The global electronic invoicing market, according to an Imarc group report, has doubled in value within the last two years, with a CAGR of 21.5 percent. Close to 50 percent of that growth is expected to come from European countries. What is driving this acceleration? Government electronic invoicing mandates.
Because government agencies operate like large-scale businesses, they have similar needs for efficiency and reducing costs, and they are pushing to create government and public sector administrations that are paperless, data driven and data focused.
With more than 100 government mandates in place, the rise in mandatory paperless invoicing, especially in Europe, has left many CFOs scrambling to adopt solutions and processes to help them to remain compliant in their operating territories. What adds to the complexity is there are different types of mandates in operation. Having clear information on what kind of mandates are in force by country, as well as what market sectors they affect, can be difficult to obtain. There are two main types of government e-invoicing mandates currently being enforced.
Governments adopt e-invoicing to solve their own AP needs
The first and most common type of mandate affects B2G transactions where government agencies are trying to create efficiencies within their own inbound invoice flows. This type of mandate has become increasingly common across Europe. In 2014, the European Union created a directive (EU Directive 2014/55/EU) outlining a desire to build and recognize a pan-European standard for e-invoicing known as the OpenPEPPOL (Pan European Public Procurement Online) project. It also stated that mandatory use of the technology had to be in place across all EU member states by the end of 2018. It is estimated that over 100,000+ public administrations and agencies across Europe were affected by this directive.
This single mandate has forced all companies operating throughout the EU—and who trade with those government and public sector agencies—to find a means by which they can deliver compliant e-invoices to those agencies. The biggest challenge that businesses are facing from this directive is the sheer variety of approaches in operation across the continent. While the directive was created with a desire to build and recognize a pan-European standard for e-invoicing, that same directive allowed each member state to select their preferred channel and format, enabling them to determine their own preferred technologies and protocols.
The VAT gap
While B2G mandates are the most common, the most disruptive type of mandates now stem from government legislation. Tax authorities in many countries are seeking to use electronic invoicing technologies as a means to reduce their so-called “VAT gap,” which is the difference between the amount of tax revenue they expect to receive and the actual amount collected. The gap is typically caused by a combination of tax fraud and inadequate tax collection systems and, to combat this, some tax authorities have begun mandating electronic invoicing for all B2B transactions, and in some cases, B2C.
Complying with global e-invoicing mandates requires careful consideration and attention to detail, and interoperability is a key concern. The sheer number of e-invoicing mandates in operation globally, coupled with their differing rules of operation, integration and compliance, requires a level of understanding that many companies can’t achieve on their own. Developing individual connections to B2B and B2G invoice networks is also an extremely time-consuming, complex and costly process. Partnering with an experienced service provider familiar with building channel connections and offering an extensive, global compliance service with established connections to countries, is wise to consider. Such a partnership can eliminate burdensome IT projects and alleviate many of the costs involved in setting up and maintaining such connections.
If CFOs can navigate this complex landscape of mandates and regulations effectively, they will be able to shift their entire invoicing process online and be able to process diverse payment types and integrate seamlessly with ERP systems, payment platforms and invoice channels. Crucially, they will also be able to remain globally compliant and be confident they can continue to conduct business in every market they wish to operate.