New technology brings ever greater improvements to the world of cash management and the financial supply chain. Why then has the use of electronic invoicing failed to become a universally adopted process? In this article, we take a look at what is happening in the European marketplace, discuss the role of banks and consider the challenges slowing the progress of this beneficial development.
What is electronic invoicing?
Electronic invoicing (e-invoicing) is the transmission, processing and storage of invoices by electronic means, creating a paperless environment. It enables secure identification and accurate capture of invoice data into a corporate’s enterprise resource planning (ERP) or accounts payable/receivable system, eliminating manual intervention and promoting straight-through processing within the financial supply chain.
E-invoicing methods include:
Electronic invoice presentment and payment (EIPP).
Business suppliers present their invoices to business buyers (B2B) via an internet website usually hosted by a third-party. Buyers can view summary and detailed invoice information, distribute invoices for approval as well as make the associated payments online. Functionality also includes online enquiry and dispute resolution as well as invoice management and archiving. Importantly, invoices can be downloaded into corporate ERP/accounting systems from a choice of formats, for example, extensible markup language (XML), electronic data interchange (EDI) and portable document format (PDF).
Electronic billing presentment and payment (EBPP).
Business suppliers present their bills to consumers (B2C) via an internet website usually hosted by a third-party. Consumers can view and make their payments online but typically do not have access to the more sophisticated functionality available to businesses through EIPP. This method is often used, for example, by utility and telecommunication companies. Also known as e-billing, it is frequently referred to in the same context as e-invoicing.
Value added networks (VANs).
Business trading partners exchange electronic data computer-to-computer via a network provided by an application service provider (ASP). Traditionally, VANs transmitted data using EDI but now offer services that can convert data between formats. It is more commonly used where a high volume of data is transferred between businesses.
Optical character recognition (OCR) software.
This captures text from scanned paper, PDF or other digital format invoices and converts it into a data format that can be imported into the recipient’s systems. As it requires some manual intervention, and it may have a lower accuracy rate, it does not provide complete straight-through processing and is therefore not a full e-invoicing capability.
The market in Europe
The EU invoicing directive
E-invoicing products were available before the implementation of the European Union Directive 2001/115/EC in January 2004. However, it was this directive (known varyingly as the invoicing, e-invoicing or value added tax (VAT) directive), that required all member states to accept electronic invoices (e-invoices) as legal VAT documents.
The directive aimed to ‘simplify, modernise and harmonise’ the invoicing conditions applicable to VAT across the EU in order to promote cross-border trade and invoicing. Key conditions related to invoice content, the acceptance of e-invoices, guarantees for the origin and integrity of e-invoice content, and storage arrangements. Some of the details within the directive were left to each member state to determine, for example, the means for accepting e-invoices (eg advanced electronic signature, EDI or other) and the time periods for storage. Therefore, whilst the directive was a leap forward, the varying national legislation introduced as a result has caused some confusion regarding the legal situation of cross-border invoicing between member states with different standards, for example, in e-invoice security and non-compliance penalties.
E-invoicing and EBPP market figures for Europe
|Pure electronic volume
|Number of service providers
Note: EDI invoices accompanied 1:1 by paper summary invoices not considered. The above figures are reproduced with kind permission from Bruno Koch, Billentis.
The EU invoicing directive may well have left many companies a little cautious about introducing e-invoicing but the Single Euro Payments Area (SEPA) initiative (due for launch in January 2008) and its legal foundation, the payment services directive (PSD), is helping to stimulate renewed interest. The PSD (to be effected into national legislation by November 1st 2009), intends to make cross-border payments within the euro payments area as ‘easy, efficient and secure as making domestic payments’. In their joint statement welcoming the European Parliament’s adoption of the PSD (issued April 24th 2007), the European Commission and the European Central Bank stated, “This should encourage technological progress and the realisation of new product opportunities, such as e-invoicing, which can provide major benefits to the wider economy.”
Many corporates are now looking more closely at the benefits of e-invoicing and what it means to them including cost savings, efficiency improvements, better financial decision making, relationship building and support for regulatory and best practice compliance – as well as the revenue potential these may bring. Please refer to the ‘Benefits of e-invoicing to corporates’ section at the end of this article.
National governments are keen to encourage e-invoicing, viewing it as an opportunity to promote business, improve tax procedures and bring improvement to their own public sector operations. Some governments are actively encouraging the use of e-invoicing within the e-procurement processes of their public sectors. In Denmark, for example, since February 2005, all public sector organisations have been required to accept only electronic invoices from their suppliers. This change is expected to save at least €120m every year. Encouraging the public sectors across Europe to move to e-invoicing would provide a significant boost to market development and help persuade other industry sectors to follow suit.
The role of banks
The relatively embryonic e-invoicing market suggests there is ample opportunity for service providers. There are already plenty of companies offering software, hosted solutions and outsourcing to support the growing interest.
Banks in particular are considering their role as e-invoicing service providers (in both the B2B and the B2C markets) and are looking at the potential new revenue stream this offers as a complementary enhancement to their cash management services. With e-banking already established as a trusted solution within both the business community and amongst consumers, banks are in an ideal position to provide EIPP and EBPP. They have the ability to reach any account holder through their bank networks and can link the invoicing and payment processes.
