Reaping the Benefits of Electronic Invoicing for Europe

Reaping the Benefits of Electronic Invoicing for Europe

A summary of the European Commission Communication issued in December 2010

11 July 11

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The political context of the European Commission Communication on e-invoicing

The European Commission launched in March 2010 the Europe 2020 Strategy (see link below) to exit the financial crisis and prepare the economy for the challenges of the next decade. Europe 2020 sets out a vision to achieve high levels of employment, a low carbon economy, productivity and social cohesion, to be implemented through concrete actions at and national levels1. The Digital Agenda for Europe (see link below) is one of the seven so-called flagship initiatives of the Europe 2020 Strategy; it defines the key enabling role that the use of Information and Communication Technologies (ICT) will have to play if Europe wants to succeed in its ambitions for 20202. Promoting the mass adoption of electronic invoicing is one objective of the Digital Agenda for Europe. Electronic invoicing - or e-invoicing - is a solution for the secure exchange of electronic invoices inclusive of the relevant data between suppliers and buyers involving the upgrade of their sales and procurement systems.

The Commission wants to see e-invoicing become the predominant method of invoicing by 2020. It is committed to working with Member States and all other stakeholders. The European Commission Communication 'Reaping the benefits of electronic invoicing for Europe' of 2 December 2010 (see link below) addresses the following priorities:

  • To ensure legal certainty and a clear technical environment
  • To encourage open and interoperable e-invoicing solutions
  • To support uptake by setting up organisational structures, including national fora and a European Multi-Stakeholder Forum.
Benefits resulting from the mass adoption of e-invoicing

The purpose of electronic invoicing is to streamline the administration of the billing and payment process by eliminating paper handling for both buyers and suppliers. The Communication points to the benefits of providing invoice data in digital form: shorter payment delays, fewer errors, reduced costs and the potential for fully integrated processing, especially when fully automated in a structured format. The latter is the source of most of the economic benefit. Consumers may also achieve convenience benefits, subject to the normal range of consumer protections. For society as a whole there are considerable environmental benefits. Mass adoption would lead to significant economic benefits and generate savings of the order of euro 240 billion over a six year period.

The Communication references the work accomplished by the Commission's Expert Group on e-invoicing

The Communication references the work accomplished by the Commission's Expert Group on e-invoicing which produced its Final Report at the end of 2009 (see link below), including a proposal for a European Electronic Invoicing (EEI) Framework. Its main recommendations were:

  • Meeting the needs of SME's as a priority focus
  • Harmonisation and the provision of clarity for the legal and framework based on equality of treatment between paper and e-invoices and supported by a Code of Practice.
  • The creation of an e-invoicing eco-system that provides maximum interoperability and reach
  • The adoption of a common e-invoice content standard and data model - the UN / CEFACT3 Cross-Industry Invoice
  • The establishment of an organisational process for implementation.

The report was subject to public consultation and the majority of respondents agreed with the main findings. This process was concluded with a major conference held in April 2010, under the auspices of the Spanish Presidency.

The current landscape in Europe

The Communication points out that in some Member States public sector initiatives have made e-invoicing mandatory for public procurement and these projects are critical to accelerate adoption. At European level there is the PEPPOL project (Pan-European Public Procurement On-line). In the opinion of the Commission, this solution could be reused for business to business transactions.

According to the Communication, the programme could create a launching path for a successful e-invoicing initiative by promoting full process integration across the financial supply chain. Whilst they are distinct projects, e-invoicing could benefit migration.

The Communication, however, recognises that e-invoicing is still fragmented on national lines and the full potential is untapped. Exchanging electronic invoices is too complex and costly on account of technical and regulatory barriers particularly for SMEs, leading to a market penetration of only around 5 percent of invoices, even though 42 percent of large enterprises send or receive e-invoices. In consequence, the adoption rate remains low and there is fragmentation in e-invoicing services with over 400 solution and service providers in Europe.

The Communication addresses a number of additional potential barriers to adoption in the current legal and technical environment:

  • Through the options available to Member States, the current legal provisions for have produced a disjointed set of requirements, creating complexity especially for those operating across border. However on 13 July 2010 the European Council adopted Directive 2010 / 45 / EU amending Directive 2006 / 112 / EC (see link below). This Directive, which will be transposed by 1 January 2013, sets out new rules for e-invoicing and removes current obstacles by creating equal treatment with paper invoices. Businesses will be free to send and receive e-invoices providing they maintain adequate 'business controls'.
  • Other legal rules covering accounting, auditing, data protection, archiving and customs are also to be reviewed with a view to removing barriers to uptake of e-invoicing. Some e-invoicing solutions make use of e-signatures and the Commission also plans to revise the current Directive on e-signatures to facilitate a more comprehensive and coordinated approach.
  • Interoperability of e-invoicing solutions provides trading parties with the ability to exchange e-invoices across multiple technologies and organisational boundaries based on common legal requirements, business processes and technical standards. Attention is needed in this area to enhance reach for trading parties.
  • There is no generally accepted global invoice content standard resulting in the need to support multiple formats and provide conversion facilities. Several standards bodies are working on invoicing standardisation.
A strategy to foster uptake

