Why true e-invoicing is essential for business

Blog Compliance January 14, 2020

Trent Targa examines why true e-invoicing is the way forward for companies that want to maintain their competitive edge and for governments that want to reduce their VAT gap.

Stuck in no man’s land

Let’s face it, invoices got stuck in no man’s land when the digital revolution hit. The humble invoice, essential to business transactions, found itself left at the back of the queue as the office modernised around it. Invoices were saved as PDFs, attached and sent then printed and filed. Somehow, they never entirely left their hard copy paper confines.

Surely this vital document should be one of the most efficient, effective and up-to-date documents in the modern office? However, for many businesses, invoices have still not graduated the e-document school.

“E-invoicing” vs true e-invoicing

Bruno Koch states in his Billentis Report 2017 that “The legislation in many countries (in Europe, North America, Pacific etc.) considers paperless invoices in any electronic format to be e-invoices.” This means that in some countries, a PDF invoice is considered as an e-invoice. However, true e-invoices offer far more control and possibilities to ensure data accuracy than PDF invoices.

“A true e-invoice is an invoice that is issued, received and processed electronically.”

A true e-invoice is an invoice that is issued, received and processed electronically. It is digital from its creation in the financial system by the issuer, until it is received, processed and archived by the recipient. In other words, true e-invoicing is electronic throughout its entire life cycle.

As more and more companies become aware of the advantages of true e-invoices, they realise that there only is one option if they wish to improve efficiency and profitability and maintain their competitive edge.

Scalability and human error

Since PDF invoices require manual intervention and manual processing, they take more time to handle than automated true e-invoices. PDF invoices often need to be scanned, printed and filed. However, even the best OCR and scanning tools can’t compensate fully for low-quality PDF’s, or the risk of human error in a still partially manual process. Nor are they able to accurately capture all information provided in the invoice. As a result, the frequency of errors and the need for manual interference is higher than with e-invoices.

As the number of PDF invoices increases, the time and human resources it takes to process them also naturally increases. With e-invoices, it is possible to process a considerably larger number of invoices with little or no impact on the efficiency of the processing, whereas the opposite is true when you work with traditional invoices.

Touchless invoices

Even with a true electronic invoice flow, there is a risk for errors in the invoices, errors that create the need for manual intervention. Information such as invoice reference, purchase order number or the correct VAT code might be missing, which causes the invoice to get stuck in the flow.

Pagero provides solutions to help reduce this type of errors, enabling seamless integration and touchless operations.

“Both the private and the public sector sees the possibilities with true electronic invoicing.”

Our validation service controls the e-invoices before they even reach the recipient, and if they don’t fulfil the pre-set requirements, they are returned to the sender to be corrected before they are resent. If the financial system can’t add certain information to the invoices that is required by the recipient, Pagero’s enrichment service can automatically add the required information to the invoice before it reaches the recipient.

Thanks to these services, little or no manual intervention is needed, which enables a fully automatic end-to-end process between the buyer and the supplier.

Reducing the tax gap

Both the private and the public sector sees the possibilities with true electronic invoicing. Statistics have shown that in Europe, roughly 12.3 per cent of all VAT revenue goes missing every year, roughly 150 billion euros. By using e-invoices, the tax gap can be effectively reduced by giving governments the possibility to cross-reference every invoice and, if necessary, then audit companies where the numbers don’t add up.

This has been seen by governments in Latin America who have introduced not only business-to-government but also business-to-business e-invoicing mandates. As a result, there have been considerable gap reductions. In Mexico, the tax gap was reduced by about 50 per cent, and the tax revenue in Brazil has increased by 60 billion euros.

Modern systems for true e-invoicing

At Pagero we strive to promote the use of true e-invoicing to help businesses and governments effectively and efficiently modernise their invoicing services and systems. Only by the most up to date systems will organisations large or small be able to truly combat fraudulent behaviour, maximise profit margins and efficiencies.