Trade & Supply Chain

Question Answered: E-invoicing

Published: May 2015

“Given the drive towards green business practice, is e-invoicing a technology that corporates in Asia should be embracing? If so, what recommendations can be made about successfully adopting e-invoicing solutions? Also, are there any specific developments in this space for treasurers to be aware of?”

James M. O’Neill, Senior Analyst, Banking Group, Celent

James M. O’Neill

Senior Analyst, Banking Group

While e-invoicing has been introduced in Asia with varying degrees of success over the past ten years or so, with the resumption of normal trade activities since the global banking crisis in 2008 and the near-completion of the ASEAN Economic Community (EC) programme during this coming year, now is as good a time as ever for corporates to examine opportunities for greater adoption of e-invoicing technologies.

As a group, the ten countries that make up the ASEAN EC enjoy an aggregate market size (in GDP terms) that exceeds three of the four BRIC countries, and while progress to date has been focused on the creation of a free trading zone within the ASEAN EC region, several bilateral trading agreements have been reached or are in process of negotiation within the greater region. Today, the European Union (EU) is the ASEAN EC’s third-largest trading partner after China and Japan, and several individual member states have already negotiated bilateral trade negotiations with the EU. It is simply a matter of time before the ASEAN EC builds on these bilateral agreements to conclude block agreements with the EU and other important trading partners.

In this context, e-invoicing becomes an important strategic tool for Asian corporates that wish to take advantage of the new opportunities afforded by these free trade agreements. The UN Economic Commission for Europe has noted that e-invoicing in Asia is at a “nascent” stage, pointing to factors including the lack of a regulatory framework, a lack of industry standards, concerns regarding tax implications, and an overall lack of coordination amongst participants in the regional supply chain.

This is a regrettable situation for Asian corporates as trading partners in remote locations within Europe and North America are further along the way in terms of trade automation. In fact, some larger companies require their trading partners to send and receive critical information including invoices electronically. For the Asian corporates themselves, e-invoicing provides an opportunity to create efficiencies and reduce trading costs at several steps of the trading process. By linking billing systems directly to their accounting systems, corporates can reduce invoice preparation time, better ensure invoicing accuracy, and dramatically reduce the time of invoice delivery while also greatly improving delivery accuracy.

The leading corporates employ e-invoicing solutions that have real-time integration with their accounting systems, allowing invoicing to take place as soon as the goods or services have been delivered rather than having to wait for accounting personnel to manually push invoices to their trading partners. Ultimately, e-invoicing is part of a wider electronic ecosystem whereby both suppliers and customers are linked as well as the various banks involved in the clearing and settlement of funds relating to these trading relationships.

For Asian corporates who wish to benefit from the general uptake in regional trading that is expected to take place as the ASEAN EC vision becomes a reality, the time for upgrading to modern billing and collections processes is now.

John Pierce-Jones, Head of E-Invoicing, Technology, Fundtech

John Pierce-Jones

Head of E-Invoicing, Technology

Electronic invoicing is growing in Asia, setting a trend that will continue into the future. Corporates in Asia can look to electronic invoices not only for greener business practices, but also as an opportunity to eliminate the cost and inefficiencies of paper-based invoices, ultimately leading to more efficient processes within the treasury for more efficient payments. Each year, corporations worldwide send and receive millions of invoices and bills. Manual processing of these invoices is not only slow and error-prone, but also costly. Furthermore, inconsistencies in invoice formats from country to country can cause inconvenience for cross-border and global corporations. Customer demand for electronic invoicing is also on the rise, with many looking for digital versions of their invoice data for direct input into their accounting systems.

E-invoicing and e-billing systems centralise all of the components of this process to facilitate communication, dispute management, auditing, and reporting all in a single system. This eliminates the manual labour and costs associated with printing, mailing, archiving, and reconciling paper invoices. Potential for benefits in Asia is expected to manifest similarly to Europe where, according to a 2014 Billentis report of the public sector, savings could be €40bn. However, today less than 10% of invoices in Europe are electronic, signaling immense opportunity.

For corporates that speed up the billing process for receivables by sending their invoices electronically rather than on paper and then manage them online, instant delivery together with query management tools can lead to faster settlement and reduced Days Sales Outstanding (DSO).

Furthermore, standardised billing across all regions ensures the customers of corporates benefit from the same invoicing format and same level of service in every country; something of particular value for corporations that do cross border and international business. The opportunity to post invoice data on a central hub and make this information available to all customers online empowers them to monitor, track, search, and query their invoice and payments status.

