Great Expectations

Great Expectations

E-invoicing: time to seize the opportunity

30 September 09

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What is e-invoicing and why is it important?

E-invoicing is the replacement of paper invoicing with invoice transmission, processing and storage in dematerialised form using electronic means. The major push towards e-invoicing has been led by la rge buyers (both major multinationals and public sector organisations) seeking efficiencies from automating their supply chains. Another trend has been the replacement of paper by mass billers such as utilities, with the invoices being presented to customers via an Internet portal and increasingly through Internet banking. Electronic Data Interchange, including invoicing, has long existed among tightly integrated industries such as automotive. The whole picture is currently highly heterogeneous and involves many different economic actors.

The invoice plays a pivotal role at the junction of physical and financial supply chains and, in addition to being the summary of a transaction, is a request for payment. In Europe, it lies at the heart of the Value Added Tax () system, and has a legal status involving important compliance procedures on the basis of which collections and refunds are administered to the tune of billions of euro every year. E-invoicing has become an important public policy objective as well as a clear trend in the business world for various reasons:

  • Multi-billion euro cost savings to society have been estimated in market studies.
  • It is a political priority for the Internal Market and will be facilitated by .
  • Process efficiency in a networked world brings faster and smoother supply chains.
  • It delivers reduced invoicing and payment errors (STP).
  • It supports the green agenda with carbon savings from dematerialisation.
  • It releases human and other enterprise resources for more productive work.
  • There will be a reduction in fraud and irregularities.
  • The technology exists and can massively enhance productivity.

As a result, e-invoicing continues to achieve double-digit growth and penetration will rise from less than 5 percent to much higher levels in the years ahead. Banks should be very interested in something happening so close to their core payments and financing franchise.

European developments

The European Commission is working closely with Member States on many supportive activities from e-procurement, lifting the burden on business, to a fundamental review of processes. A European Commission Expert Group is in the second and final year of its work and will produce a recommendation for a European e-Invoicing Framework by the end of 2009. A Mid-Term Report was issued in February 2009 (see URL below). Many bankers or their association representatives are participating in this Group.

A number of barriers to the spread of e-invoicing are being addressed. These include the need for greater harmonisation and clarity in legal and provisions, a way of overcoming fragmentation and interoperability problems, the convergence of the plethora of standards in use, and finding ways to include 20+ million SMEs in the move based on simple and easy-to-use solutions.

To support the recent proposals of the European Commission's Directorate General Taxation and Customs Union to reform legislation and create a genuine 'equality of treatment' of paper and electronic invoices, the Expert Group has produced a Code of Practice to guide users and their advisers, and hopes that a new Invoicing Directive will be accepted by Member States in the months ahead.

A Framework for Interoperability will encourage the development of e-business networks based on standards and the vital element of trust, common for example in payment networks - this is a major opportunity for the banking industry largely based on existing assets.

The opportunity for the banking industry

Banks acting on an individual basis (many leading banks) and on a community basis (notably in the Nordic region, Benelux, Austria, Switzerland, Italy and Spain and others) already offer:

  • Secure presentment and delivery services for electronic invoices and related documents;
  • Supply chain financing using invoice receivables as collateral;
  • Integrated payments based on credit transfer, direct debit, cards etc. but with closely coupled references and high levels of visibility.

Many banks have started with B2C bill presentment and payment services (EBPP) through home banking, but this is spreading fast to the SME and corporate areas.

The banking industry brings some major strengths:

  • Providing extended reach especially into the SME sector, where banks have a particularly deep network coverage, as well as to other customer segments;
  • The use of Internet banking as a trusted channel for enrolment and transaction generation/distribution, based on economies of re-use and repetition (identity management, support, secure file transfer etc);
  • The well-proven capability in deploying payment and other networks and in promoting standards at many levels;
  • Recognition and experience of working on an alliance basis with business and technical partners and playing to each other's strengths;
  • The ability to integrate the payments and supply chain/trade financing dimensions to invoice processing and thereby unlock new sources of value. Banks can add higher quality and choice to their payment offerings through automation, information enrichment, STP tools and accelerated cycles.

Indeed these strengths could give the industry a very major position, although there will clearly be other specialist operators providing services and highly valued capabilities, which need to be engaged.

For individual banks, the opportunity needs to drive a strong and compelling business case based on new business as well as defensive considerations, such as what could be lost through disintermediation if others capture the space, especially in the SME and consumer markets. There are opportunities for the replacement of "commoditising" payment revenues with top-line revenue growth, better risk management through visible client information flows and the ability to build new value-added services. Some have forecast the emergence of new payment models such as an e-invoice plus credit transfer to challenge the direct debit and certainly it seen as a way of displacing remaining cheque volumes.

Transaction banking started with bills of exchange, which passed out of use in many markets. E-invoicing could be the 21st century equivalent leading to opportunities to create high value partnerships with clients, provided that an integrated non-silo mind-set is applied.

On the down-side, who needs this type of new venture at a time of crisis and constrained resources? Tax and legal compliance aspects, the element of complexity, the existence of agile competitors, questions about the business case, and doubts about whether customers want their banks in their supply chains, are all factors that need to be carefully weighed.

Naturally innovation in banking is complicated by the need to create important network effects and critical mass, and create a governance model for what is best described as "collaborative innovation", but this has been done before by an industry used to "coopetition" at many levels.

There is also a need to make investments in new platforms, although in this field most of the components exist and can be readily outsourced. Banks can leverage their brands and core capabilities leaving many of the delivery elements to competent service providers, ranging from invoicing and ERP specialists to messaging specialists such as SWIFT. For those banks that have entered the e-invoicing arena, this approach is a natural and fairly painless way of enhancing the value proposition and retaining customers.

e-invoicing initiative

The Euro Banking Association () is conducting a close analysis of the opportunities e-invoicing may hold with regard to creating new revenue streams for banks in supply chain services and finance as well as with regard to defending the banks' core payments.

Over the past twelve months, the E-Invoicing Working Group has been making significant progress in developing a concept for a pan-European e-invoicing network solution to be delivered through banks and in partnership with industry service providers. The Group has developed a service description and is working on the business case for banks and their collaborative service infrastructure. It is planned to produce a draft rulebook and a standards strategy during the course of 2009. SWIFT is closely involved in the ongoing work and contributes its messaging, standards and supply chain expertise to the Working Group.

At this stage, has launched a Proof of Concept exercise in which banks and a group of eight leading service providers are collaborating to test the validity of the design concepts.

Based on the results of this exercise, consideration will be given to taking steps towards implementation through an appropriate service developer and owner, at a pace and intensity driven by members. A close dialogue with relevant infrastructure organisations is taking place and will certainly be further deepened once a complete picture of the business case has been established and the way forward has been outlined and approved by the membership.

For more information please see the reference guide entitled E-Invoicing 2008 and the e-invoicing section at www.abe-eba.. The European Commission displays information at:

Charles Bryant is Senior Adviser to the and a Member of the EC Expert Grop on e-Invoicing.

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