Electronic invoicing – the digital revolution

Electronic invoicing

Co-chairs of the European E-invoicing Service Providers Association Bengt Nilsson and Marcus Laube discuss a new standard for electronic invoicing, in line with Europe’s transition towards the Digital Single Market.

In European Union legislation on electronic invoicing, an electronic invoice is issued, transmitted and received in a structured electronic format that allows for its automatic and electronic processing. It must also be transmitted to the receiver so that the parties are interoperable.

Electronic invoicing delivers the complete removal of paper and its replacement with digital processes. It includes:

  • models based on direct connections between contracting parties; and
  • more commonly on the use of interoperable networks and service platforms, such as those offered by EESPA Members.

In turn these platforms offer a range of value-added applications in the ‘cloud’. Electronic invoicing is growing rapidly in all business-to-business (B2B), business-to-government (B2G) and direct-to-consumer (B2C) spaces.

The European E-invoicing Service Providers Association (EESPA) acts as a trade association at the European level for a large and dynamic community of electronic invoicing service providers, drawn from organisations that provide:

  • network;
  • business outsourcing;
  • financial, technology; and
  • EDI services.

EESPA is an international not-for-profit association with over 70 full and associate members. It is providing services for its membership such as engaging in the public policy debate, developing best practice, delivering interoperability and promoting adoption.

In 2016, members of EESPA reported a total of over 1.6 billion e-invoices processed, which represents a very large proportion of the total invoices transmitted in electronic form in Europe. At its heart, EESPA’s mission is to improve communication between parties to create maximum cost effectiveness, efficiency and value.

The rise of e-invoicing

Increasingly invoices are being processed as part of a chain of messages for orders, logistics, invoicing and payments with links to supply chain finance. Its ease of implementation can be demonstrated with reference to many successful private and public-sector experiences, and to the extensive range of existing market solutions. ‘Big bang’ IT projects are not required, and transition costs are modest.

Electronic invoicing is also motivated by fiscal considerations and the need to improve tax collections and avoid fraud and errors. The invoice is a key vehicle for the generation of an extremely important component of the national tax base in the form of VAT.

How does electronic invoicing work?

At the practical level, a supplier of goods and services must create, or have created on its behalf, an electronic invoice containing the right information and expressed in a format that can be automatically processed in the system of its buyer. Such structured e-invoices may be created in a supplier’s own system and delivered directly to the buyer’s system, or it may use a service provider to deliver or create a structured e-invoice from invoice data provided electronically through portals, data files or optical character recognition.

Once the structured e-invoice is created it is then delivered to the buyer by electronic means. In all cases, it is usual that the electronic invoice is validated for completeness and accuracy before being remitted to the buyer’s system, avoiding multiple errors and manual intervention. In turn, a buyer and its service provider will perform checks and business approvals before the invoice is processed and paid.

Barriers have been removed, such as:

  • Policy direction: there is clear policy support at supra-national (e.g. EU) and in most countries;
  • Business case: can be easily demonstrated with reference to quantifiable value;
  • Legality: it is perfectly legal and supported by legislation in the countries which dominate the trading universe;
  • Interoperability: internet technology and the power of networks have made inter-operation between parties extremely easy; and
  • Security and confidentiality: these very important issues are dealt with through accessible technology and human processes.

The benefits of e-invoicing

There is a strong business case for e-invoicing adoption. Many users have been able to reduce invoice processing costs by 50-75%, with a return on investment of over 60% per annum. Independent research suggests that the cost of processing a paper invoice (to the buyer) is around €17 per invoice. Depending on the degree of automation, the net benefits can be at least four to 12 euro per invoice.

The manual processes involved in handling paper invoices are generally labour-intensive, prone to errors and payment delay, whilst being at higher risk in terms of fraud and auditing. By moving to a process that handles invoices electronically, buyers and suppliers achieve cost and efficiency gains by:

  • removing delivery, print and mailing costs;
  • the need to archive paper;
  • improved workflow;
  • transparency and administrative processes; and
  • faster payments.

The electronic process builds more satisfied supply chains and helps to generate environmental benefits.

Towards the interoperable eco-system

In electronic invoicing, as in many other e-business and network industries, interoperability is a key priority and is becoming a real reality enabled by powerful technologies and human cooperation.

Interoperability is the ability of disparate and diverse organisations to interact towards mutually beneficial and agreed common goals, involving the sharing of information and knowledge between the organisations, through the business processes they support, and by means of the exchange of data between their respective systems. In e-invoicing it refers to the ability of trading parties to interoperate with each other, with or without the intermediation of service providers, and to the arrangements made between two service providers to interoperate on behalf of their customers.

In the latter area, EESPA has developed common frameworks for the delivery of e-invoices and other supply chain messages on both bilateral and multilateral agreements, based on common legal elements and standards. Many members also employ the interoperability specifications provided by OpenPEPPOL (Pan-European Public Procurement On-line). OpenPEPPOL is an emergent force for interoperability in public procurement across a growing number of member states.

With the growth of e-invoicing and the roll-out of the European Norm, it is essential that trading parties can reach each other smoothly and seamlessly without making their own technical arrangements. A supplier resident on one network or platform can then easily forward and receive messages to and from its buyer resident on another service using well known standards and protocols.

The new European norm

The EU is a strong supporter of the digital agenda and the creation of the interoperable eco-system within the Single Market. Important changes are afoot in the public sector whereby the European Union has introduced Directive 2014/55/EU, whereby public contracting authorities engaged in public procurement will be obliged to support e-invoicing by 2019, or up to 12 months later for smaller authorities. This will be based on the adoption of a new e-invoice standard, developed by CEN – the European standards organisation, through a technical committee. This was published in the second half of 2017 and is available through national standards organisations.

The European norm sets out a semantic data model of the core elements of an electronic invoice. A ‘semantic data model’ represents a structured and logically interrelated set of terms and their meanings that specify the core elements of an electronic invoice. The standard is also designed for use in business-to-business transactions, as well as for public sector invoices and is a key plank in the promotion of interoperability.

Aside from the semantic model there are a number of additional elements:

  • the syntaxes in which the invoice will be expressed at the technical level; and
  • an extension methodology and transmission guidelines.

During 2018, users and their providers are starting to work on implementation.

The directive itself does not create a mandatory requirement for the parties, contracting authorities and their suppliers, to move to e-invoicing exclusively based on the European standard. Member States may retain e-invoicing based on existing national standards and indeed are not forced to move away from traditional invoicing. But the new environment is an enabling platform from which to move forward and creates an opportunity for wide harmonisation and a concerted process of adoption across national public sectors and the EU as a whole. Germany and France are already taking steps to mandate e-invoicing for public sector transactions.

To achieve the real benefits of e-invoicing public authorities are advised to go beyond the requirements of the directive and seek maximum automation and efficiency benefits. The EESPA community is engaging with public bodies and economic operators to find the best implementation policies and infrastructural solutions.

Bengt Nilsson
CEO of Pagero AB
Co-chair
EESPA

Marcus Laube
CEO of Crossinx GmbH
Co-chair
EESPA
https://eespa.eu/

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