Treasury and E-invoicing

A Corporate Game-Changer

E-invoicing is swiftly transforming global business – driven by government mandates aimed at efficiency and tax compliance – and is destined to impact all businesses irrespective of size. As experts from BNP Paribas and Pagero reveal, the landscape is changing rapidly, presenting challenges and opportunities for corporates, especially MNCs.

Faced with a challenging business outlook, many firms are focusing on operational inefficiencies, not least those associated with invoicing processes. As a result, they are expending considerable effort on leveraging e-invoicing to secure a host of benefits including a reduction in processing errors, improved cashflow management, and time savings.  

Governments globally are keen to encourage the practice to not only help local firms become more efficient but also leverage its potential for bolstering tax administration. They believe it can significantly help their efforts to increase tax compliance and revenue collection, and reduce evasion and fraud.

Lirka Bibezic, Global Head of Product Management - Receivables, BNP Paribas Cash Management, says that while government policies and regulations to promote e-invoicing can be traced back to 2014, specifically in Latin American countries, the take-up is now becoming truly global. Regulation in the early years focused on business-to-government (B2G) billing: the EU, US and UK for instance all require e-invoices for business dealings with the public sector. More recently, in response to the large-scale digitalisation triggered by the Covid pandemic and greater focus on e-invoicing by firms themselves, governments are now zeroing in on B2B invoicing.

Not surprisingly, considering the sensitivities of governments over their national tax administrations, there are different e-invoicing rules in different jurisdictions, creating cross-border compliance challenges for MNCs in particular. However, Bibezic notes that the EU is notable in this respect having introduced its VAT in the Digital Age (ViDA) proposal, an e-invoicing initiative aimed at making the region’s VAT system fairer and more efficient.

A key element of ViDA is a move to real-time digital reporting based on e-invoicing for businesses that operate cross-border in the region. The EU is currently aiming for ViDA, currently progressing through the European Parliament, to be in place for all member states by 2030.

Bibezic says: “ViDA is a groundbreaking proposal and a potential game-changer at the European level. It shows a significant political willingness and regulatory effort to harmonise disparate and fragmented local e-invoicing regulations to create cross-border interoperability for B2B e-invoicing. It will mean all businesses operating locally or cross-border in the EU will have to transition to the practice.”

Many other countries are also moving at pace with either introducing compulsory e-invoicing or bolstering existing mandates. “I don’t know any region of the world where governments are not working on e-invoicing. They all understand its benefits, the positive impact it can have on tax administration – all countries are struggling to close the VAT gap and reduce the losses due to non-compliance, fraud, and evasion. Governments also recognise that e-invoicing can make a valuable contribution to lifting national productivity through efficiency gains within companies themselves,” explains Bibezic. 

Managing expectations while realising potential 

While there are high hopes for ViDA across the EU, Bibezic is clear that national government sensitivities associated with e-invoicing, not least tax policies and collection, mean it is highly unlikely that the holy grail of standardised global rules for its operation will materialise any time soon. “As it stands, that is a tall order. Achieving it will require significant work and considerable time. I do not see such global e-invoicing standards being developed over the next 10 years at least. Even the ViDA proposals include some flexibility for interpretation at the national level.”

Notwithstanding the fragmented global landscape for e-invoicing, and the compliance challenges that presents to MNCs, the world is inexorably and rapidly moving over to e-invoicing and Bibezic is clear about the benefits that will flow from this for corporates and their treasurers.

She says: “First, in terms of cash flow visibility, it is proven that e-invoicing can enhance visibility by speeding up invoicing and payment. E-invoicing can also enhance risk management simply because accurate, highly visible, and timely data is intrinsic to its operation.

“It is impossible for any business to implement e-invoicing successfully if it is carrying siloed, hidden data. Companies will need to work to have systems and processes in place to generate and support that. But once it is in place, they will be armed with valuable data for effective, timely management of, for example, credit and liquidity risk analysis. E-invoicing is potentially an extremely powerful game-changer for risk management.”

There are many other benefits for treasurers that can flow from e-invoicing, she continues. The availability of timely, accurate invoicing and payment data, and time saved versus paper-based or more manual processing, for instance, can help support more effective investment analysis and portfolio management. The resulting efficiency and transparency can actually boost credit worthiness too. “I’m a banker and I can assure you that having such granular, quality, accurate payments and invoicing data much more quickly really can reduce borrowing costs and help with accessing finance.”

In considering challenges ahead for treasurers with e-invoicing, Bibezic voices concern about their involvement with its implementation. “My feeling is that treasurers need to engage much more with e-invoicing. What I have observed generally is that treasurers currently are quite passive and not in the lead for projects. Many organisations have a dedicated e-invoicing project that somehow overlooks treasurers. That is really unfortunate. It means treasurers are not getting a proper view of some of the great benefits e-invoicing can deliver for them specifically in terms of efficiency and cost savings; and the interesting analytics it can support.”

