GXS Insights

Select an Insights Edition

• Insights Index
• 1st Edition: Inside SaaS 2.0
• 2nd Edition: Navigating Cross Border Business Boundaries
• 3rd Edition: How to Increase ERP Success with B2B Integration
• 4th Edition: Enhancing Customer-Centric Supply Chains

Fiscal Dematerialisation─Riddled with Regulations, But Enormous Benefits

by Denise Oakley

The widespread adoption of the Internet as a B2B tool has lowered the barriers to entry for electronic trading between buyers and suppliers while in parallel, as a result of European Union member state initiatives, many countries have developed regulations that will allow companies to finally remove paper from the invoicing process. This is the essence of fiscal dematerialisation which is inherently riddled with regulations, but abounds with enormous rewards.

Fiscal dematerialisation effectively means the removal of paper (it’s the paper that’s being ‘dematerialised’) from the invoicing process and for the most part the term is used interchangeably with e-invoicing and also Electronic Invoice Payment and Processing (EIPP). Companies have been exchanging invoices with their customers and suppliers electronically for years. The invoice was the first document to be automated by many retail and manufacturing supply chains using Electronic Data Interchange (EDI) technology, which isnot surprising given its direct impact on cash flow for both parties. In the last five years however, developments in technological and regulatory areas have led to an increased interest in e-invoicing. In addition, technological developments have opened up the opportunity for automation to much smaller companies than previously. And, while the concept isn’t new, regulatorychanges now enable the complete removal of paper.

Savings from e-invoicing come from two broad categories─operational and financial. The operational benefits relate to the removal of costs associated with manually processing an invoice. This encompasses printing invoices from the Accounts Receivable system to faxing or mailing them; receipt of hard copy invoices, re-keying into the buyer’s Accounts Payable system, and then the handling of any errors. The Corporate Action on Standards project, set up by the European Payments Council, reports that e-invoicing allows companies to cut the average EUR30 cost of processing a paper invoice by 80%. Also, on average up to 40% of invoices contain data errors related to price or trade promotion activities.

The second area of benefit comes from the impact that accurate, timely and cost-effective invoicing can have on a company’s cash position. Buyers that receive such invoices can take advantage of early payment discounts; suppliers that send them can get paid more quickly. If traditional EDI was the domain of the IT Director, e-invoicing is now an important strategic opportunity for the Financial Director or Chief Financial Officer.

While the regulatory changes have in some respects encouraged adoption of e-invoicing, they have also introduced potential barriers that vary in degree on a country by country basis. The regulations relate primarily to how data is moved and maintained but also include the actual data itself. Data must be moved with a guarantee of secured sender and receiver identity,ensuring that unsecured parties do not see or tamper with the invoices. Data must also be maintained by archiving in a format useful for the tax authorities and internal audits. The data has to be compliant with VAT or sales tax regulations in all of the different countries in which a company operates. Compliance with these rules is essential, yet the variance of rules by country makes it a potential minefield for most companies.

In recent months a number of new trends have surfaced as a result of the increased adoption of e-invoicing. Firstly, suppliers are starting to feel the benefit. The improved cash flow or financial benefits are clear to CFOs of companies of all sises. It is now just as likely that an account manager will approach a buyer with a request to automate invoicing as vice versa. Secondly, the benefits of automated invoicing provide the opportunity for more value-added capabilities. For example, the ability to offer downstream financing options to suppliers based on the invoice or other supply chain documents. Interoperability between vendors of e-invoicing solutions is, at best, nascent. Unlike similar scenarios in the past, the issue here is not technical, but rather it is commercial and legal. How do you know that the end-to-end process involving two different technology vendors,one for a supplier and one for a buyer,will be acceptable to the local authorities whenthe time comes for an audit?

The opportunity for operational cost-savings and competitive advantage is significant and is enjoyed already by many companies. Regulatory changes are of critical importance, but notwithstanding potential concerns about vendor interoperability, solutions are available to companies today that both remove the burden of learning and staying up to date with the rules.