Electronic Invoicing, what is it all about?

Electronic Invoicing Basics
Basics

European Union legislation provides a clear definition of an electronic invoice:

Electronic invoice’ means an invoice that has been issued, transmitted and received in a structured electronic format which allows for its automatic and electronic processing’.

E-invoicing delivers the complete removal of paper from invoicing and its replacement with digital processes. It comes in many forms across the global economy and includes models based on direct connections between contracting parties, or more commonly on the use of networks and service platforms, such as those offered by EESPA Members.

Its ease of implementation can be demonstrated with reference to many successful private and public sector experiences, and to the extensive range of existing market solutions. ‘Big bang’ IT projects are not required and transition costs are modest.

In some countries e-invoicing is motivated by fiscal considerations and the need to improve tax collections. Elsewhere the motive is more about creating efficiency and value through digitization, or a combination.

E-invoicing is growing rapidly in all B2B, B2G and B2C spaces.

Typical Process for e-invoicing
  1. A supplier of goods and services must create, or have created on its behalf, an electronic invoice containing the right information and in a format that can be automatically processed in the system of its buyer.
  2. Such structured e-invoices may be created in a supplier’s own system and delivered directly to the buyer’s system.
  3. Alternatively, a supplier may use a service provider to deliver or create a structured e-invoice from invoice data provided to it, for example, in the following ways:
    • In an electronic data file produced by the supplier and transmitted to its service provider.
    • Through a portal or web-site operated on behalf of the buyer.
    • From data supplied in a machine-generated PDF which has been forwarded to the service provider.
  4. Although this is a less reliable method of automation, the structured invoice could be created from data contained in a paper document, or in a humanly generated PDF, and extracted through scanning and OCR (optical character recognition).
  5. Once the structured e-invoice is created it is then delivered to the buyer by electronic means. In all cases, it is usual that the electronic invoice is validated for completeness and accuracy before being remitted to the buyer’s system. This avoids multiple errors and manual intervention. In turn, a buyer and/or its service provider will perform a number of checks and business approvals before the invoice is processed and paid.

Service providers will present the costs and benefits of these various modalities including their technical implications, their ease of use, and consistency of data integrity. Such solutions are diverse and offered in a highly competitive landscape.

Barriers to e-invoicing

Barriers have been removed, such as:

  • Policy Direction: There is clear policy support at supra-national (e.g. EU) and in most counties.
  • Business case: can be easily demonstrated with reference to quantifiable value
  • Legality: it is perfectly legal and supported by legislation in the countries which dominate the trading universe
  • Interoperability: internet technology and the power of networks have made inter-operation between parties extremely easy.
  • Security and confidentiality: these very important issues are dealt with through commonly available technology and human processes
  • Competence and resources: are available on an affordable and accessible basis.
Benefits

There is a strong business case for e-invoicing adoption.

Many users have been able to reduce invoice processing costs by 50-75%, with a return on investment of over 60% p.a. Independent research suggests that the cost of processing a paper invoice (to the buyer) is around EUR17 per invoice.  Depending on the degree of automation the net benefits can be 4-12 euro per invoice.

The manual processes involved in handling paper invoices are:

  • Labour-intensive
  • Prone to errors, delays and long payment cycles.
  • Liable to potential fraud
  • Likely to create difficulties in achieving accurate audits for all parties.

By moving to a process that handles invoices electronically, buyers and suppliers achieve material cost and efficiency gains by:

  • Removing delivery and print and mailing costs
  • Removing the need to archive paper.

Even more significant cost savings are obtained through:

  • Improved workflow
  • Reduced errors and fraud
  • Accelerated process improvements
  • Economies of scale
  • Potentially faster or more predictable payments
  • Administrative efficiencies
  • Greater transparency built into the whole procure-to-pay cycle.
  • More efficient reconciliation, financial reporting and audit
  • Release of resources for more productive work
  • More satisfied supply chains
  • Environmental benefits

It is recognised that the potential for cost savings is dependent on the degree of automation targeted and delivered. It is important to take the opportunity to maximise automation.

