e-Invoicing: Providing Clarity In A Confused Market

Growing economic pressure is combining with sustained government commitment to encourage the adoption of e-Invoicing. The European Union (EU) is clarifying the legislation surrounding VAT; while growing numbers of European governments are mandating its use by the public sector.

Yet despite the strong groundswell of interest from businesses keen to streamline processes, improve cashflow and explore the opportunities of financial supply chain management, market confusion remains – not least concerns about a lack of integration between e-Invoicing standards.

Coming of age

In an era of electronic payments and global supply chains, it seems extraordinary that 90% of invoices worldwide are still paper based. e-Invoicing offers clear benefits to buyers and sellers alike. Sellers can cut costs, get paid quicker, improve credit control and, critically, manage cash flow. Buyers can improve efficiency, with invoice data automatically integrated into back office systems enabling approval, payment and reconciliation processes to be streamlined.

Indeed, the adoption of e-Invoicing is transforming the entire invoice/payment process as an invoice now becomes a request for payment. This is a totally integrated process which provides the supplier with immediate notification of payment timescales. The notification can even be used by suppliers to initiate a Direct Debit request, providing an organisation with unprecedented control over both generating the invoice and receiving payment.

Furthermore, this real time information can be used to transform the financial supply chain. Improved visibility of purchase orders, invoices and payment terms is enabling banks to leverage the good credit terms of buyers – especially public sector buyers – to offer lower risk and lower cost credit to supplier businesses.

This is a compelling model, especially in today’s market. So, with the exception of the Nordic region, why is there still a significant reluctance on the part of businesses and banks to move forward with e-Invoicing?

European commitment

The mass adoption of e-Invoicing across Europe is being prevented by a range of issues from technical ambiguity, legal uncertainty and operational constraints. One of the main barriers to the adoption of e-Invoicing is the lack of clarification and, to be fair, cross Europe consistency, on the legal requirements for an invoice. To gain the full benefits of e-Invoicing as described above, organisations need to be transferring data between systems – via an XML file, for example – rather than simply providing a PDF of the invoice.

While this model is gaining growing acceptance in the Nordics, where e-Invoicing is already well established, and Northern Europe, many southern European governments, including Italy, have created somewhat complex e-Invoicing requirements based on the PDF model.

The good news for UK businesses is that an XML file is acceptable under the HMRC guidelines, enabling e-Invoicing to be immediately adopted for domestic business. Organisations can then expand usage to those countries that also follow the data led model. However, this is where another of the barriers to entry occurs; the lack of standardisation across the e-Invoicing marketplace, with vendors, buyer groups and banks trying to push multiple solutions.

Vendor agnostic

This lack of standardisation is making it very difficult for supplier organisations to proceed. With buyers insisting on specific formats for e-Invoices, suppliers face demands to support multiple different formats and models – from country specific requirements such as the Finvoice in Finland, to the requirements of specific buyer centric solutions. This is not economic or practical and is fundamentally constraining adoption.

The EU first looked to address this issue as far back as 2009 and has recommended the adoption of the UN/CERFACT Cross Industry Invoice. However, this standard has yet to be fully developed and is not, therefore, yet in use. The alternative – and one also identified by the European Commission – is the use of the ISO 20022 Financial Invoice which has the benefit of use within the Single Euro Payments Area (SEPA). The adoption of this approach allows organisations to standardise on one platform for both invoicing and SEPA payments, streamlining processes and easing integration with banks.

However, whilst it is important to understand the evolution of standards within the e-Invoicing marketplace, issues of integration should be transparent to organisations. The onus must be on e-invoicing solution providers to manage interaction effectively and enable suppliers to create one invoice format that is automatically translated and accepted by buyer organisations. It is only by taking this format agnostic approach that companies will have the confidence to embark wholeheartedly upon e-Invoicing.

Real-time economy

The EU has a firm commitment to achieving its digital economy vision by 2020, by which time electronic invoicing will predominate. But let’s be very clear. Sending a PDF of an invoice is not e-Invoicing. The key to realising the benefits of streamlined processes and an integrated financial supply chain is the transmission of invoice data from one system to another.

Once in place, organisations will gain the benefits of faster processing, improved cash flow and enhanced customer/supplier relationships. Furthermore, as banks begin to exploit real time insight to create a lower risk lending model, companies will have essential access to cheaper supply chain financing. With these critical building blocks in place, organisations will be perfectly placed to exploit the continued evolution towards the real time economy.

Steve Carter is Head of Invoicing at Bottomline Technologies, where he is responsible for European e-Invoicing product strategy and market development. His role is to enable market adoption of e-Invoicing through innovation and help businesses to facilitate a natural evolution away from paper.