Moving to Electronic Invoicing: A Real Opportunity for SMEs to Get Ahead of the Game
Due to the globalization of today’s economy, information now moves more freely and communication is increasingly quick and simple. However enterprises are under growing pressure when it comes to performance. One way of handling this challenge is to simplify and automate processes. With 2 billion B2B invoices exchanged every year, electronic invoicing is an important part of this automation. It has been of increasing interest to large enterprises for several years, and is now starting to appeal to SMEs as well.
The Invoice: A Critical Document
An invoice is a business-critical document for enterprises. It’s an accounting document that needs to be identical for both the supplier and purchaser. And it’s a tax document that allows purchasers within a B2B environment to claim back VAT.
What Do We Mean by Tax-Compliant Electronic Invoicing?
When electronic invoices are sent in a way that complies with tax and regulatory requirements and eliminates the need to send paper invoices between the supplier and the purchaser, we call this tax-compliant electronic invoicing.
Electronic Invoicing and the Public Sector
Of the 4 million invoices received by the French government in 2014, only 34,000 were received in an electronic format. And out of the 90 million invoices received by local authorities and public bodies each year, very few are tax-compliant electronic invoices. There is still plenty of room for improvement. Public authorities are doing all they can to accelerate this development, especially among SMEs, by implementing regulations to promote the growth of electronic invoicing.
Regulations to Encourage Accelerated Development of Electronic Invoicing
For the government authorities, electronic invoicing affects two major areas: it’s not just about controlling trade more effectively and combating VAT fraud, but also deploying solutions both government-wide and within local authorities that will allow the public sector to improve its productivity.
The European Commission has enacted legislation to further this development.
Directive 2010/45/EU, transposed in France in 2013, stipulates that electronic invoicing solutions must make it possible to guarantee “the authenticity of the origin, the integrity of the content and the legibility of the invoice” from its issue to the end of its retention period.
Public authorities are also doing everything they can to promote the development of electronic invoicing:
- Since 1 January 2012, the government has been under obligation to accept electronic invoices issued by its suppliers, and this obligation will also apply to local authorities and public bodies as from 1 January 2017.
- Moreover, the order of 26 June 2014 anticipates progressively requiring enterprises to send electronic invoices to the public authorities on a schedule running from 2017 to 2020. Experts estimate that the adoption of this measure will save €710 million per full year (€375 million for the administrative authorities and €335 million for suppliers).
Enterprises seeking to implement tax-compliant electronic invoicing have three options: a robust audit trail, advanced electronic signatures or Electronic Data Interchange (EDI). As EDI is a complex, costly solution, it is not suitable for SMEs. A robust audit trail, which applies not only to simple PDF-type electronic invoices but also to paper invoices, must be covered by a process that is documented within the enterprise and can be proven in the event of a tax audit. The simplest, quickest way for SMEs to implement electronic invoicing is therefore the use of PDFs signed with an electronic certificate. In terms of current usage, nearly one in four SMEs sends its customers invoices in simple PDF format via e-mail, 5% use EDI and 8% use electronic signatures (Source: Sage 2012 survey “SMEs and electronic invoicing").
Moving to electronic invoicing offers numerous benefits including productivity gains through process automation, better traceability of invoices issued and invoice payments, immediate access to archived invoices, and most importantly an improved customer/supplier relationship. For SMEs, the main benefit of moving to electronic invoicing is the reduction in payment times. In 2014, Atradius carried out a study on payment practices in France. It showed that 26.6% of those interviewed – primarily from the manufacturing sector and SMEs – were concerned about the collection of late invoice payments and the impact it could have on the profitability of their business.
With an average DSO (Days Sales Outstanding) of 42 days in France, reducing the average payment time is a key issue (Source: Atradius Survey of Payment Practices 2014). Only 32% of French enterprises are reported to keep to the payment due date (Source: Altares 2013).
Although the use of electronic invoicing has increased over the past ten years or so within large enterprises, it’s still in its infancy among SMEs. Favorable changes in the legal context and the speed with which economic players do business are accelerating its development. Simple, quick-to-implement, dedicated solutions exist for SMEs – now is the time for them to adopt electronic invoicing in order to stay ahead of this transition rather than having it imposed upon them!
Three steps to better customer relations
Strong customer relationships are built on thoughtful, ongoing communication. As easy as that sounds, companies with even a modest-sized customer base can risk irritating or alienating their customers if they lack the processes and technologies to carefully manage customer communications. Brands that...