Electronic Invoicing: European Commission Introduces a Proposal for a ...

Electronic Invoicing: European Commission Introduces a Proposal for a Directive on E-Invoicing in Public Procurement

A progress report on latest developments in the area of e-invoicing at the European level

30 July 13

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E-invoicing in public procurement

On 26 June 2013 the European Commission (the Commission) issued a press release and a number of related documents, including a proposal for a European Union ( ) Directive, on e-invoicing in public procurement (see ‘related links’ below). The draft Directive proposes the establishment of a European e-invoicing standard which is expected to improve interoperability between different, mainly but not exclusively national, e-invoicing systems. Aside from the direct savings, it will help boost the uptake of e-invoicing in Europe, which is still hovering in the 4-15 percent range despite rapid growth and some great success stories. The draft Directive forms part of a range of measures to promote a broader move towards automated end-to-end procurement from order to payment. Although the specifics of the latter measures remain to be identified, the tangible focus on e-invoicing as a pivotal process in procurement automation is to be welcomed.

Michel Barnier, Commissioner for Internal Market and Services said: “Switching from paper to fully automated invoicing can cut the costs of receiving an invoice from 30-50 euro to 1 euro. These are good and useful savings in the current economic climate. As the largest spender in the , the public sector should play a leading role in stimulating its uptake”.

The approach to the e-invoice standard is interesting. The goal of interoperability is to allow information to be presented and processed in a consistent manner between business systems, regardless of their technology, application or platform. Full interoperability includes the ability to interoperate in terms of content (semantic), format (syntax), and transmission. Semantic interoperability implies that the precise meaning of the exchanged information is preserved and well understood in an unambiguous manner, independently of the way in which it is physically represented or transmitted.

The new European standard will be drawn up by the European Standards Committee (CEN) in the form of a semantic data model for the core e- invoice. A semantic data model means a structured and logically interrelated set of terms and meanings. In this case, the semantic data model refers to the content contained and exchanged in e-invoices, such as, for example, buyer and supplier data, identifiers, attributes, line items, delivery information and payment details.

The interesting aspect is the desire to create a standard that is technology neutral and therefore independent of the infrastructure or solution employed, including the standards format. The expectation is that the semantic data model, which will be based on the best of existing standards, will become an overarching layer in the commonly used international and national format standards. These will then become interoperable through the availability of mapping software able to identify the bedrock of common definitions and meanings inherent in the data elements being transmitted. Over time it is perfectly possible that one or two dominant format standards will emerge in this environment.

The forthcoming Directive will require all public agencies to support the new standard and be able to process invoices received in that form. In that sense it will be mandatory but will not be exclusive, at least in the early stages.

Since the Commission introduced the proposal for the Directive, one or two voices have wondered why it does not include specific provisions for the use of infrastructural solutions such as Pan-European Public Procurement On-line (PEPPOL; see ‘related links’ below), which was funded by the Commission and a number of Member States. I think the answer lies in the concept of ‘technology neutrality’ and the recognition that there are a plethora of competing solutions and channels available in the marketplace provided that they support the common standard. Public sector buyers will be free to deploy the solution(s) that meet their needs including PEPPOL, but surely it is right not to impose specific technology on a fast-moving market at European level.

The overall approach reflected in the initiative to develop a European semantic standard is supported by many members of the European Multi-Stakeholder Forum on Electronic Invoicing (see ‘related links’ below). As the proposal goes through the process of discussion leading to its adoption by the legislator, a number of forces will come into play: a realisation of the power of e-invoicing, the need to motivate all public agencies and their suppliers towards adoption, the stimulating impact on solution and service providers, and the energy of the standards community. Let’s hope that given the scale of benefits, the public sector will become a leader, a sentiment that might cause a wry smile in the Single Euro Payments Area ( ) community.

Developments in the service provider community

The supply-side of the industry is a crucial element in supporting the user community of all shapes and sizes with their journey towards e-invoicing. Such operators include electronic resource planning (ERP) vendors, software suppliers, tax compliance and legal advisers, and the service providers who create, deliver and store invoices on behalf of organisations that prefer to outsource these functions. In Europe the community of service providers came together in 2011 to form the European E-Invoicing Service Providers Association (EESPA) and this organisation has flourished; it currently consists of over 50 members. It should be noted that around a fifth of this membership base consists of banks and bank-owned organisations active in e-invoicing.

