cumbersome, there are multiple benefits to the automation required under these mandates – not the least of which is improved cash flow.
Business-to-government compliance can require extensive changes to accounts receivable and accounts payable processes – but with change, comes opportunity. On the AR side, e-invoicing requirements mean that XML invoices have to be sent to the government and approved before being issued customers and often before goods are shipped. Brazil is even acting as its own e-invoicing network, meaning that customers can easily download invoices from the server, eliminating the distribution burden on AR teams and ensuring that there is never an excuse for a missed invoice.
The real cash flow benefit, however, comes from the impact of business-to-government compliance on AP processes. Because invoices must be available to buyers even before goods arrive, e-invoicing mandates streamline AP approval processes, opening the door for improved cash flow and supply chain financing. Automating the inbound receiving process means that invoices can be deemed “okay to pay” as soon as goods arrive, reducing operational costs and providing greater flexibility over cash flow.
Proactive companies are using this automation to introduce supply chain financing in regions of the world where supply chain stability is critical. Using supply chain financing, corporations can lower the cost of payment processing while providing suppliers with greater access to liquidity, as payment approval windows decrease from weeks to hours. Suppliers have the ability to immediately convert invoices into cash, and can speed up the payment process based on their unique cash flow needs, payment terms and billing cycles.
With improved cash flow comes increased stability in the emerging markets most inclined to implement business-to-government legislation, ultimately ensuring supply chain effectiveness and making these economies a less risky place to do business.