If you were to ask the average executive whether or not e-invoicing could be a saving grace to SMBs all over the world, they’d likely ask, “What’s e-invoicing?” But many futuristic finance leaders know this to be true. And with the past year being as challenging as it was, small businesses need all the help they can get – from cloud technology, to software platforms and little lay-ups from advancements such as e-invoicing.
What is e-invoicing?
E-invoicing is a way to seamlessly and electronically exchange invoices between software systems. This means that unlike emailing a PDF or a link to an online invoice, e-invoices are sent securely, ready to be approved and paid. Recipients no longer need to manually enter invoice details. This has the potential to save significant time and contribute to faster payment and healthier cash flow.
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What’s the status of e-invoicing now? What are the hurdles to adoption?
This modern approach to e-invoicing differs from historical approaches to the problem such as Electronic Document Interchange (EDI), in that e-invoicing is either led or supported by government to cover a whole geography, and is based on open, interoperable standards that can be used through the whole economy.
All around the globe, many regulatory bodies are working to formally digitize B2B invoices. For instance, most countries in Europe have adopted e-invoicing standards to varying degrees, and are developing standards to exchange documents across borders.
Once the network is in place, the next hurdle is adoption. Adoption is highest in countries where there has been some sort of mandate - something that is highly unlikely to happen in the US. Furthermore, there’s sometimes costs involved in actually making the change. As such, some financial regulatory bodies are looking into the possibility of a tax credit for companies that use e-invoicing versus that of paper, which could encourage many companies on the edge of adoption to take the leap.
What are the benefits?
There are many benefits to e-invoicing. First, from a government perspective, compliance will be easier for companies and industries to achieve and maintain; this is because back-office systems would automatically capture and process information with little to no human input, thereby discouraging fraudulent activity.
In addition, automating certain portions of the AP department would free up valuable time for financial professionals to spend on forward-looking and more strategic tasks, and ensure that both month’s end and tax season were as seamless as possible. This would also encourage the finance department to tackle more complex, cost-saving measures for future adoption, and increase their ability to “spread their wings,” no longer hamstrung by tedious number-crunching. Further, it would reduce payment delays (an issue for essentially all small business owners) and increase security, as the payments would be completed via a trusted security provider that requires validation of both the sender and receiver details. These providers must also follow strict protocols to ensure invoices remain secure while they are sent across the network.
Finally, if, for example, the US were to create an e-invoicing network and could meet the adoption challenge, both suppliers and customers could share documents with one another freely; as a result, improving trade flow, speeding up payments, and ultimately making the economy more efficient. Countries like Australia and Singapore have already recognized and implemented this capability, and are utilizing it to help them compete with bigger markets. Of course, if all countries were to adopt e-invoicing and used interoperable standards, it would also help streamline international trade. Therefore, a seemingly “small” administrative digitalization could have much broader impacts than a simply more direct way to process payments.
But on a smaller scale, it would also help small businesses compete.
Of course, as we all know, if you’re a larger business, it’s easier to make the investment to digitize – largely due to big budgets allocated to such types of processes. As such, you’re able to implement technologies that allow for automation and more turnkey outputs, and more or less force other brands and vendors you’re interacting with to comply with your technique and rules. Small businesses don’t have that power and/or luxury. But if e-invoicing becomes widespread and the tools to use it readily available and inexpensive, small businesses could share contracts and statements with big trading partners without spending extra (usually non-existent) money to do so. It would free them up to expand their partner- and customer-base and, importantly, their potential revenue. As mentioned earlier, this can also translate from larger vs. smaller companies to larger vs. smaller markets, and help the latter join competitions for business they previously would not have been able to. It makes the global market truly “global” in that sense, and more accessible to those who have been previously cut out of the process.
How can an SMB prepare for e-invoicing?
In order to be in a position to allow for e-invoicing, a company must first set itself up for near-absolute digitization, and move its finance capabilities to the cloud with software such as that of Xero. However, the investment is worth it in the long-run, and will only enable complete e-invoicing across business sizes, sectors and borders. In the end, this will not only encourage seamless billing and payment cycles, but increase cash flow for small (and large) businesses, stimulate the economy and level the playing field for small businesses and their larger trading partners. With a little bit of prep work, it’s a win/win for all parties involved.
Matthew Vickers, General Manager of Product, Xero