Prepare your business case

When preparing a business case and evaluating the benefits of e-invoicing it is important to gather some facts and figures on the current activities undertaken and use these as a basis for further analysis. Key questions are:

  • Question 1: How many invoices does your organisation currently process to assess the scale of the opportunity?
  • Question 2: How many people/person hours are employed within your accounts payables/receivable function within your organisation to assess the opportunity to save resources?
  • Question 3: What is the cost of processing a paper invoice in your organisation to set the starting point?
  • Question 4: What are your costs and requirements for archiving of invoices given long archiving requirements in tax law?
  • Question 5: What are your opportunities for ‘outsourcing’   to external solutions or ‘shared services to establish your options to make it happen?
  • Question 6: What is the make-up of your customers and suppliers? How many are SMEs to understand the landscape you face?
  • Question 7: What is your current on-time payment performance?  How many (%) invoices are paid on time to assess the scope for improvement?
Implementation

Most e-invoicing projects today start on the buyer side. What follows takes this perspective. A supplier-centric approach is also covered below

Need to consider e-invoicing from the point of view of:

The buying organization

The suppliers

The connection layer, which bring buyer and supplier together

 

 

 

The successful implementation of e-invoicing is not just a technology project. Success stems from the management of people, other stakeholders, business processes and automated IT systems.

Buyer’s key objectives

  • Create commitment and focus at the top
  • Build a project organization to make the change
  • Plan and implement the appropriate systems to achieve automation and integration
  • Align with procurement and payment processes

Supplier engagement- the essential requirement

  • Engagement with suppliers of all sizes
  • On-boarding is key to success
  • Deliver ease of use for all systems and services
e-invoicing models

Connection- bringing it together

Different e-invoicing models provide alternative ways of exchanging e-invoices between buyers and suppliers:

Direct connection between trading parties can be established to exchange invoices, based on acceptable formats. While this e-invoicing model can be easy to implement, it will require new test procedures when the individual suppliers change their IT environment and can be complex and costly to manage.

Three-corner model is an exchange model where senders and receivers of invoices are connected to a single service provider platform or hub for the dispatch and receipt of messages using accepted formats. The key benefit of a 3-corner model is that the service provider can offer a tailored and granular service to both buyers and suppliers, while a drawback is that suppliers can be forced to work with many service providers simultaneously when their customers are using different providers.

Four-corner model is an exchange model where senders and receivers of invoice messages are supported by two service providers, one for the sender and another one for the receiver. The key benefit of a 4-corner model is the freedom for both the buyer and the supplier to choose their preferred service provider. As an example, the Open PEPPOL network is based on a 4-corner model where Access Point providers ensure the validated exchange of electronic invoices between the trading parties based on agreed standards.

Examples of other e-Invoicing solutions are:.

  1. EDI (Electronic Data Interchange) is the electronic transfer of structured data (commercial and administrative) using agreed message standards, from computer to computer and agreed by two trading parties. There are many EDI standards, some of which address the needs of specific industries or regions.
  2. Web portal (or Supplier portal): a web-based application used for online submission of individual invoices, allowing suppliers to present invoice data to their customers for matching and approval. All transactional information is stored in the buyer’s system (or with a third party service provider). Web portals are also a feature of three-corner and four-corner models.
  3. Shared service centre is a processing centre used by a group or organizations and will often contain an electronic invoicing service platform.
  4. P-card (purchasing card) is a form of company charge card that allows goods and services to be procured without using a traditional purchasing process. P-cards are usually issued to employees who are expected to follow their organization’s policies and procedures (source: Wikipedia). The e-invoice is embedded in the process.
  5. EIPP/EBPP: stand for Electronic Invoice Presentment and Payment, and Electronic Bill Presentment and Payment. They are solutions that combine e-invoicing services and payment services. They are facilitated directly/indirectly by payment service providers and/or e-invoicing service providers, enabling the payer to flexibly receive and manage e-invoices/bills and to pay them with existing payment instruments (i.e. credit transfers, direct debits, card payments) or e-money transactions, without the need to manually copy/paste or type in data for initiating the payment: and enabling the payee to digitize the processing of its invoices/bills and to automatically send them to the payers.

 

In a supplier centric model, a service provider may work with a supplier with multiple buying customers to select and implement the means of invoice creation and then the optimal channels (including any residual paper invoices) for buyers to be able to receive electronic invoices for the delivery of invoices into the buyer’s system.  

Additional services may be provided by  your e-invoicing service provider such as supply chain finance/invoice discounting, analytics, archiving, e-procurement and payments/remittance advice processing.

EESPA Members are ready to help review these options and the overall approach to e-invoicing adoption.

 

 

 

European Public Administrations

Guidance Paper for Public Administrations – The adoption of e-invoicing in public procurement

Under European Directive 2014/55/EU, public contracting authorities engaged in public procurement will be obliged to support e-invoicing by 2019, or up to 12 months later for smaller authorities based on the adoption of a new e-invoice standard.

