Clearance models, compliance issues, and further complexity: A 2020 insight into the global e-Invoicing landscape Electronic invoicing may be described as a number of different things, but it’s certainly not the new kid on the block. I don’t think we can talk any longer about e-Invoicing, or the technology that enables it, as being something new and ‘revolutionary’ as it relates to a process that has a firmly established, seasoned and experienced industry surrounding it. Order2Cash, for example, has been operating and offering technological solutions within this domain for two decades now. However, while the technology may be widespread, there is most certainly a revolution happening within the industry at the moment. We are witnessing a dramatic and rapid increase in demand for e-Invoicing technology. So what has triggered this development, and from where has the demand arisen? by Damian Leslie, Marketing Manager at Order2Cash B2G mandates are now the biggest driver for growth Traditionally, the biggest driver for e-Invoicing growth has been big business. Initially, the idea of ‘making the switch’ to electronic invoicing was championed by larger, multi-national corporations. Companies with incredibly high volumes of invoices. For them, the main drivers for adopting e-Invoicing technology were easy to understand; electronic invoicing gave them a chance to reduce costs, realize cost-cutting targets and improve efficiency in the process. In turn, that would help to drive increased revenues and hopefully limit the number of FTE’s that were needed to handle such menial tasks such as print and postage. Electronic invoicing technology delivered a range of easy benefits; less paper, less postage and so fewer overheads; including a reduced headcount, automated processes, better delivery rates, improved communication and more. What hindered the growth of e-Invoicing, initially, was simply the cost and complexity of adopting an e-Invoicing ‘solution’; particularly among smaller enterprises and SMB’s. So what has changed? In short, e-Invoicing has become mandatory as opposed to a luxury for all businesses. B2G mandates are now the biggest driver for our industry’s growth. Governments think and work very similarly to those large-scale businesses, and they have similar needs for efficiency and cost-reduction. Order2Cash Blog Article. E-Invoicing. Opinion.
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Clearance models, compliance issues, and further complexity:A 2020 insight into the global e-Invoicing landscape
Electronic invoicing may be described as a number of different things, but it’s certainly not the new kid on the block. I don’t think we can talk any longer about e-Invoicing, or the technology that enables it, as being something new and ‘revolutionary’ as it relates to a process that has a firmly established, seasoned and experienced industry surrounding it. Order2Cash, for example, has been operating and offering technological solutions within this domain for two decades now. However, while the technology may be widespread, there is most certainly a revolution happening within the industry at the moment. We are witnessing a dramatic and rapid increase in demand for e-Invoicing technology.
So what has triggered this development, and from where has the demand arisen?
by Damian Leslie, Marketing Manager at Order2Cash
B2G mandates are now the biggest driver for growthTraditionally, the biggest driver for e-Invoicing growth has been big business. Initially, the idea of ‘making the switch’ to electronic invoicing was championed by larger, multi-national corporations. Companies with incredibly high volumes of invoices. For them, the main drivers for adopting e-Invoicing technology were easy to understand; electronic invoicing gave them a chance to reduce costs, realize cost-cutting targets and improve efficiency in the process. In turn, that would help to drive increased revenues and hopefully limit the number of FTE’s that were needed to handle such menial tasks such as print and postage. Electronic invoicing technology delivered a range of easy benefits; less paper, less postage and so fewer overheads; including a reduced headcount, automated processes, better delivery rates, improved communication and more.
What hindered the growth of e-Invoicing, initially, was simply the cost and complexity of adopting an e-Invoicing ‘solution’; particularly among smaller enterprises and SMB’s. So what has changed?
In short, e-Invoicing has become mandatory as opposed to a luxury for all businesses. B2G mandates are now the biggest driver for our industry’s growth. Governments think and work very similarly to those large-scale businesses, and they have similar needs for efficiency and cost-reduction.
e-Invoicing is now mandatoryGovernments across the globe have been following the trail led by big business and are pushing to establish government and public sector administrations that are paperless, data-driven and data-focused. In Europe, we’ve seen this trend grow significantly in recent years. The shift was fuelled initially by the EU Directive 2014/55/EU.
This directive outlined a desire to build and recognize a pan-European standard for e-Invoicing. It also stated that mandatory use of the technology had to be in place across all EU member states by the end of 2018. It’s estimated that over 100,000+ public administrations and agencies across Europe were affected by this directive. This, in turn, has forced all companies trading with those government and public sector agencies to implement their own solutions, in order to meet the new regulations and continue their mutual business effectively.
