Guest blog by Tim Cole, Causeway Technologies
As digital supply chain transactions continue to unlock benefits in support of individual businesses and the wider economy, governments are also looking at how electronic invoicing can reduce the many billions (£) of uncollected VAT each year. Following the successful introduction of invoice controls in Latin America (Brazil, Chile and Mexico), a number of European countries are already looking at introducing similar clearance processes. Therefore, being able to exchange compliant electronic invoices may quickly move from being a ‘really great idea’, to being mandatory. Either way though, it is a ‘really great idea’.
Whether you are using paper or electronic invoices, these transactions all need to be compliant. Digital processing, through structured, automated exchange and validation, will unlock operating value and put businesses on a sure and cost effective footing for the future. However, anything of this nature involves taking on one of our biggest fears – change! To make this easier, it is helpful to remember that many have passed this way before and, as a result, we can clearly see how failing to embrace digital business reduces customer service and operational efficiency.
The benefits from digital transactions (such as invoices and orders) are now being felt right across the business landscape. Improved visibility, auditability, efficiency and management information are increasingly prevalent. The procurement team can simplify the onboarding and management of complex supply chains as well as accessing richer product information, automating tenders and transforming the requisition to purchase order process. Accounts teams can remove the manual handling, exchange and re-keying of the many document types that support Purchase-to-Pay activities. The IT teams can unlock additional management support from within business applications and efficiently enable scalability. Senior managers can more easily access and analyse increasing volumes of information, and do so in real time to support decision-making and strategic planning.
The gains are clear. But one of the key documents that unlocks these benefits – namely electronic invoicing (e-Invoicing) – has to comply with legislation – largely due to the tax (VAT) component. However, despite fears to the contrary, the rules surrounding e-Invoicing should not be seen as making these gains hard to achieve. I want to address the requirements for successful e-Invoicing but, before so doing, would stress one key fact. These requirements are no different to those for paper-based invoicing. If you have good business processes, then e-Invoicing is readily accessible to you. If you don’t, e-Invoicing is not the cause, but could help provide a solution to your internal process issues.
So, whether for paper or digital invoicing, the following requirements have to be met. Truth be told, that was not always the case. Taking a brief a dip into the language of VAT legislation, it was EU Directive 2010/43/EU that, by amending EU Directive 2006/112/EU, established the equal treatment of paper and electronic invoices. These have both been adopted into UK law. An understanding of these changes, and the resulting rules that surround the processing of VAT invoices, will provide much needed confidence to allow all to embrace digital processing – whether you operate in the public sector, the private sector, or both.
Equivalence to paper
This change was made to encourage the adoption of e-Invoicing by removing any remaining barriers. The same process can be applied to all invoices and businesses are therefore free to decide how best to meet the requirements of authenticity, integrity and legibility. It remains the choice of the trading partners whether or not to adopt e-Invoicing, although the adoption of a more recent EU Directive (2014/55/EU) will require public sector procurement authorities to accept e-Invoices from November 2019, provided they are presented in accordance with the European semantic standard and formatted using one of the agreed syntaxes (UBL & UN/CEFACT). One small point worth making here is that, whether a business is sending paper or electronic invoices, it is not allowed to send both.
For a document to be a valid invoice, it must contain a minimum set of data items. These are summarised in an HMRC guide and are not difficult to achieve. Familiarity with these will save time and money when you adopt electronic invoicing as there can be a temptation to include more data than the receiver requires. At the same time, you should include information that helps process your invoice for prompt payment, even if this is not a mandatory requirement, such as a delivery note or contract reference.
Authenticity, Integrity and Legibility
When exchanging electronic invoices, we are required to demonstrate:
(i) That we can evidence who supplied the goods or services covered by the invoice and, if not the same, who issued the invoice
(ii) That the invoice contents have not been altered
(iii) That the invoice must remain legible
Technology can play a significant and beneficial role in this regard. Electronic invoicing services should embrace and enhance your established business controls. Embracing digital business should improve your operations and not create unnecessary complexity or disruption to core processes. Electronic invoicing will improve audit trails, automate validation, enable digital archiving and avoid time on repetitive tasks that drain time, money and team morale. There is similar audit value within related processes, whether digital or manual. Effective vendor records; electronic or manual purchase orders; delivery records, etc., all continue to play a part in proving the authenticity and integrity of your invoices.
Ultimately, digital business is about helping businesses unlock the economies of improved data and information management. They may soon be mandatory but, either way, they will transform operational efficiency, reduce risks and drive down costs. Viewed through this lens, it seems almost self-evident that digital business is the next logical step in helping organisations to improve compliance.
Your invoice processes are probably compliant and well established. Therefore, adopting e-Invoicing will quickly deliver benefits and strengthen you for further drives to expand the digital economy. If they are not, or you are not sure, then implementing a well structured e-Invoicing process within the broader framework of digitising your sales to receipt and purchase to pay operations will allow you to address this within a value-adding transformation.
Tradex Community Envoy