On the Accounts Payables (AP) side, corporates can accept supplier invoices in any format straight into their e-invoicing hub which reduces manual input, eliminates errors and helps to drive down costs. There is also the option for AP departments to make an instant switch from paper to electronic by utilising a ‘Paper-to-Data’ service. Whether a company processes invoices by mail, email, EDI or other electronic channel, the data is captured, validated to agreed business rules, approved by nominated users and finally uploaded to an ERP or accounting system. Getting the invoice approved more quickly maximises the opportunities for taking advantage of Dynamic Discounting or Early Payment Discount schemes.

Treasurers may then also consider implementing more automated workflows and online payment options to streamline processes further. The added ease of billing or invoicing can contribute significantly to relationship satisfaction between the corporate and its customers and trading partners. While environmental issues remain important drivers, the move away from paper is being further accelerated by legislative and regulatory changes with 13 countries in Asia either having already mandated or intending to mandate electronic invoicing following government initiatives.

Amit Sharma, Managing Director, Head of eCommerce and Channels Asia Pacific, Global Transaction Services, Bank of America Merrill Lynch

Amit Sharma

Managing Director, Head of eCommerce and Channels Asia Pacific, Global Transaction Services
Bank of America Merrill Lynch

As is the case with numerous digital initiatives in the Asia Pacific (APAC) treasury management space, e-invoicing is a work in progress amongst the region’s corporates. It is however an industry migration that we have great confidence in and we believe adoption will grow. Aside from clear efficiency and risk management advantages, we see the added benefits of e-invoicing as consistent with the greener business practices embraced by forward-thinking corporations regionally.

However, for e-invoicing to transition from niche usage to mainstream treasury practice, several moving parts need to converge. Sending invoices electronically to the customer is one piece of the puzzle. Ensuring confidentiality and security is another pivotal consideration, and brings various parties into the wider picture. Hence, at the transaction level, the invoice issuer, receiver, processor, auditors (internal/external) and internal IT teams must play a role for e-invoicing to gain traction in APAC.

At the most immediate level, challenges exist on the audit front. In our conversations with clients, it is clear that internal corporate audit teams must be geared to accept electronic invoices and that this part of the process is a challenge that still needs to be broadly resolved. Furthermore, there is the mind-set battle across the treasury function whereby shifting attitudes from ‘pushing paper’ to ‘clicking data’ requires a wider acceptance from various internal and external parties. Also, concerns such as fraud, duplicates and authenticity remain open issues within many discussions around e-invoicing.

So what are the short-term solutions? In our view, the success of e-invoicing will rely heavily on the adoption of digital signatures. There are several factors underscoring the importance of digital signatures in the broader e-invoicing picture. Firstly, the relationship between invoicing and tax implications must be considered. This is especially true given that there are restrictions in Asia governing digital delivery of invoices in several markets. For example, China and India either have specific guardrails around e-invoicing, or in the case of the latter, do not permit the practice at present. As a result, many corporations have taken to sending a PDF copy of the e-invoice to their customers to perform digital scanning and improve the AP process via the PDF invoices. In parallel, they also send the physical copy of the invoice. With practices such as the aforementioned processes common in the market, we take the view that a legal framework governing digital signatures would have the potential to better protect participants and drive e-invoicing adoption.

The good news is that progress is clearly being made on the digital signature component. In Thailand and the Philippines, electronic invoice presentment and Payment (EIPP) is quite popular and the local banks are hosting the EIPP platform, and mainly providing distributor/dealer financing. However, this is still not addressing the end-to-end requirement of eliminating the need of sending paper invoices in these markets, unless there is a legal framework, to say the invoices hosted out of the EIPP platform can be downloaded by the customer as the true cope of the invoice. Moreover, if governments can start to adopt business to government (B2G) invoicing this is still not addressing the end-to-end requirement of eliminating the need of sending paper invoices in these markets and requires a more defined legal framework.

Once the digital standard of the invoice is agreed, ERP vendors will then embrace the platform and provide standard integration. This is the trend in EMEA where governments are adopting e-invoicing as standard which has ultimately led to the market quickly embracing it. From a long-term perspective, we take the view that to have an agreeable industry standard for transmitting the invoices in a digital format support is needed by suppliers, buyers, banks, technology providers will help increase the take up of e-invoicing. In APAC, there is still plenty of work and consideration at the government level to be done, but the right moves are clearly taking place. One thing is crystal clear though, only partnership across business functions will ensure the success of the APAC e-invoicing drive.

Next question:

“What value do banks’ Know Your Customer (KYC) processes really add for corporates? And how will utilities help to improve the KYC process for treasurers? Also, I have heard talk of a growing trend around Know Your Customer’s Customer – what impact will this have for corporates operating in Asia?”

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