The Europeans were followers, not leadersThe trend for government mandates did not start within the EU, however. Instead, that directive was born as a response to what was happening elsewhere.
If we take a look at the first chart opposite, originally published in the 2014 e-Invoicing Market overview from Billentis; you can see that the global leaders were, in fact, Latin and Central America and the Nordic countries.
Latin America were way ahead of the curve. By 2014, Brazil was already processing more than 90% of all B2B/B2G invoices electronically and their country-wide project began as far back as 2011.
Brazil was one of the first countries to install a ‘clearance’ model for e-Invoicing and a new priority became the predominant decision driver, aside from cost reduction and efficiency. The clearance model is used, primarily, with the aim of reducing tax evasion.
In my opinion, this gained such momentum because it is the invoice document itself that provides the most complete information for tax authorities. What I find interesting is that you can see how the invoice document itself became the catalyst and the central focus for much bigger projects. Automating, streamlining and accelerating the clearance process can help governments achieve a real-time, transparent tax monitoring process.
With the clearance model, suppliers and buyers have to send invoice data (or reports) in electronic format to the tax authorities for real-time validation & auditing. While this provides many benefits for the tax authorities, the clearance system is quite complex. To ensure compliance, all companies need to have their own issuing certificate granted by the tax authority, which they use to electronically sign each document. While the intentions and benefits of the clearance model are clear, this model simply forces companies to play catch-up quickly. What happened in Brazil is what we now see happening elsewhere; although a government may be demanding that companies use an electronic invoice, many companies are faced with the reality that their own internal processes are inefficient, or that their means of communicating electronically with suppliers and buyers are insufficient; if they exist at all. All affected buyers and suppliers have found themselves in a race against time to establish or adopt a technological solution in order to ensure their business processes remain compliant.
The current state of playThe seond chart opposite is taken from the Billentis 2020 Market overview, and here we can see that Ar-gentina, Italy, and Kazakhstan have now joined the group of leaders. Each of these countries has adopt-ed a clearance model.
In 2019, 11 new mandates appeared in total, and we expect a further 17 mandates to come into force in 2020. The majority of them will come into place across Europe, but Latin America will see mandates appear in Bolivia, Chile, Costa Rica, and Paraguay. Also, we’re expecting further developments across Asia, with Taiwan and Vietnam expected to go live this year and India will be mandating B2B invoicing as of April. There are many others being prepared elsewhere so we expect the list of mandates to grow consistently over the next few years.
We can sum up what’s occurring in the market as follows. There is a clear shift towards adopting a clearance model for many countries coupled with the fragmentation of standards, which is causing many compliance issues. All of which is resulting in increased complexity for those having to navigate this landscape.
The rise of the clearance modelWhat we’re observing is a real and definite swing in favor of the clearance model over a post-audit model and looking ahead, we expect to see further countries adopting this type of model, particularly across Europe. The reasons for this are obvious.
A report by the EU’s Directorate-General for the Taxation and Customs Union for all Member States stated that 137.5 billion euros of the expected VAT revenues went uncollected across the region in 2017. Levels fluctuate for individual countries, with both Romania (35.5% uncollected) and Greece (33.6% uncollected) the two largest outliers. However, in terms of the actual monies involved, Italy is by far the poorest performer, with around EUR 33.6 billion (23.8%) of uncollected tax in that year. With statistics like those, it becomes abundantly clear why the clearance model is seen as preferential at government level. Many other countries across Europe will be keeping a close eye on the performance of Italy’s initiative. Portugal is set to activate its own B2B mandate in April 2020 and it will be interesting to see how this trend develops further.
ComplianceThe rise of the clearance model is also having an effect on standardization.
If we are honest, standardization for e-Invoicing has never been as straightforward as one would hope for. The simple truth is there are many different standards in operation globally.
