e-Invoicing - Not a Choice Anymore

e-Invoice is essentially an invoice, which is generated, issued, processed, and stored electronically, in specific formats. When it is a tax compliance norm, e-invoice must be uploaded on the tax authority’s portal for validation, before issuing to customers, (there are some exceptions to this). The term e-invoicing includes e-invoice, e-credit note, and e-debit note; generally referred as e-Invoice/e-notes

E-invoicing serves two main purposes:

1. Trade: Here the goal is to achieve greater efficiency at a lower cost, with faster collection of due payments. Paper-based manual invoicing is time-consuming, expensive, and error-prone. For instance, in Australia, it was estimated that paper and emailed PDF invoices cost between $27 and $30 to process. It required suppliers to create paper or PDF invoices to print, post or email, buyers to scan and manually enter invoices into their software and expenses were incurred on materials and delivery, along with having environmental impact.

• The processing cost for e-invoice is less than $10 per invoice. Some countries are encouraging and even making e-invoicing mandatory for Business to Government (B2G) and Business to Business (B2B) trade.¹

2. Tax regulation: For tax authorities around the world, e-invoicing is a strong regulatory control to combat tax fraud. Tax frauds primarily takes place via tax evasion on output supplies and invoice faking using input claim on purchases. Even when more trade is encouraged, these fraudulent practices make Governments lose substantial tax revenue. In some parts of the world, losses experienced are estimated at 30% of annual projected tax revenue.²

According to a report from International Market Analysis Research and Consulting Group (IMARC), the global e-invoicing market reached a value of $ 8.74 Billion in 2021. It is expected to reach $ 29.68 Billion by 2027.³

A Billentis report on expected e-invoice/e-bill volume in 2022 reads as follows:⁴

Estimated electronic invoices/bills 2022 (billions, rounded)

This is where strong regulation on e-invoicing becomes crucial.

European countries were early adopters, with France introducing e-invoicing as early as the 1960s. Relative tax revenue growth trends in these countries are on an upward trajectory. Many Asia-Pacific (APAC) countries are also fast tracking e-invoicing implementation as a regulatory mandate. Australia, New Zealand, and Singapore are leading the pack, with Singapore having implemented it in 2019. India and Taiwan followed suit in 2020. Saudi Arabia is on track to implement by 1^st Jan 2023. Hong Kong, Malaysia, Japan, Philippines, Vietnam, and South Korea are all set to launch their e-invoicing mandates in early 2023.

These trends and statistics indicate that e-invoicing is not a business choice, but a regulatory mandate by Governments, from the indirect taxation perspective.

e-Invoicing Compliance Challenges from Financial Services Perspective

With high transaction volumes, industries like banking, financial services, and insurance (BFSI), energy, telecommunications and retail are driving the market growth in e-invoicing.

The BFSI sector has been on a digital transformation fastrack and most of the businesses are digitized by now. To undertake an e-invoicing implementation journey effectively, internal IT leaders must consider the framework listed below as a starting point:

• Data specific
  • E-invoicing requires additional mandatory elements. This can influence data maintenance and processing across multiple systems. Procedural and operational controls must be put in place to ensure maintenance of these additional data.
  • Maintaining links of credit notes to the primary transactions that could be influenced through e-invoicing.

• Billing capabilities
  • ERP and billing systems need to build additional capability to effectively generate e- invoicing data as per technical specifications and published formats. For example: invoice hash, QR code etc.
  • Ensuring integration with the e-invoice platforms using external APIs as defined by the tax authority of the country.

• Security specific
  • Encrypting transmitted data, as per E-invoicing specifications.
  • Securely maintaining specific keys like the private key and digital certificate signing ID in non-exportable format.

Best practices across existing billing processes and operations will need the following changes:

• e-Invoice and e-note can be issued only after successful registration on the tax authority’s portal
• Issued e-invoices and e-notes will need to have additional mandatory elements as defined by the relevant e-invoicing standards. For Example., QR Code
• Strict checks and controls on purchase accounting to ensure that invoices and credit notes issued by vendors are fully e-invoice compliant
• Effective change management and change transformation across the organization

The e-invoicing process can be even more challenging and complex in the case of multi-country operations.  As it stands, e-invoicing specifications do not have a universal standard yet. This means, a bank with operations across countries will need to have systems and processes catering to the e-invoicing specifications and standards of each designated country.

e-Invoicing Compliance - A Strategic Approach

Being a tax regulatory norm, organizations need to take a cautious approach to meet compliance requirements as non-compliance can have severe consequence. It could include heavy penalty from tax authorities and serious damage to brand reputation.

Here are three key points to be considered by any financial services organization, while strategizing the e-invoicing implementation program:

1. Segregate tasks and operations
   1. Business data specific changes and processes are completely within the control of the organization. Even with changing regulations, additional business data required must be within the control of the Bank/FI
   2. Technical and security related aspects and logic must be managed by the e-invoicing application

2. Identify the best e-invoicing implementation solution
   1. Must it be decentralized across multiple billing systems or
   2. Centralized into a single system

• While there is no universal single answer, for an organization, the recommended approach would be to implement a centralized solution. A decentralized approach may seem easier especially considering stringent timelines. But in the longer run centralized approach will be significantly more effective.

3. Considerations while selecting an e-invoice application
   1. Functional and technical capabilities to meet the global e-invoicing norms
   2. Single point consolidation of all regulatory rules and capabilities for integration with tax authority portals
   3. Highly configurable capability to adapt quickly to changing regulations
   4. Strong technological architecture and open interfacing capabilities to integrate with a wide array of e-invoicing platforms