The Communication identifies four key priorities to foster uptake:

  1. Ensure a consistent legal environment for e-invoicing: Care will be taken to ensure a consistent and timely transposition of the new Directive and to ensure a common understanding of the new rules. Member States will be encouraged to take advantage of the flexibility in the current Directive by allowing invoices to be sent or made available by 'other electronic means'. The Commission has commissioned a study on alternative collection methods for . Proposals for revision of the e-signatures Directive will be made.
  2. Achieve mass adoption by reaching SME's who represent 99 percent of European businesses: Apply the 'Think Small First' principle in assessing future requirements and asking Member States and standards bodies to do the same. To organise awareness raising activities and promote the participation of SMEs in digital supply chains.
  3. Stimulate an environment that creates maximum reach: Further actions at the organisational and technical level are required to improve the interoperability of e-invoicing. CEN4 is asked to prepare a Code of Practice based on the work of the Expert Group. CEN should analyse the need and proposes actions for the adoption of interoperable addressing and routing procedures.
  4. Promote an e-invoice standard data model: The UN/CEFACT Cross Industry Invoice (CII) should be adopted as the common reference semantic data model. All market actors are encouraged to comply with this standard. CEN should design implementation guidelines and work with other standards bodies on further development, including other complementary e-business messages.

Member States and stakeholders are invited to endorse the four key priorities and actions. The Commission will review progress in 2013 and propose further actions as required.

Organising deployment through the establishment of multi-stakeholder e-invoicing fora

The Commission encourages Member States to develop strategies for promoting e-invoicing and coordinating national initiatives, especially with the SME sector in mind. Each Member State should put in place by June 2011 a national multi-stakeholder forum for the advocacy of e-invoicing with participation of the public sector and of users.

The Commission will establish for a three year period a European Multi-Stakeholder Forum, to be called the European E-Invoicing Forum (see link below) composed of delegates from the national fora and representatives of relevant European associations from the user's community, the European Central Bank and the Data Protection Working Party. It will be asked to monitor development of the market and adoption (including improved statistical monitoring), exchange experience and best practice for interoperable solutions, point out problems, propose solutions and support the adoption of the standard data model. It should be noted that the service provider community, including those banks that are active in providing e-invoicing services, are not explicitly included in representation at European level in the new Forum. It would be a mistake not to formally include the supply side of the industry in such a Forum, given the expected network effects that such a community could and will strive to provide.

The Commission also advocates the leading by example by its own activities and the activities of other institutions.

Commentary on the Commission's Communication on e-invoicing

The Commission recognises that the mass adoption of e-invoicing will contribute to Europe's global competitiveness and generally presents a welcome and practical set of measures. All stakeholders need to think how they might want to contribute to making this happen to save money and improve satisfaction at many levels.

The Communication correctly states that commonly accepted standards for content and interoperability would clearly help to foster uptake. However, the Communication does not mention an important recent development; i.e. the fact that recently ISO (International Organization for Standardization) produced a Financial Invoice content standard based on the ISO20022 message standards and consistent with the UN / CEFACT CII Data model with the addition of support for linking invoices to the financial supply chain.

Specifically, ISO 200225 has developed four new messages under Trade Services Initiation to support e-invoicing: the 'InvoiceFinancingRequest', the 'InvoiceFinancingRequestStatus', the 'InvoiceFinancingCancellationRequest' and the 'FinancialInvoice'. The messages cater for the exchange of invoice information to request payment from the buyer. They also facilitate the initiation and management of invoice financing requests in the customer-to-bank space.

While the prime function of the ISO 20022 'FinancialInvoice' is a request from the seller to the buyer for payment, this message can also serve to evidence an invoice in support of a financial service including invoice factoring, letters of credit, and bank payment obligations. In addition, this message standard enables web based services such as electronic bill payment and presentment. It can also be used to transfer invoice information via third parties, including e-invoicing service providers. In some countries the invoice is a key document supporting a tax declaration, reclamation and cross-border customs declaration.

The transaction related information in these messages is harmonised with credit transfer and direct debit transaction messages as set out in the relevant ISO 20022 messages. These messages fit within the European Electronic Invoicing (EEI) Framework developed by the Commission's Expert Group on e-invoicing and thus encourage interoperability through standardisation. To complement the ISO 20022 messaging standards applicable to e-invoicing, SWIFT6 is exploring options to provide for the exchange of e-invoice messages over its network. The aim is to establish an interoperable ecosystem for e-invoicing among service providers.

This is a very promising and practical development and it is important that this initiative is positioned well publicly and no scope for misunderstandings is created. Maximum coherence and convergence between UN / CEFACT, ISO and CEN is crucial to support the uptake of e-invoicing.

