E-invoicing is revolutionising global commerce, driving efficiency and compliance. Alex Baulf, Vice President, Global Indirect Tax and E-Invoicing at Avalara, dives into the transformative power of e-invoicing, highlighting its role in revolutionising global commerce, driving efficiency, compliance and paving the way for a more secure and sustainable financial future.
E-invoicing is quickly becoming a staple of global commerce and trade, shaping the future of tax and accounting. In recent years, e-invoicing has increasingly replaced traditional paper-based invoices, currently required to be physically delivered to recipients. Despite leading to better and more efficient business practices and a proven increase in revenue opportunities, many companies remain unaware of e-invoicing and its benefits.
Research reveals that 77% of all accounts payable departments are now automated in some way, and while 70% of companies are still using paper invoices, 64% state they are willing and planning to use e-invoicing sooner rather than later. But are the benefits of e-invoicing living up to these promises?
E-invoicing is already transforming markets
Even today, businesses across leading economies like Germany and Britain are saving money and time through e-invoicing. On average, a single employee spends one hour manually processing five paper invoices. E-invoicing cuts invoice processing times rapidly. It can improve cash flow, reduce delays between billing and payment, and ensure that invoices will not be sent out to the wrong person or get lost in transit.
By removing the need for human interactions, e-invoicing reduces potential human errors and ensures data accuracy. Repetitive tasks get replaced, leaving space and time for employees to pursue fulfilling and more strategic work, while reducing departmental costs such as materials, printing and delivery.
E-invoicing is fighting fraud and modernising the global economy
E-invoicing works beyond industry level. It can improve cross-border trade by speeding up global commerce, which is currently slowed by a myriad of paperwork, customs declarations and lagging payments. Rather than waiting for an invoice to be sent in the post, e-invoicing offers a secure, fast-delivered alternative for business in 2024. Its granular machine-readable data allows for near-touchless processing from start to finish, which ensures a better and faster way to process invoices and payments.
As such, the role of e-invoicing in commerce and trade is becoming increasingly significant. This is particularly the case as businesses seek to connect with a wider range of trading partners. There is a growing trend of e-invoicing mandates in response to this, rolling out in various countries. Why? Well, the rise of standards-based e-invoicing formats and open networks is projected to enhance interoperability and strengthen the way businesses exchange information with each other and tax authorities.
Governments across Europe, including Germany, France and Italy have started mandating e-invoicing to drive improvements in economic efficiency, reduce fraud, improve sustainability efforts, and optimise tax auditing and reporting processes. E-invoicing helps businesses comply with legal and tax regulations both domestically and across borders and maintain the integrity of the invoice data. By adopting e-invoicing, businesses can remain compliant and continue to trade in countries where e-invoicing is mandated.
Additionally, countries are adopting e-invoicing to reduce the VAT gap. The European Commission estimates that the lost VAT revenue reached €134 billion in 2019. Worldwide, the gap could account for 20-30% of public revenue or a staggering half a trillion euros. The VAT gap is caused by multiple factors, from fraud to bankruptcies, but importantly a country’s level of VAT compliance. With the emergence of e-invoicing, the EU’s VAT gap is slowly decreasing from roughly €193 billion in 2011 to €61 billion in 2021.
E-invoicing is changing the landscape of industry
Contrary to popular belief, an e-invoice is not the same as a PDF. Unlike a standard PDF, e-invoices contain structured data designed to be automatically exchanged and processed by a system. It’s this structured machine-readable data that sets e-invoices apart.
E-invoicing can help businesses avoid compliance costs and reduce tax errors, again preventing tax fraud, by giving authorities access to transactional data while incorporating time-saving automation of their finance department. Real-time tax-relevant data can be viewed by relevant authorities and governments. Each transaction (and in many countries both sides of the transaction) can be examined and matched with the supplier’s and the customer’s invoice input tax deduction. Such live reporting is simply not possible through paper invoicing.
E-invoicing can not only speed up tax audits but also reduce the frequency of them. This is because tax authorities can already validate transactions by carrying out checks on them at the time of the transaction. E-invoicing also provides auditors with direct and immediate access to invoice data. Businesses also have the same access as invoice information is digitally and securely stored and therefore ripe for data analytics and visualisation, providing insights.
What’s to come
E-invoicing has come a long way in the last decade, and it does not seem to be slowing down. As the landscape continues to move towards electronic invoicing, it is crucial that businesses stay ahead of the curve. In today’s age, businesses must be set up to harness the full potential of e-invoicing to guarantee and empower more successful and efficient processing practices. We’ve now reached a critical mass of e-invoicing mandates and new legislation paving the way for more, the direction of travel is clear. The volume of countries that are bringing in mandatory e-invoicing is so great that businesses now need to think globally and be scalable.