In particular EESPA has created a ‘Model Interoperability Agreement’ to be used by service providers who are increasingly being asked by their clients to deliver or receive invoices and other e-business documents to and from trading counterparts who have connections with other service providers. This exercise took a number of months to complete and now the emphasis is on implementation. This is an achievement for participants in a new industry to come together and create a collaborative space without any regulatory pressure but simply in their own and their customers’ interests and at the same time harnessing powerful network effects.

EESPA has also engaged in the public policy debate and has been recognised by the Commission through its participation in the Multi-Stakeholder Forum referred to above. EESPA will contribute to the debate as the Commission’s proposal for a Directive on e-invoicing in public procurement moves through the legislative process.  Its members will surely welcome the opportunity to create a further building block in the interoperable eco-system through deploying the proposed standard and serving the public sector and its suppliers as customers.

E-invoicing and Supply Chain Finance

There is a growing interest in the transaction banking industry and among non-banks in the Supply Chain Finance (SCF), which is triggered by events in the physical supply chains connecting collaborating business partners. SCF is not new and takes many forms: trade finance, factoring, invoice discounting etc. Aside from creating huge cost and efficiency benefits, the acceleration of the invoicing process and crucially the approval cycle for e-invoices is a ‘game-changer’ for SCF. What has emerged in recent years is so-called Reverse Factoring or Approved Payable Finance. In this model, large buyers are able to offer early discounted payments to their suppliers whilst preserving their original or extended terms. A financier acts as the funding instrument for such transactions, although some liquid companies may deploy their own liquidity. The e-invoice plays a key role as a transparent vehicle for such financing. The benefit to the buyer lies in the ability to provide liquidity to suppliers and to stabilise their supply chains. Suppliers, often small and medium-sized enterprises (SMEs), may tap into new sources of funding in a constrained market for traditional borrowing. Recently the Euro Banking Association ( ) Supply Chain Working Group issued a Market Guide to SCF in Europe (see ‘related links’ below). Further work is being undertaken to explore identified themes.

E-invoicing is likely to influence the SCF market because the e-invoice process makes ‘approve to pay’ processes possible much earlier and with the transparency involved enables SCF transaction initiation on a more convenient basis. At present many SCF models involve banks receiving simple forward payment instructions for early payment, but the e-invoice modality has considerable potential. E-invoicing service providers are launching services in partnership with financial institutions, whereby early payments are triggered on the e-invoice platform and financed by the funding partner.

Some thoughts for banks

Up until now the banking industry’s appetite for entering e-invoicing has been patchy with strong engagement in the Nordic area, parts of Benelux, Switzerland and elsewhere more on an individual bank basis. Business-to-Consumer Electronic Bill Presentment and Payment (EBPP) powered by Internet banking is becoming quite widespread and in Finland is forming the basis for an alternative to Direct Debit. Business-to-Business services have lacked appeal for many banks because of business case considerations and lack of standards.

The developing interest in SCF and the potential arrival of an -wide e-invoicing market connected to public procurement based on a mandated standard, prompts the thought that banks might wish to look again at the opportunity. Engagement is possible through partnerships and white-labelling, as is common in the Nordics, so the initial investment can be contained. There is also a lot to be gained at their own enterprise level for banks to automate their accounts payable.

At a minimum, banks may wish to continue to monitor all these developments closely and ensure that payment offerings remain fully aligned and relevant in the context of the automation and dematerialisation taking place just one step removed from the payments domain.

Charles Bryant is Vice-Chair of the European E-Invoicing Service Providers Association (EESPA), is UK delegate on the Multi-Stakeholder Forum on e-Invoicing, is European Affairs Adviser at OB10,  and is Senior Adviser at the Euro Banking Association.


Related links: 

European Commission Press Release (26 June 2013): ‘E-invoicing in public procurement: another step towards end-to-end e-procurement and e-government in Europe’

European Commission: ‘E-invoicing in public procurement: another step towards end-to-end e-procurement and e-government in Europe - frequently asked questions’

European Commission: Proposal for a Directive on electronic invoicing in public procurement

European Commission Communication: End-to-end e-procurement to modernise public administration

Pan-European Public Procurement Online (PEPPOL) Project

European Multi Stakeholder Forum on Electronic Invoicing

EBA Market Guide on Supply Chain Finance

EPC Blog (July 2012): E-invoicing - a Transition that Will Truly Complement SEPA


Related articles in previous issues:

EPC Newsletter Articles Published in the Section: 'Focus: On Integration and Innovation'

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