Nigel Taylor (Europe) - e-Invoicing in Europe

In a world where cross-border trading is commonplace, opportunities for growth and expansion in e-Invoicing in European companies are vast. Each year, millions of invoices are exchanged across borders between buyers and suppliers and yet most of these invoices are still either in paper or e-mail format, resulting in inefficiencies for both the buyer’s Accounts Payable (AP) department, and for the supplier’s Accounts Receivable (AR) department.  Digitizing the process through e-Invoicing can be hugely cost and time effective - the European Association of Corporate Treasurers has indicated that electronic invoices can save as much as 80% by removing the need for manual processes.

Increasingly, EU countries are mandating that supplier invoices should be issued electronically, with the governments in Denmark, Norway, Sweden, Spain, Switzerland, Finland and Italy all moving away from traditional manual invoicing processes. Despite this, of the 30 billion invoices that were issued in Europe last year, only 7.5% were sent electronically, even though the average processing cost of a paper invoice across Europe is €17 compared to €7 processing cost for an e-Invoice.

A lack of consistency around regulation is one reason for companies not moving to e-Invoicing. In global companies electronic invoicing is not a country specific issue - companies need to comply with the regulations mandated by all of the regions they trade in. With that in mind, it’s useful to know that some of the larger trading countries, such as India, China and the Ukraine, have not permitted paperless invoicing historically. Other countries such as the USA, Australia, Singapore and the United Kingdom have fairly liberal regulations regarding e-Invoicing that focus on the end-result, with no prescriptive legal mandates in place.

Leading the way, Europe has attempted to provide clarity and with the EU Council Directive 2001/115/EC, electronic invoices can serve as the legal invoice. To respect the various ways of guaranteeing integrity and authenticity and to allow different EU member states to build on existing policies, the EU directive is intentionally not prescriptive.  It is left to each government tax office to rule on which methods are acceptable. Some member states are more prescriptive than others while many governments in Europe (and worldwide) have yet to decide on their policies.

In the European Union in particular, legal requirements around e-Invoicing that often differ from one country to the next:

•    Authenticity & Integrity — All country tax authorities require companies to guarantee the origin and integrity of electronic invoices. There are two respected methods of doing this, EDI and digital signatures. While all countries allow EDI under 1994/820/EC/ the regulations for digital signatures vary from country to country, for example Germany requires signatures digitally signed by an individual and sometimes secure signature creation and encryption devices. France and the United Kingdom require only digital signatures at the company level.
o    A newer method gaining popularity is to ensure authenticity and integrity through stringent business controls and a comprehensive audit trail, yet what constitutes these criteria is yet to be commonly agreed.
•    Archiving and Auditability— All country tax authorities require archival of invoices for differing timeframes during which audits may take place. For example, Germany requires archiving for ten years and the UK requires six. In the event of a tax audit, companies need to be able present a human readable invoice that proves the companies’ accounts.
•    VAT Compliance— Value-Added Tax rules in Europe vary by country. Electronic invoicing solutions therefore need to comply with country-specific tax laws, for example ensuring the mandated data fields for each country are present.

While regulatory compliance can seem to be complex, confusing and ever changing to companies operating in different countries, it is important not to lose sight of the benefits of moving your paper invoices to electronic. This first step alone will save you money and take you a step closer to compliance and it is widely recognized that return on investment can be achieved between 6 and 18 months.

Your company should not underestimate the time it can take to move invoicing traffic from paper to electronic. As a guide, for a large multi-country e-Invoicing project, achieving 50% of your invoice traffic electronic within 2 years will be considered a success. Key to success is supplier adoption - your company must provide multiple B2B enablers so that suppliers can connect efficiently. EDI companies have provided the blueprint for this for the last twenty years from high-complexity, high-volume integrations through to low-volume, simple desktop plug-ins for accountancy packages such as Sage, Quickbooks or Exchequer.

With ever increasing government adoption, awareness and lucrative financial benefits on offer to encourage e-Invoicing, it is of little surprise that Gartner believes that by 2012 at least 20% of all invoices exchanged in Europe will be electronic, up from around 3% in 2009.

By Nigel Taylor, Head of e-Invoicing, GXS


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