TCM Guide : Paper Cuts
ELECTRONIC INVOICING

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Watkinson: RBS has created an open e-invoicing solution in an attempt to make it user-friendly for customers.

At the height of the dot-com boom, anyone attending the multitude of technology summits touting the next big “disruptive technology” would have heard the mantra that company procurement executives would make the switch from paper-based to electronic invoicing virtually overnight. Despite the hype, it didn’t happen that way.

Various estimates suggest that the annual cost savings from moving to e-invoicing could be more than E200 billion ($300 billion) in Europe alone. In 2001 the EU published its Invoicing Directive, which was drafted into national law in 2004. The directive ascribed the same legal status to electronic invoices as paper invoices, provided that authenticity of origin and content integrity could be guaranteed using either electronic data interchange (EDI), digital signatures or other means.

Yet the anticipated boom in e-invoicing never materialized. Current estimates suggest that fewer than 2% of invoices issued globally are transmitted electronically. While the Invoicing Directive laid an EU-wide framework for legal recognition of electronic invoices, it was interpreted differently in a number of EU member states. “The legislation was a concern,” says Christian Schaefer, head of db-eBills for global transaction banking at Deutsche Bank. “In terms of how the EU directive translated into local law, everyone was standing in front of the traffic light, but no one was really moving forward as they were waiting for someone else to make the first move.”

Embarking on an ambitious cross-border e-invoicing initiative within the EU was only for those larger to mid-size companies that were prepared to navigate the legal and tax minefields. Serge Labouyrie, senior manager for electronic invoice presentment and payment, EMEA, at treasury software supplier Ariba, says VAT (value-added tax)-compliant e-invoicing is important, but complex, in the EU. “In Europe the invoice is not just a business document; it is also a vehicle to move money,” he explains.

Tony Nisbett, an e-invoicing expert at IBM, which has implemented domestic and cross-border e-invoicing in 20 EU member states, says complexities arise when you start considering the paperwork that goes along with “completely open Internet trading”—quotes, contracts, invoices and VAT receipts. “Businesses wonder which of these documents can be exchanged over the Internet without getting into legal trouble,” he says. “Opinions differ. As a result, the vast majority of B2B communications still take place through the exchange of paper.”

Another hurdle for companies looking to embrace e-invoicing on an EU-wide basis is differing interpretations of rules pertaining to digital signatures, which are commonly used to authenticate electronic invoices. Steven Hartjes, a senior partner at Ernst & Young, says the fact that different countries have created different requirements for digital signatures and obtaining and maintaining digital certificates has slowed the take-up of e-invoicing.

Although major multinationals have been exchanging information electronically using EDI for nearly 30 years, e-invoicing really came into its own with the advent of the Internet, which facilitates document exchange and collaboration between buyers and suppliers. Most technologists agree that web-based systems are mature enough now that implementing e-invoicing is less disruptive on existing business processes.

Ariba, which boasts a global network of 160,000 e-enabled suppliers, says that web-based system advances have made it easier to roll out e-invoicing. “In terms of volumes, our customers exchange on an annual basis an average of 12 million electronic invoices,” says Labouyrie. “Europe represents approximately 25% to 30% of total e-invoicing volume.”

Peter Radcliffe, chairman of Fundtech, which recently acquired electronic invoicing specialist Accountis, says he is seeing tremendous activity from most major UK corporates, which are seriously looking at e-invoicing. “Old EDI point-to-point systems have become fully amortized,” he says, and companies are wanting to be seen to be “green” by not issuing paper invoices. It is fair to say that e-invoicing is enjoying somewhat of a renaissance as companies that were promised a paperless “nirvana” back in 2000 revisit the subject in the hope that this time the technology, regulators and the marketplace are mature enough to live up to the hype.

“E-invoicing is the next installment in corporate efficiencies,” says Labouyrie. “Corporates have centralized finance and accounting, and as soon as they have done this, they are looking at managing invoices on a multi-country basis and at how they interact with their suppliers.”

Schaefer says the key concern for most companies is domestic invoicing. “When companies start looking into their supply base, they are surprised about the number of suppliers they have. We are working with one CFO who has started to do his homework, and now that he is looking into these processes, he is surprised about the potential for improvement he sees at first sight.”

European cash management banks are also upping the ante in terms of acquiring and rolling out e-invoicing capabilities. Schaefer says e-invoicing sits comfortably alongside banks’ existing financial solutions as it facilitates automated payment reconciliation and the capturing of information regarding approved invoices, which can be used to provide supplier financing. Many believe that by linking e-invoicing to early-payment discounts and supplier financing, the business case for dispensing with paper-based processes is even more compelling. “With e-invoicing, the supplier has visibility at all stages of the process,” Labouyrie explains. “They know what stage the invoice is at or if there is a problem with the invoice. That enables them to offer early-payment discounts. It also facilitates the provision of third-party financing at better rates because there is greater visibility of the transaction.”

European companies have also seized on SEPA (Single Euro Payments Area) as an opportunity to implement pan-European standards for e-invoicing (what corporates refer to as “e-SEPA”) alongside harmonized SEPA standards for credit transfers and direct debits. The European Commission (EC) and the European Central Bank are encouraging banks to create a common standard and launch this concept as part of SEPA. In 2007 the EC Informal Task Force on e-Invoicing outlined plans for the creation of a common European Electronic Invoicing (EEI) Framework, saying that without it “the risk is that the current fragmented, complex and costly situation concerning European e-invoicing will continue.” The task force called for the development of an international e-invoice standard based on ISO (International Standards Organization)-approved standards.

It is questionable how much can be achieved by the banks. For the time being, most appear happy to provide competing e-invoicing solutions rather than collaborating on a common standard. Labouyrie says different standards will always exist because different industries have different needs.

Ian Watkinson, head of e-invoicing at RBS, agrees, saying that instead of developing a common standard, which can be very time consuming, the bank has created a system that uses “any-to-any” data conversion, which means trading partners submit invoices in their regular formats and then the system translates them into the designated formats of the customers. This is not the harmonized and standardized EEI framework that the commission perhaps envisioned, and only time will tell if the second wave of e-invoicing is one that is more palatable and user-friendly for customers.

Anita Hawser
 

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