Wednesday, January 26, 2011

Electronic invoicing: 238 billion reasons to move on

Author: Jon Eldridge

Delivering estimated saving of around €238 billion a year, electronic invoicing represents a significant competitive advantage for the European economy and is likely to play a key role in achieving the EU’s Lisbon Agenda of increasing competitiveness. Bo Harald, Head of Executive Advisors of TietoEnator and Chairman of the EU Expert Group on Electronic Invoicing, says that by 2012 paper invoices will be assigned to the past. 
What is the aim of the EU Expert Group on Electronic Invoicing?
‘The overall target is to kick-start a network in Europe. The expert group is a big group– 30 members – and it began its activities in February. It has already made significant recommendations. The Commission asked Cap Gemini to make an estimate of how much money could be saved by enterprises and the public sector, and ended up with €238 billion. The European Association for Corporate Treasurers has estimated the full saving potential at €243 billion. I have been introducing electronic invoicing in Finland and other Nordic countries. In my experience the first element that is eliminated is the manual workload,especially at the receiving end of an invoice. The sender saves less – mostly on paper and stamps, but the receiver will save something between, at the low estimate,€20 per invoice to €60. If you have 30 billion invoices sent in Europe every year – 15 billion of which are from business to business and currently only 3% are electronic – then it is easy to see that€238 billion could be an underestimation. Finland has started earlier in this area, but still the employers’ federation estimated savings of €2.8 billion for business-to business alone.’
Are there other advantages to electronic invoicing?
‘In addition to the financial saving, there is a serious environmental consideration. The CO2 impact of one paper invoice is 100g,which adds up to 2.8 million tons across Europe and represents a serious load that should be eliminated. Also, the workforce in Europe is reducing in size. It will be 30 million smaller in the early 2020s and will continue to decline fast. As a result, those remaining in the workforce will not have the time to do paperwork. They will need to be so much more productive. I think this is the most compelling issue for Europe.’‘But it’s the cost advantages that are driving developments in this area in Europe.The case is similar to the introduction of electronic banking in Finland, which enabled half of the combined costs of banking to be eliminated – followed by significant price reductions that especially benefited consumers. The public sector has seriously attempted to save taxpayers’money and it is very encouraging to see that already five European countries –Denmark, Finland, Italy, Spain and Sweden– as well as Singapore have declared the electronic invoice mandatory in relation to the public sector. Ten more EU countries have advanced plans to follow suit. The Commission has a policy, the Lisbon Agenda, to make Europe more productive. I’m sure it will put some pressure on member states and enterprises to convert to electronic invoices, though pressure will also come from environmental groups.’
What are the difficulties that still need to be overcome in order for electronic invoices to be widely adopted across Europe?
‘The main obstacle is the mindset of people. I think we need to be very clear. Everyone should understand that paper invoices have no future. There will come a tipping point, when paper invoices will be seen as a nuisance. So it’s the mindset of people that is a challenge. You can change people’s mindsets by making clear the compelling reasons for adopting electronic invoices. There is a responsibility for reducing unnecessary costs to consumers, safeguarding the environment and increasing the competitiveness of Europe.’
‘But we are advancing in other areas, too. From a legal point of view, some countries have decided to use mandatory electronic signatures to ensure integrity and authenticity. We have recommended that these qualities can be delivered in a “technology-neutral” way by other methods: in managed networks, for example with EDI and ordinary banking login codes.
No one questions integrity and authenticity in electronic payments, so why should they regarding electronic invoices. Extending the use of payment tools to electronic invoicing and other trade documents will make it less costly and faster to implement, and no one should insist on a system that is too expensive and too complicated, thereby seriously delaying necessary migration. Progress is being made in this area, particularly as a result of provisions made under the VAT directive.’ ‘Another area where developments have occurred is standardization. We don’t think that there should be one model that everyone should follow, but we certainly see the advantage of a common standard for the SME sector, enabling them to serve large businesses and the public sector better. This new standard will gradually replace many older ones. There’s no need to wait for that to happen because in the foreseeable future several standards will need to be supported by service providers. Service providers that are in this field – traditional service providers or the banking sector – will have to serve multiple standards like they do today.’
Has the introduction of a single currency and legislation for a Single European Payments Area (SEPA) benefited the move towards electronic invoices?
‘The common currency is a big advantage for Europe, especially the smaller countries, in many ways. It makes cross-country banking much easier, and of course SEPA will allow you to have your payments handled through one bank account. The ambition is to achieve the same for electronic invoicing – one contract should make it possible to reach all invoice receivers and be reached by all invoice senders – just like payments.’
‘There are a lot of data elements that are already standardized that enable automation of invoice payments. Of course, you may say that adoption of SEPA is low, but once the savings of €238 billion are considered, it could be that electronic invoicing actually speeds up the adoption of SEPA credit payments. An invoice is in part a payment proposition in most cases today. Previously, that wasn’t necessarily the case as electronic invoicing was typically a part of heavy procurement processes in large organizations, but now with the much larger SME and consumer invoicing volumes, it is becoming the norm. Given that there are 24 million SMEs in Europe, invoices are mostly looked upon as payment documents, and there is a natural ambition to achieve automation in accounting as well, with duplicates sent to service providers.’
How do you see the adoption of electronic invoicing developing over the next few years? 
If we have the will and we also apply transparent cost-based pricing, electronic invoicing will have taken over by 2012, and paper invoices will no longer be seen in any volume. While we are removing the obstacles – be they legal, VAT or standard obstacles – hopefully the public sector will take a big part of the responsibility for the introduction. They waste too much of taxpayers’ money on inefficient procedures. And there is no reason for an SME or anybody else to say “no”. It can be done for them, without any investment and without any IT knowledge needs, with simple templates and automated payment propositions. It should be in everybody’s interests. So that would mean that we have a gradual build-up in electronic invoicing, reaching tipping points market by market.’ ‘Finland is a small country, but it has demonstrated that it is possible to eliminate thousands of non-productive jobs by introducing electronic invoices. We are very aware that the problem for Europe and for many other parts of the world is a growing shortage of workers. Everyone has the right to understand the compelling reasons for electronic invoices. Then the mindset will change, creating a self-feeding breakthrough process.’


James R. Clawson said...

Interesting perspective of European e-invoicing. Exellcent Post!

sandeep sharma said...

Good post, let a person big open horizon. I look forward to more updates and will be returning.Cheers!
Regards:- Sandeep Sharma
e Invoicing