Treasury Today Country Profiles in association with Citi

A breakthrough for e-invoicing?

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Despite the benefits, adoption rates for e-invoicing remain low in many European countries. But will recent legislative changes in Europe give the concept a much-needed boost?

Businesses of almost all shapes and sizes could see benefits from adopting e-invoicing, yet the idea, with some notable exceptions, is still some way from being universally accepted.

That might be about to change. Earlier this month, the European Parliament voted to adopt the new rules for e-invoicing in public procurement published by the EC last June. After the proposals become fully enshrined in national law over the next year or so, all public authorities in Europe will be required to support e-invoices sent to them, providing they comply with the forthcoming common standard set out in the directive.

The legislation could prove to be a big step forward for e-invoicing in Europe. As European policy makers are no doubt aware, the countries that have had the most success in driving adoption of e-invoicing are those that have pressured its uptake in the public sector. Nordic countries provide one example. For instance, since 2005, all government institutions in Denmark have been required to only accept invoices sent to them in a digital format. Today, the country is now leading the way with 76% of invoices being sent electronically, according to an Itella Information study.

It is more than a coincidence, says Charles Bryant, European Affairs Advisor for OB10. One of the biggest challenges faced when implementing e-invoicing relates to the onboarding of suppliers. In the private sector, buying organisations are instrumental in driving adoption through their supply chains, in some cases even going so far as to make it a condition on which they do business with a supplier.

“Supplier on-boarding can often be quite hard work,” explains Bryant. “If public authorities across Europe begin onboarding their suppliers into the ecosystem then this will, of course, make them able to do e-invoicing with other people. There is a network effect, which is very positive.”

Hurdles remain

Pushing greater adoption in the public sector might mean some suppliers will follow, but it should not be mistaken as a panacea for low adoption. In fact, the EU’s Directive does very little, in itself, to remove hurdles continuing to hamper supplier onboarding.

One of the initial difficulties, for smaller companies in particular, was the need to provide XML files or Electronic Data Interchange (EDI) when they lack the appropriate infrastructure. As a result, many e-invoicing providers developed other connectivity options, such as portals, to minimise the technical integration required on the supplier side. The one drawback for some companies using their own accounting system, however, is it may well lead to work being duplicated. “The fact is that a lot of companies are in the middle,” claims Richard Manson, Director and co-founder of CloudTrade. “They are either too big to justify the duplication of effort and overhead costs inherent with invoice portals or too small to justify the investment needed to change systems and infrastructure to send XML or EDI.”

CloudTrade has developed an approach that Manson claims reaches those companies that are caught in the middle. The platform simply requires PDF invoices to be sent via email. When a PDF is created by an application – for example, finance or accounting package – in almost all instances it will be a text PDF with the invoice data embedded within the layers of the PDF. The data is mapped by CloudTrade and delivered to the buyer in the format that is required by their end system. “If you remove those barriers and offer suppliers something that is easy to do, then it logically follows that you will see higher adoption.”

A breakthrough?

It may not happen overnight, but given the efforts of the e-invoicing community to expand supplier adoption, together with the recent European legislation, e-invoicing uptake should begin to accelerate in the coming years. That will have enormous business benefits which will, in turn, benefit the wider European economy.

It is about much more than cost savings on paper and postal overheads. By giving them the ability to automate their invoice-to-pay (I2P) process, companies will have greater visibility and control as well as the opportunity to gain closer alignment with their suppliers. It will also, as we are already seeing in the offerings of a number of vendors, facilitate the ongoing expansion of supplier finance solutions. “There is a real opportunity here,” explains OB10’s Bryant. “Treasurers have liquid funds which they are holding in MMFs at very low interest rates and have suppliers with liquidity shortages, and clearly supplier finance and e-invoicing go hand in hand. I think it could be a real game changer.” Clearly, the incentives to make the transition to e-invoicing have never been greater – but whether they will be enough, we will have to wait and see.