*The views expressed in this article are solely those of the author and should not be attributed to the European Payments Council.
This article is one of an occasional series updating the European Payments Council ( ) community on developments in e-invoicing, an important adjacent space to the world of electronic payments.
An invoice is a summary of a commercial transaction for the supply of good and services, is a claim for payment, and is a tax record (usually Value Added Tax ( )). In the European Union ( ) and many other jurisdictions, e-Invoicing has an equal footing with paper. An e-Invoice may take the form of structured data (e.g. Extensible Markup Language (XML)) for automated processing, or an unstructured image (e.g. Portable Document Format (PDF)). There is no legal requirement for paper, but often a PDF is rendered together with the XML data. There is a legal requirement to demonstrate authenticity, integrity and legibility and rules specify minimum content for compliance purposes.
Under an Directive the following principle is well accepted; ’The benefits of electronic invoicing are maximised when the generation, sending, transmission, reception and processing of an invoice can be fully automated. For this reason, only machine-readable invoices which can be processed automatically and digitally by the recipient should be considered to be compliant (with the Directive).
Electronic invoicing is the fulcrum around which the entire procure-to-pay value chain is becoming automated and the financial supply chain is being made fit-for-purpose to support increasingly rapid and efficient physical supply chain operations in the Business-to-business (B2B) and Business-to-government (B2G) space, by automating sourcing, procurement, purchase orders, delivery notes, invoices and payments. This brings hugely positive developments in terms of process efficiency, transparency, analytics, on-time payments and cost savings.
Whilst many trading parties deliver supply chain documents directly to each other, many make use of the services of network and platform operators, as represented by the 70+ member community of the European e-Invoicing Service Providers Association (EESPA).
The Directive 2014/55/ is now in the full implementation stage, whereby all public contracting entities are required to be able to receive and process e-Invoices expressed in the new CEN (European Standards Committee) standard EN16931, which defines the semantic model for the core elements of an electronic invoice and nominates two technical syntaxes, in which such invoices need to be expressed. Many Member States are building on this Directive to make e-Invoicing mandatory when supplying goods and services to the public sector. The European norm/standard has also been designed to be usable for private sector trade.
Key market developments in recent years are:
- Steady growth of e-invoicing adoption varying by country and sector, recognising that there is a strong inertia factor in handling the e-invoicing and payment process.
- Achievement of about 25-40% electronic invoice volume share across Europe.
- Large corporates continue to lead the market with many active accounts payable automation programmes, now being followed by government agencies.
- Small and medium-sized enterprises (SME’s) are slower adopters and often use PDFs for peer-to-peer invoice submission.
- Mandates (compulsory adoption) are increasing B2G adoption.
- New tax reporting and invoice registration systems are being introduced, as discussed below.
- The business-to-consumer (B2C) and B2b (large business invoicing to small business) are also receiving attention, in particular through initiatives on EIPP ( Electronic Invoice Presentment and Payment and promotion of the Request to Pay messages.
- Interoperability between e-Invoicing platforms and networks is growing apace based on schemes and agreements developed by associations such as EESPA, open Pan-European Public Procurement Online (PEPPOL), and various national infrastructures.
Many governments around the world are concerned about the ‘tax gap’ and the under-declaration and evasion of obligations. Based on innovative digital technology more and more governments in the and elsewhere are implementing various ‘real-time’ reporting and invoice registration systems in cooperation with service providers, software vendors, and network operators. Italy, Spain, Portugal, and Hungary should be mentioned. Others are likely to follow. EESPA supports the objectives of these initiatives and applauds the likely stimulus for e-Invoicing adoption, but has concerns about a lack of harmonization in operating processes and standards at country level.
As far as the link between e-Invoicing and payments is concerned, most B2B and B2G invoices are paid ‘later’ based on specified credit terms and habitual practices. Payments are typically batched in a payment run following invoice validation and approval and submitted to payment service providers in the normal way. Some invoices are susceptible to more ‘immediate’ payment, for example through presentment in an internet banking portal or at the point of sale, either in a shop or through a merchant web-site. In these latter areas has been actively developing messaging protocols and formats (e.g. Request to Pay) to create a more standardized environment for such services. EESPA is involved and hopes for success with these initiatives.
A new breed of supply chain finance (SCF) has emerged based on the ‘early payment’ of invoices and ‘dynamic discounting’ to complement traditional models of factoring and receivables finance. SCF addresses both credit risk and performance risk. The revolving data archive of e-invoices generates a rich source of analytics about transactions and the performance of trading partners with benefits for finance providers. The e-invoice is driving a new trade-related ‘asset class’ of interest to investors. This creates opportunities for collaboration between banks and alternative service providers. Partnerships for e-Invoicing as a white-labelled customer service, for example to SMEs, coupled with facilities for supply chain financing spring to mind.
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