Bibezic says the most important first step for organisations embarking on e-invoicing is to ensure they carry out detailed data mapping of their invoicing operations. “I have spoken to many data mapping companies that have undertaken e-invoicing projects and carrying out a data-mapping exercise diligently is an essential starting point. And it is important to begin that sooner rather than later, as it can take an extremely long time depending on the complexity and scale of the invoicing operation. It took one company 18 months to fully map its customers, suppliers, invoices, processes, and flows, for example. It can be a huge shock for large organisations when they realise just how much of this data is hidden from view. For a successful e-invoicing implementation, everything needs to be clear and transparent. It can be a revelation to realise how much they don’t actually know.”

Triggering a revolution

Banks are increasingly proactive in responding to the rapid roll-out of e-invoicing globally and the fast-growing needs of their clients as they look to integrate it into their operations. The development of e-invoicing, however, is not without challenges for banks also, admits Bibezic.

“At BNP Paribas we have been studying e-invoicing carefully for some time now. It’s an extremely complex topic for bankers because we are not invoicing or tax experts. But, clearly, we have to act on behalf of our clients. Increasing numbers are seeking our advice even though we are not tax advisers. Why? Because for them, too, it is a new, highly complicated topic, and, of course, they expect their partner bank to help as much as possible. And that makes perfect sense. We are, after all, entrusted with looking after their money so it’s natural to link payment and the collection with the invoice and consider that within the context of e-invoicing. From our perspective as banks, it is obvious we could link those two worlds and help clients to have a clear end-to-end view from purchase order to payment.”

With the regulatory landscape for e-invoicing as fragmented as it is globally, corporates also see banks, with their extensive up-to-date intelligence on regulations, as essential to have onside for cross-border transactions whether it be with their suppliers, vendors, or customers. The highly sensitive nature of the data generated for such operations is another vital consideration for them.

Bibezic says: “Cyberattacks are, unfortunately, now a fact of life and it is crucial for corporates to have confidence in the security surrounding their invoicing and payments data. For that reason, having a trusted partner bank such as BNP Paribas that has the highest ISO security standards, the ones regulators themselves want to see us have, provides our clients the reassurance they need. We are not on any public cloud. We have our own cloud strategy in place to protect data. It’s a strict regime and subject to regular, rigorous external audits.”

While global e-invoicing rules will not be coming along in the near future, Bibezic does see real potential for unifying the two currently still distinct worlds of payments and invoicing. That, she believes, is “a really exciting possibility”, pointing to the ongoing global migration of payments processing to XML format as showing the way forward with this ambition.

She says: “I find it extremely interesting to note that SEPA was created for domestic payments within Europe and helped catalyse moves to create a more global framework for payments that is now being driven by, for example, ISO 20022. We are creating a common payments language that will be spoken by all actors in the commercial world including the banks, PSPs, tax authorities, and companies. That will be a revolution, one that I believe could also prove to be a catalyst for bringing together payments and invoice processing.”

The science of compliance

With e-invoicing destined to impact companies of all sizes globally, demand for experts skilled in helping companies implement it is growing fast. And it’s not just banks that are spotting opportunities for providing services. Fintechs such as Pagero, part of Thomson Reuters and an e-invoicing solutions provider, are also seeing robust demand for their services. The Gothenburg-headquartered company aims to help companies make the switch to e-invoicing with solutions that ensure compliance and exchange with all their customers and suppliers via its own single, cloud-based e-invoicing platform.

Pagero currently has customers in more than 140 countries, which are handled by at least 30 offices globally. Notable multinational clients include Japanese electronics group Ricoh, which trades electronically with 34,000 customers through the Pagero Network via one single technical integration and format. Other customers include Hewlett Packard Enterprise and Johnson & Johnson.

A recent Pagero-sponsored report by consultant Billentis estimates that the value of the e-invoicing market will grow by an average 28% per year between this year  and 2028, at the end of which the annual transaction volume is forecast to be 184 billion e-invoices.

Like BNP Paribas’ Bibezic, Radosław Dominiak, Account Executive, Pagero, also highlights the rapid acceleration in the roll-out of e-invoicing globally. “It’s been really crazy over the past decade with e-invoicing. More than 75 countries have already introduced e-invoicing and continuous transaction control [CTC] legislation and many more will join that club over the next few years.

“One major reason as to why there is so much demand for e-invoicing experts, whether it be the banks or fintechs like us, is the diversity of e-invoicing models across countries. Even within the EU one will have, for instance, a solution for Italy that is similar to one for Poland in terms of assumptions but varies in detail due to the different rules and regulations in each country.”

Jussi Ertiö, Director of Sales, Region East, Pagero, echoes his colleague, adding: “There is so much activity around e-invoicing across the world now. It feels as if there are major developments every month – it’s a fast-moving space. The next few years will see many new mandates from countries globally coming on stream, as well as changes in existing mandates. The great implication of that, especially for the large international players, is to be prepared. It’s not only about becoming compliant, it’s also about staying compliant.” He points to a study by Deloitte, for example, which estimates that 80% of organisations worldwide will be forced, either by legislation or by their client-based relationship, to switch, at least partially, to e-invoicing.

