Mandatory Electronic Invoicing: Coming Soon
Digital transformation is nowadays one of the top strategic priorities for the vast majority of modern enterprises. As part of the digital transformation entire processes are digitized and assets are dematerialized. Document workflows are among the most prominent examples of processes that are digitized: Digital firms are destined to exchange and manage documents in digital formats rather than as conventional hard copies. In this context, most enterprises are already resorting to electronic invoicing (E-invoicing), which entails the use of electronic invoices and associated billing methods instead of paper-based invoices.
E-invoicing digitizes the trading and billing relationships across value chains and supply chains of different stakeholders, including customers and their suppliers. It involves exchange of invoices in digital formats, which can in several cases be accompanied by other digital documents such as purchase orders, debit notes, credit notes, payment terms and conditions, payment slips and more. The use of electronic invoicing instead of conventional paper invoices is a global trend for nearly two decades. This is clearly reflected in the size of the global e-invoicing market, which amounted to over $3.3 billion in 2017 and is projected to exceed $16 billion in 2024. As part of this growth, we are also seeing a rapid increase in the number of e-invoicing services providers i.e. companies providing e-invoicing services. Specifically, there are globally over 1.500 such providers nowadays, which represents a tremendous increase over the few couple of providers that were operating around 2000.
This growth of the e-invoicing market is driven by the benefits that it offers to supply chain stakeholders, including:
Despite these benefits, more than 90% of all invoices worldwide are still processed manually. On the one hand, this is indicative of the potential size and opportunities in this market. On the other it shows that penetration is still in its early stages. Nevertheless, recent regulatory developments in some countries are set to accelerate the rate of adoption. The most prominent example is Europe, where there are regulatory mandates by the European Union that make e-invoicing obligatory for all members states. In this context, most European countries are adapting their national laws and infrastructures (e.g., tax authorities’ IT infrastructures) for the adoption of e-invoicing. These regulatory developments are expected to lead more than 300.000 public organizations and bodies to adopt e-invoicing and e-procurement in the next couple of years. In most countries large enterprises will be the first ones to become obliged to issue all of their invoices electronically, while smaller enterprises will follow in the years to come. Moreover, in some countries specific industry sectors (like manufacturing, oil and gas) are prioritized given the high volume of their trading transactions. At the same time, public authorities at both national and regional level are developing the IT infrastructures needed to produce, accept and validate electronic invoices.
Italy, Germany and France are some of the EU countries that are intensively preparing for e-invoicing, through aligning their national legislation to EU mandates, but also through the development of platforms for B2B and B2C e-invoicing.
Key to the establishment of e-Invoicing platforms are technical standards for the structuring and the electronic presentation of an invoice to a customer. In principle, e-invoicing platforms support the exchange of structured invoicing data based on formats like the Electronic Data Interchange (EDI) or other XML based formats. There are several standards for formatting e-invoices, including international standards (e.g., EDIFACT and the UBL (Universal Business Language)) and formats developed in specific countries (e.g., Finvoice in Finland, the EHF (Elektronisk handelsformat) format in Norway, the FacturaE format in Spain and the FatturaPA format in Italy).
As already outlined, all European countries must adhere to EU mandates about e-invoicing. The latter include information about the data and metadata of an electronic invoice. Such mandates are specified in the scope of EU’s Directive 2014/55/EU, which addresses the more general issue of public procurement.
In this landscape, e-invoicing solution providers provide on-line services for creating invoices compliant to applicable laws, as a means of facilitating and accelerating compliance. These services audit the data of the invoices (e.g., like VAT numbers, legal entities names) for correctness. Furthermore, they ensure preparation of the invoice in-line with standards-based formats. They also offer functionalities for structuring and managing the invoices of an enterprise, while at the same time supporting the preparation and issue of various reports. Likewise, public authorities are also providing their own platforms for creating and validating all e-invoices that concern their transactions and interactions with businesses (i.e. Business-to-Government (B2G) transactions).
One of the trends in e-invoicing platforms concerns their decentralization by means of blockchain technology. In the scope of a blockchain, participants provide and validate e-invoices in a fully decentralized manner, without the need of a trusted third party. This increases the resilience of the overall e-invoicing infrastructure, as it lowers the risk of cybersecurity attacks against a centralized pool of servers. Moreover, the transparency and anti-tampering capabilities of blockchain networks increase trust across supply chain stakeholders. In the scope of a blockchain infrastructure, participants are able to track, trace and monitor the entire history of a trading exchange, which is practically impossible to be changed or faked. Furthermore, the use of blockchain-based smart contracts provides compelling advantages in cases where the e-invoicing platform has to ensure that invoices are issues in line with a given legal framework such as a Service Level Agreement (SLA) between two or more parties.
Blockchain-based e-invoicing could be the future of e-invoicing platforms, which is the reason why several companies, both startups and established consulting firms, are positioning themselves in this market. Nevertheless, the uptake of blockchain-based e-Invoicing solutions will be slow, as it will take significant time before governments and average companies understand, adopt and fully leverage blockchain solutions.
Overall, e-invoicing is a first, yet very important step to transforming supply chain financing. In the medium term we expect to see the digitization of the documents and information that are exchanged and used across all supply chain processes. In the long run information will flow seamlessly across all supply chain stakeholders, which will reduce error prone processes and will open new horizons in supply chain and trading interactions optimization.
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