Global e-Invoicing standard formats include:• ebXML• OASIS UBL 2.x• ISO/IEC 19845:2015• UN/CEFACT• PDF/A-3• ISO 19005-3• CEN/PC 434• CEN/PC 440• PEPPOL BIS 3.0
Industry-specific invoice standards include:• ETIS (Telecommunications)• GS1: EANCOM, GS1 XML and GS1 UN/XML
(Various sectors including retail)• ISO 20022: (Financial industry)• LITIG/LEDES: (Law firms)• PIDX: (Oil and Gas Industry)• Rosetta Net: (Automotive manufacturers)
Country specific invoicing standards include:• Austria: ebInterface• Belgium: BMF• Czech Republic: ISDOC (based on UBL)• Denmark: OIOXML (based on UBL)• Finland: Finvoice• Germany: ZUGFeRD• Italy: BTW, FatturaPA• Spain: facturae• Sweden: Svefaktura, SFTI• Switzerland: swissDIGIN• Turkey: UBL-TR (based on UBL)
Format warsFor years, the EU has long drawn attention to the OpenPEPPOL (Pan European Public Procurement Online) project as a testament to its desire to create and enforce standardization across the region. This year, the PEPPOL AS4 protocol comes into operation, which will become a mandatory acceptance requirement for every PEPPOL access point. This is a step in the right direction but Italy’s clearance model goes against this push for standardization as their model requires a handful of additional mandatory data fields. This is fragmenting the value of the PEPPOL standard and if further countries follow suit and require their own individual make-up, then we are sure to end up with a European situation that mirrors what’s happening in Latin America, where standardization is contained at the country level.
As said previously, EU Directive 2014/55/EU was created with a desire to build and recognize a pan-European standard for e-Invoicing. But that directive has allowed each member state to select their preferred channel and format, enabling them to determine their own preferred technologies. Instead of creating a pan-European standard we have, in effect, ended up with a local standard for each member state.
Increased complexityWhat all of this means is that we currently find ourselves in a business landscape wherein we must operate and interact using many different variations on the same theme. When a government wants to create a central access point to verify and clear all invoices, they also get to choose a preferred format and create their own communication guidelines. In theory, all of these initiatives should make it easier to communicate, easier to do business and should make the process easier to monitor, maintain and control. The thing is, all of these initiatives are geared to help streamline activities and processes at a government level. This results in a greater level of complexity for the buyer and suppliers affected by these mandates, and it’s a complexity that they must seek to unravel without question. Particularly if a business conducts business in multiple territories.
In practice, the complexity is quite staggering.
There are a variety of service providers, offering differing levels of service, including domestic and international support. There are multiple invoice formats and standards. On top of that, different industries have their own specific workflows and formats. Let’s add to that the extra complexity of having to deal with numerous AP (B2B) invoice channels and you can see how the problems continue to multiply.
Suddenly, the streamlining and efficiency goals associated with e-Invoicing can seem pretty hard to obtain.
A benchmarking survey from the magazine Credit Today found that, on average, the businesses they contacted were being forced to connect to 12 different AP invoice portals in 2017. Order2Cash is witnessing similar numbers among our own customer base; with some customers requiring more.
In many cases, companies are having to manually input invoice data into these AP portals as a result of not having adequate data connections in place. The cost of handling this is vast. Invoice costs can soar to around EURO 25.00; with AR processing costs of EURO 11.93 and manual data entry fees of EURO 13.89 per invoice.
So how is a company expected to navigate its way around this landscape?
Navigating this landscapeWell, the very first thing I would suggest is this: Don’t be afraid to ask for help.
While a DIY approach can work for some, it’s a costly endeavor. Establishing a working connection with an invoicing platform can take months to realize. Building connections will cost both time and resources and these are normally projects that sit outside of the usual budget and resource planning. These projects can cause a strain on a company’s finances and the longer it takes to get a connection setup, the longer it will delay your business. You could end up stifling your order pipeline and if that continues for a length of time, no matter what your industry, you will feel the impact. This potential impact will multiply with each connection you are required to build. If you want to go your own way, you need to be sure that your IT department is flexible enough to accommodate this extra workload.
Do it yourself or outsource?Invoice channels are like highways. In theory, they make everything flow faster but there are several rules that need to be followed. If you’re not careful then things can grind to a halt very quickly and your documentation flow could end up stuck in a traffic jam. And invoices that go undelivered don’t get paid.
On the face of it, building a connection does not seem so complicated but in practice, it can often turn into a substantial undertaking. In order to set up a working connection you first have to do some detective work:
A step-by-step guide to interoperability • Make contact with the preferred invoicing
channel• Examine the channel’s delivery requirements
(e-Invoicing format and legislation)• Ensure you can replicate the format required
in your ERP/booking system• Examine any connection requirements• Examine all customer-specific (receiver) re-
quirements (additional field mapping)• Build a data connection• Test connection (both sending and receiving)• Schedule deliveries• Monitor and maintain your connection (updates
and protocol enhancements)
Understand your situationWhether you choose to handle it all internally or work with a solution partner, at the very least you need to quickly get to grips with what is expected of your business, both in terms of government legislation and your own customer/debtor requirements.