The Commission requested that CEN- the European standards organisation through CEN/TC 434- draft a European standard for the semantic data model of the core elements of an electronic invoice.

A ‘semantic data model’ means a structured and logically interrelated set of terms and their meanings that specify the core elements of an electronic invoice.

The Directive does not itself create a mandatory requirement for the parties, contracting authorities and their suppliers, to move to e-invoicing exclusively based on the European standard. Member States may retain e-invoicing based on existing national standards and indeed are not forced to move away from traditional invoicing.

But the arrival of a European standard creates an opportunity for wide harmonization and a concerted process of adoption across national public sectors and the EU as a whole.

There are various ways in which the public sector at national level may wish to implement or further expand the usage of electronic invoicing e.g.:

  • Build on already achieved successes in e-invoicing adoption
  • Establish a national strategy and policy framework whether centralised or decentralised
  • Consider a mandating process to make e-invoicing compulsory to achieve the necessary scale
  • Investigate the use of shared services and integration with the whole e-procurement chain.
  • Aim high for maximal automation rather than just minimum compliance

‘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 European standard on electronic invoicing. A mere image file should not be considered to be an electronic invoice for the purpose of this Directive’ – Reference  Directive 2014/55/EU

 

Scope of the Directive 2014/55/EU

The e-Invoice Directive shall apply to electronic invoices issued as a result of the performance of contracts to which Directive 2009/81/EC, Directive 2014/23/EU, Directive 2014/24/EU or Directive 2014/25/EU applies. These govern public procurement.

This Directive does not apply to electronic invoices issued as a result of the performance of contracts falling within the scope of Directive 2009/81/EC, where the procurement and performance of the contract are declared to be secret or must be accompanied by special security measures in accordance with the laws, regulations or administrative provisions in force in a Member State, and provided that the Member State has determined that the essential interests concerned cannot be guaranteed by less intrusive measures.

The interpretation of this article is that only contracts signed as a result of a tendering process, which was above the EU threshold for inclusion in the Official Journal, are covered by Directive 2014/55/EU.

Requirements

A public administration is obliged to accept and process electronic invoices, which comply with the European standard for e-invoicing, whose reference has been published pursuant to Article 3(2) and with any of the syntaxes on the list published pursuant to Article 3(2), from these suppliers.  These invoices must have been issued, transmitted and received in a structured electronic format which allows for its automatic and electronic processing.

Public administration accepting such electronic invoices, and processing the electronic invoice in whatever manner they decide, will be compliant with the provisions of Directive 2014/55 /EU.

Therefore, they cannot refuse electronic invoices which meet the above conditions solely on the grounds of non-compliance with requirements (for example national or sector-specific requirements, or additional technical requirements of any kind) other than those specifically provided for in this Directive.

Timescale

The Directive 2014/55/EU states that Member States shall adopt, publish and apply the laws, regulations and administrative provisions necessary to comply with this Directive at the latest by 27 November 2018.

By way of derogation from paragraph 1, Member States shall, not later than 18 months after the publication of the reference of the European standard on electronic invoicing in the Official Journal of the European Union, adopt, publish and apply the provisions necessary to comply with the obligation contained in Article 7 to receive and process electronic invoices.

Member States may postpone the application referred to in the first subparagraph with regard to their sub-central contracting authorities and contracting entities until 30 months after publication of the reference of the European standard on electronic invoicing in the Official Journal of the European Union at the latest.

Upon publication of the reference to the European standard on electronic invoicing, the Commission shall publish in the Official Journal of the European Union the final date for the bringing into force of the measures referred to in the first subparagraph.

Key features of the new CEN e-invoice standard EN 16931

The new standards consists of the Semantic Model for the core information elements of an electronic invoice, the listed Syntaxes and Methodology, the Syntax Bindings, the Extension Methodology and Transmission Guidelines.   During 2017, users will be able to start work on implementation. The standard is also designed for use in B2B standards. The CEN Technical Committee based its work on a Standardization Request issued by the European Commission and has brought together standards experts over a two year period.

It is based on pre-existing standards, such as CEN BII used in PEPPOL, UBL, UN/CEFACT and EDIFACT rather then re-inventing the wheel. It supports a large number of business processes and use cases. It can be mapped into and out of other common standards and the data models embedded in most service provider platforms.

It has an elegant architecture as it contains a semantic model for the core information elements of an e-invoice i.e. the terms and business meanings used in an invoice. The data model is independent of the technical language in which it is expressed. Given the range of options for information elements provided in the Semantic Model, trading papers may agree on a Core Invoice Usage Specification to specify the exact content of the required information elements, such as transaction/PO references codes and means of payments accepted.