Continuously on the case for the customer

As at BNP Paribas, Pagero does not see common global e-invoicing standards materialising in the foreseeable future. For solution providers, that means that making sure they keep abreast of regulatory and policy developments in each country is critical. “Ensuring our regulatory intelligence and analysis is bang up to date for countries is vital. No treasurer or CFO, especially those in internationally trading companies, will buy into something that is not up to speed and demonstrate it can respond quickly to changes as they arise.”

Dominiak says the importance of being up to date with e-invoicing for Pagero is reflected by its emphasis on staying close to its customers. “We have a global footprint with local offices that are close to our customers in each country where we operate. That is really important. However, gathering latest regulatory intelligence at the local level diligently is one thing. You also need to be able to analyse and assess that information. We therefore have our own Regulatory Affairs team that tracks developments and issues network updates as quickly as possible because that is extremely important to our customers. We also issue bulletins for every change coming up in every country, daily if needed, and regular newsletters.”

Operationally, Pagero’s global network connects its clients to hundreds of e-document networks and government platforms around the world. Documents can be exchanged and business transactions automated with millions of companies across the globe, regardless of their platforms or digital capabilities.

Dominiak explains: “The network and transactions we enable within it are at the heart of the solution we offer. With a single connection companies have a global reach. The service includes taking care of transaction compliance as well. Our regulatory specialists engage heavily with the network to make sure that is the case at all times – that’s their first and foremost priority.”

While there are many potential benefits to be gained from implementing e-invoicing, Ertiö likes to highlight in particular the tangible cost savings that can be generated. Many companies might assume, for instance, that the traditional way of sending invoices, via paper or email, costs basically nothing. But Ertiö advocates delving deeper into what goes into generating them, accounting for the manual intervention they need for example, often reveals they are more costly than originally assumed, sometimes significantly more.

He says: “One of our large customers for example saw costs per invoice drop from €8 to €1.50 after introducing automation for e-invoicing. I also like the e-invoicing capability of automated payment reminders. This can have a positive impact by decreasing the DSO ratio for our customers in an efficient way. E-invoicing therefore has upsides beyond the major headlines such as cash flow management and error reduction.”

Single connection, no discrimination

Pagero believes its B2B network is one of the largest, if not the largest, of its kind globally and as such represents a unique selling point. “We are extremely proud of it,” admits Ertiö. “Our customers really value the seamless communication it offers with counterparties in different parts of the world. It enables accounting teams to achieve fully automated, transparent financial document flows directly between company ERP systems, no matter their flavour. We are ERP agnostic.

“Irrespective of industry or business size, Pagero Network enables companies to transmit, receive, and process all their invoices electronically, in compliance with the very latest local e-invoicing and CTC regulations.”

The great confidence Pagero has in its network capability and regulatory oversight is complemented, says Dominiak, by a strategy honed over many years to design and implement tailor-made solutions that, most importantly, do not interfere with the customer’s existing internal processes. “Successfully defining what we believe is important for companies when it comes to e-invoicing and proving it in the marketplace is great, but that success is dependent on how we approach the issue for companies. Close collaboration with the customer to define exactly what they hope to achieve through invoicing automation is key for developing the correct, customised solution. 

As at BNP Paribas, ensuring data security is paramount for Pagero. Ertiö elaborates: “You cannot be providing a network like ours and not treat cyber-security extremely seriously. When it comes to cyber-security, it’s as much about ensuring you have all the certificates regulators recommend, and are compliant with latest industry standards and regular auditing, as it is about culture and attitude within the organisation.

“We are proactive at all levels when it comes to security and privacy-related matters generally. The daily traffic flow and transaction volume generated by our customers on the network are enormous. Some of those invoices might hold quite sensitive data, so the best way to ensure security is for us to ensure every single transaction is protected to the same highest standards.  We do not discriminate between transactions, all of them are equally important.”

Drilling down is critical

More broadly, Ertiö urges treasurers and CFOs to recognise that, when it comes to e-invoicing, there is an intimate relationship between compliance and automation. Appreciating the interplay underway between them globally will go a long way towards treasurers being able to clarify in their minds how they view its implementation.

He explains: “Regulatory mandating for e-invoicing is only going to accelerate globally and compliance with regulations in this space demands automation, which in turn enables compliance to be achieved. It is important for treasurers and CFOs to recognise that interplay as a major, mutually reinforcing driver for e-invoicing and the opportunities and challenges it represents for the organisation.”

Ertiö adds that CFOs and treasurers should view e-invoicing as an opportunity to drill down into their invoicing operation and understand the process together with the associated master data at a granular level. “Getting to grips with the master data, making sure its accurate and good quality, is absolutely critical and will take the organisation a long way towards becoming compliant and staying compliant as regulations continue to evolve at pace,” he says.

More broadly, Ertiö stresses the importance of involving the whole organisation for successful implementation and management of e-invoicing operations. “Siloed operations and mindsets will undermine e-invoicing initiatives and can be fatal for projects. Getting the buy-in for e-invoicing from C-suite is, of course, essential but in progressing it, it’s important that it is not seen as just the finance team being the lead. It should be treated as a joint project for the whole organisation, one where everybody takes ownership.”