Businesses must take the time to research what mandates are in place within their territories of business and what they need to prepare in order to meet those requirements.
Establishing a data connection with an AP platform, or B2G invoicing network usually involves a trial-and-error system that involves a lot of testing and is a hefty IT exercise. You need to be sure you are prepared to handle these projects.
Understand your requirements• How many channels do you need or are
mandated to connect to?
• Which countries/territories do you cover and are mandates currently in operation?
• Which channels (AP or B2G) would be helpful to connect to?
• How many standard data formats do you need to support?
• How many delivery formats do you need to support?
• How many receivers have specific requirements?
• And most importantly, how much business does this affect?
The level of complexity present within today’s e-Invoicing landscape is unfortunate and in some cases unnecessary, to my mind. It’s clear that some issues could have been avoided but I understand that the complexity is not going to unravel itself any time soon. Thankfully, there are some initiatives we can take heart from. While the OpenPEPPOL project has been fragmented somewhat by developments in Italy, I think it’s good to see PEPPOL based and influenced projects sprouting up in other parts of the world. I’m particularly interested to see how Australia and New Zealand implement their upcoming project. Elsewhere, I think it’s great to see trade bodies like the European E-Invoicing Service Providers Association (EESPA) and the Business Payments Coalition in the United States continue to push and lobby for stricter standardization and keep the focus
on interoperability. Volunteer associations like these are striving to make electronic payments more efficient across the procure-to-pay and order-to-cash cycles. Their shared aim is to make it easier for companies to conduct their business and the results of their work will create stronger best practices for the entire industry.
The time for true electronic invoicing is hereTo conclude, the electronic invoicing industry has matured a lot in recent years. The industry’s initial progress was fuelled by larger companies. Those companies have been sending their invoices to customers, both domestically and internationally in some cases, for more than a decade but the industry’s most popular delivery format has been via email with an attached PDF copy of the invoice. In essence, a digital facsimile of a paper document. Sometimes, enhanced structural data as defined by the receiver could be included. This is changing.
The focus of the industry is narrowing towards truly electronic formats. Domestic solutions are no longer viable. Compliance is of real concern and I would suggest that even smaller businesses, particularly those working in an online B2C arena, should consider an internationally suitable invoicing approach from the beginning.
The sharp increase in the number of governments mandating that their suppliers send invoices in a special format is now forcing suppliers of all sizes to consider and implement an e-invoicing project. In most cases, the receiver of the invoice (in this case a public sector organization) defines the format and other legal requirements that need to be in place to validate the invoice. These can force international suppliers to not only convert the invoice data itself but also to process and archive those invoices on servers in the country of destination. It’s here where many businesses start to come unstuck because their in-house IT and legal staff can no longer guarantee to fulfill the compliance requirements of customers abroad.
If your company is about to venture into these waters, please don’t go in unprepared. The invoicing process is of critical importance to any business. Improving your connectivity will help you to focus on the business of doing business. Ask for help. Look for a provider who can help you to unravel this complexity. From an outbound invoicing point of view, make sure you do your own preparation well:
• Know your own environment
• Know your requirements
• Phase your project to make it manageable and achievable
And when looking for a supplier, search for a partner that is:
• Focused on interoperability
• Can guarantee global compliance
• And can accommodate multi-language and format delivery methods
The benefits of e-Invoicing are real and valuable. If you steer your project correctly, you will quickly be able to shift your entire invoicing process online; be able to process diverse payment types and integrate seamlessly into SAP or other ERP systems, payment platforms, and invoice networks. If you keep interoperability in focus, e-Invoicing can allow you to manage and monitor your AR processes with ease. Just tread carefully, prepare well and understand your requirements.
I wish you well.
Suggested further reading
Order2Cash global e-Invoicing solutionsDiscover the scope of our comprehensive outbound invoicing solutions here.
Global e-Invoicing and the need for greater interoperabiltiy - WhitepaperGet a handy country-by-country guide to all currently active B2G invoicing mandates. Claim your copy here.