Banks are establishing partnerships with information and communication technology (ICT) companies in order to develop solutions specifically for e-invoicing. For example, Billington is a joint venture between ING Wholesale Banking and the Dutch computer services company Getronics PinkRoccade. Billington provides B2C services in The Netherlands. Internationally, it provides B2B services in conjunction with ING Invoice Services (INGIS), which is a joint venture between ING and Anachron, a Dutch invoicing software company. Ad van der Poel, Head of E-business in Payment and Cash Management at ING Wholesale Banking says, “The main driver for e-invoicing is the business opportunity it offers to companies and service providers. However, SEPA is the catalyst for growth in the market. The next logical step within SEPA is the standardisation of e-invoicing across the European Union to promote further the full automation of financial supply chain processes between businesses and organisations. There are a number of working groups focused on achieving this goal.”
The European Commission and European Central Bank attach great importance to electronic invoicing. The commission, via the Directorate General for Internal Market and Services (DGMARKT) and the Directorate General for Enterprise and Industry (DG ENTR), has established an informal taskforce aimed at co-operation and standardisation within the e-invoicing market. This working group includes representatives from several associations and bodies who are working towards similar objectives.
European Banking Association (EBA).
With the European Payment Council (EPC) heavily involved with its SEPA/PSD duties, the EBA set-up a working group to progress e-invoicing issues. The two parties are working together to ensure e-invoicing is aligned with SEPA developments.
European Association of Corporate Treasurers (EACT).
The EACT is looking at e-invoicing within the scope of their Corporate Action on Standards (CAST) programme in order to define corporate requirements and put forward recommendations to assist in the development of new standards.
These include the European Committee for Standardisation (CEN), the Transaction Workflow Innovation Standards Team (TWIST) and SWIFT.
All these groups are aligned through the European Commission’s taskforce.
“The main driver for e-invoicing is the business opportunity it offers to companies and service providers. However, SEPA is the catalyst for growth in the market. The next logical step within SEPA is the standardisation of e-invoicing across the European Union to promote further the full automation of financial supply chain processes between businesses and organisations. There are a number of working groups focused on achieving this goal.”
Ad van der Poel, Head of E-business in Payment and Cash Management at ING Wholesale Banking
The EBA has established five main issues or challenges that need to be addressed in order to establish a widely accepted standard and encourage universal use of e-invoicing.
These challenges are:
Business perspectives – business case.
Looking at all stakeholder perspectives – corporates, small and medium-sized enterprises (SMEs), public sector, service providers etc – understanding their expectations and requirements and developing a clearly defined case to achieve buy-in from everyone.
Legal and taxation aspects (EU and country specific legislation).
Addressing issues caused by conflicting national environments, clarifying legal validity across borders and ensuring equal position for all cross-border providers.
Trust, security and integrity
Overcoming the hurdles created by differing legal, tax, technical and business practices and establishing a secure and trusted environment.
Dealing with the lack of open or widely adopted cross-border models, working out a pan-European model and establishing the operational rules etc. for such a scheme.
Developing a common format that will promote interoperability.
The success of e-invoicing inevitably depends on the ability of trading partners to communicate data electronically with one another and to be able to feed that data automatically into their systems. There is a plethora of standards/formats in use today. Where supplier and buyer have not agreed on a version to use, the degree of interoperability between systems is reduced – although there are e-invoicing solutions available that can accept invoices formatted from a range of standards and convert them into a data format for import into the recipient’s systems.
Most of the standards in use today are generic but there are some that have been specifically developed for e-invoicing. The Digitale Nota format, for instance, was developed by ING Bank, Postbank, ABN AMRO and Rabobank for the B2C market in The Netherlands. Another example is FINvoice, used in the Nordic region. This is a common e-invoice format designed by Finnish banks for the B2B market. As FINvoice is the only e-invoicing format used in more than one country, it is possible that it will become the basis of a European standard.
The continuing evolution of EIPP and EBPP systems, as well as the leading role that banks can play in the process, should help to encourage more businesses to pursue full e-invoicing projects. Indeed, there is a large prospective market for all types of service providers to attract. Whilst there is still a lot of work to do before the goal to ‘simplify, modernise and harmonise’ is fully achieved, it does look as though the e-invoicing market is finally gaining momentum.
The benefits of e-invoicing to corporates
Cost reductions and improved operational efficiency
Reduced manual data entry, fewer errors.
Automated purchase order matching.
Faster invoice approval process, fewer delays in payment.
Speedy invoice management and archiving.
Staff focus on more productive/revenue generating activities.
Shorter billing cycle.
Greater visibility of expected cash flows.
Confidence in having more accurate information.
Easier and immediate access to information promoting speedier decision-making.
Relationship building and strengthening
Improved customer services.
Accurate invoices ready for customer straight-through processing.
Fewer delays, quicker invoice settlement.
Speedy enquiries and dispute resolution.
Stronger audit and regulatory compliance1
Consistent process and quality.
More efficient and faster auditing process.
Supports the need to demonstrate financial transparency.
Evidences the accuracy of data.
Demonstrates that adequate internal controls and procedures are in place to protect the security and integrity of data.
We would like to acknowledge the assistance of the following in researching this article:
Ad van der Poel, Head of E-business in Payment and Cash Management at ING Wholesale Banking.