The two nominated syntaxes for which syntax bindings will be provided are UBL and UN/CEFACT. Syntax bindings will also be provided for EDIFACT. There will continue to be a flourishing format conversion requirement, albeit based on consistent semantic terms.

The EN supports fully the EU VAT regime in all its aspects: various VAT rates, exempt and zero-rate transactions. It even can be adapted for certain VAT-like taxes in Member States. The invoice will support the various recognized methods for demonstrating authenticity and integrity such as digital signatures, EDI and Business Controls.

It will be possible to create Extensions to the core invoice to meet specific industry or country needs. Whilst this is a requirement for justified needs, there is a danger of proliferation. A registration and monitoring process is under review.

Given the variety of information elements available, the Core Invoice Usage Specification has been developed allowing buyers to indicate how they wish suppliers to use the information elements and any restrictions on their use. The classic usage here will be for purchase order, contract and other procurement references.

The e-Invoice is designed to be fully integrated into the financial supply chain with backwards compatibility to procurement and forward compatibility with the payment process. A separate industry group is working on a family of Invoice Response and Status messages.

Validation tools are being created, although many service providers will wish to develop their own versions.

A note on visual presentations

The use of the European standard requires the transmission or delivery of a structured invoice compliant with the semantic data model and the syntax bindings. However, it is perfectly possible to present invoice data in a structured electronic format in a human readable representation, such as a PDF or through an automated interface or as a ‘hybrid’ invoice containing both a structured XML element and a PDF, for visualisation and convenience and as a complement to the structured invoice.”

Glossary

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EESPA Compliance Definitions for e-Invoicing

EESPA is pleased to publish a set of Compliance Definitions.

The EESPA Public Policy and Compliance Working Group prepared these definitions following a request from the membership.

It was agreed to start by focusing on what is encompassed by 'compliance' at both an industry level and from the point of view of individual service providers and their customers. For EESPA Members, there is a spectrum of opinion ranging from regarding compliance as an important part of the value proposition for service provider offerings, to a view that it is a subject for clients alone; and various intermediate positions.

The framing of particular product offerings and value propositions lies in the competitive space.
Comments and questions are welcome.

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Industry Papers

WHITE PAPER: TAX-COMPLIANT GLOBAL ELECTRONIC INVOICE LIFECYCLE MANAGEMENT

Download your copy here. Read the TrustWeaver Press Release.

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Billentis report 2017 E-invoicing – E-Billing Significant market transition lies ahead

by Bruno Koch, Billentis The report is aimed at supporting invoice issuers and recipients in replacing expensive, paper-based invoicing with modern, automated processes. About 140 pages offer readers facts on market development, relevant initiatives, tips for implementing solutions and the profiles of 30+ leading solution providers.   Request your copy here: http://www.billentis.com/e-invoicing_ebilling_market_report_EN.htm

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Guidance paper for EU public administrations – The adoption of e-invoicing in public procurement

This document was prepared by an Activity Group of the European Multi-Stakeholder Forum on e-invoicing (EMSFEI) focused on the adoption of e-invoicing in public procurement and endorsed by the EMSFEI on 21 March 2016. This Guidance Paper is addressed to all those involved in the implementation of electronic invoicing in public procurement. It supports public sector entities throughout

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Standard definitions for techniques of Supply Chain Finance

Global SCF Forum participating organisations: The International Chamber of Commerce (ICC) Banking Commission , BAFT, the Euro Banking Association (EBA), Factors Chain International (FCI), and the International Trade and Forfaiting Association (ITFA). The International Factors Group, one of the original sponsoring associations is now integrated with FCI. For the record Charles Bryant edited this document

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Tax-compliant global electronic invoice lifecycle management

Download your copy here.  

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Important links

 

e-invoicing Directive 2014/55/EU transposition

The definition of a common European standard on electronic invoicing is expected to facilitate the creation and processing of eInvoices for cross-border transactions. The CEN Technical Committee on Electronic Invoicing (CEN TC434) has the mandate to define the European standard on electronic invoicing by 2017 with the assistance of the European Commission and Member States. According to the eInvoicing Directive, it will be mandatory for all public entities to receive and process eInvoices complying with the European standard 18 months after the publication of the common European Standard and the list of syntaxes. This deadline is binding for central authorities. For public entities at local and regional level it can be extended to 30 months upon a country’s request, to give them additional time to comply with the eInvoicing Directive.

Figure 1 presents a timeline for the transposition of the eInvoicing Directive.