It must also be noted that the analysis regarding potential obstacles to the uptake of e-invoicing suggested in the Commission's Communication disregards the fact that - in spite of these obstacles - e-invoicing is developing already owing to the availability of many solutions. In general, the Communication tends to overstate the hurdles and thus may deter enterprises on the grounds that until these issues are addressed they should not move. Contrary to that assessment it is important to stress that e-invoicing is perfectly possible today.

The Communication does not explicitly cover the potential role of banks in this area. However, banks should be very interested in the wave of dematerialisation happening so close to the core payments franchise. There are many opportunities to enter a new services market for delivering and presenting e-invoices, to improve and defend the value and quality of payments, to provide financing facilities based on the invoice information flow, to better understand customer credit risk and to provide ancillary services such as electronic safekeeping. Banks are well aware that many of their SME customers are engaged in intra- trade: e-invoicing has a key role to play in supporting this trend as well as the efficiency of their domestic business. As e-invoicing becomes more widespread banks have strong assets to deploy such as their SME franchise, their on-line banking channels, secure inter-bank networks, deep experience of standards deployment and a track record in alliances with specialist IT providers of various kinds.

In short, a bank interested in transforming itself from a classical payments processor into a financial supply chain services provider will need to consider carefully the opportunities now in view.

Charles Bryant is a consultant with an interest in electronic invoicing. He advises the Euro Banking Association, and OB10, a leading e-invoicing service provider. The views expressed are those of the author.

 

Related links:

European Commission Communication: Reaping the benefits of electronic invoicing for Europe (December 2010)

European Commission Decision: Setting up the European Multi-Stakeholder Forum on Electronic Invoicing (December 2010)

European Commission Communication: EUROPE 2020 - A strategy for smart, sustainable and inclusive growth (March 2010)

European Commission Communication: A Digital Agenda for Europe (May 2010)

European Commission's Expert Group on e-Invoicing Final Report 

E-Invoicing 2010 - European Market Guide jointly prepared and updated by and Innopay. It provides readers with general information about e-invoicing and the market for services and solutions. In addition, this market guide reflects issues which need to be addressed.

The Council of the European Union adopted on the 13 July the Directive amending Directive 2006/112/EC on the common system of value added tax as regards the rules on invoicing. More information is available at http://www.consilium.europa./uedocs/cms_Data/docs/pressdata/en/ecofin/115789.pdf

Related articles in previous issues:

Gaining Momentum. A progress report on e-Invoicing ( Newsletter, Issue 7, July 2010)

Food for Thought. The EC Expert Group on e-Invoicing Final Report ( Newsletter, Issue 5, January 2010)


1EUROPE 2020 - A strategy for smart, sustainable and inclusive growth - COM (2010) 2020.

2The Digital Agenda for Europe is built upon wide consultations, in particular on inputs from the Digital Competitiveness Report 2009 - COM(2009) 390; the Commission's 2009 public consultation on future ICT priorities; the Conclusions of the TTE Council of December 2009, the Europe 2020 consultation and strategy; and the ICT Industry Partnership Contribution to the Spanish Presidency Digital Europe Strategy:, the own-initiative report of the European Parliament on 2015.eu and the Declaration agreed at the informal Ministerial meeting in Granada in April 2010. All these are available at: http://ec.europa./information_society/eeurope/i2010/index_en.htm.

3The United Nations, through its Centre for Trade Facilitation and Electronic Business (UN/CEFACT), supports activities dedicated to improving the ability of business, trade and administrative organizations, from developed, developing and transitional economies, to exchange products and relevant services effectively. Its principal focus is on facilitating national and international transactions, through the simplification and harmonisation of processes, procedures and information flows, and so contribute to the growth of global commerce. For more information visit http://www.unece.org/Welcome.html 

4The European Committee for Standardization (CEN) is a business facilitator in Europe, removing trade barriers for European industry and consumers. Its mission is to foster the European economy in global trading, the welfare of European citizens and the environment. Through its services it provides a platform for the development of European Standards and other technical specifications. CEN is a major provider of European Standards and technical specifications. It is the only recognized European organisation according to Directive 98/34/EC for the planning, drafting and adoption of European Standards in all areas of economic activity with the exception of electrotechnology (CENELEC) and telecommunication (ETSI). CEN's 31 National Members work together to develop voluntary European Standards (ENs).For more information visit http://www.cen.eu/cen/pages/default.aspx .

5The International Organisation for Standardization (ISO) is a global organisation of national standards bodies. ISO 20022 aims to give the financial industry a standard platform for the development of messages. For more information visit www.iso20022.org.

6SWIFT is a member-owned cooperative that provides the communications platform, products and services to connect more than 9,500 banking organisations, securities institutions and corporate customers in 209 countries. SWIFT enables its users to exchange automated, standardised financial information securely and reliably, thereby lowering costs, reducing operational risk and eliminating operational inefficiencies. SWIFT also brings the financial community together to work collaboratively to shape market practice, define standards and debate issues of mutual interest. www.swift.com.



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