Monday, July 04, 2011

Cut 50

CUT 50 is the name of the next phase in the Real Time Economy program run in Finland since 2006. It stands for cutting SME administrative costs in half by 2014-15. The main building blocks are the following:

1. Implement the European Commission target to cut read tape so that 25% of the cost of this public sector related administrative burden can be lowered by 2012. An additional element here should be radical simplification of the language used. Trying to understand what authorities say is as we know a major stress factor and cost both for citizens both in employee and private roles

2. Implement automation of administrative processes inside the enterprises. It is not fair to complain about bureaucracy caused by authorities if there is not a real effort to rationalize own work. This sector contains many different elements - some using electronic invoicing as platform (for both implementation and further innovation). To briefly list:

2.1. E-invoicing based productivity improvements: e-invoicing itself, payment automation enabled, lower financing costs (better cash flow as invoices can be sent more frequently and are paid faster and easier use of lower-margin invoice financing), lower credit and currency risk costs for the same reasons, lower fraud risk costs (sending of e-invoices requires proper authentication), lower audit costs (ordinary and VAT), automated real time accounting, automated real time VAT, automated real time cash flow estimates and automated invoice financing.

When all this is done using international standards (ISO20022 ready > lower IT-costs and service charges) and in an EU-harmonized (cost and stress of having to deal with country-specific practices can be substantial) way it is plain to see that this the cost savings potential is massive.

Not only productivity and financial control is improved by sending and receiving e-invoices - also service levels to customers and suppliers is significantly improved - indeed increasingly often a prerequisite for doing business already today. To this should be added the possibility to free up staff and time for income creating work (from only cost creating..) - production, development, customer service and sales - certainly a central productivity aspect.

All of this ties into payments, cash management, account statements, financing and risk mitigation services - goes without saying that banks need to be actively involved.

2.2. Other digitalization examples include automated tax returns, harmonized and automated salary administration and integration of growing environmental reporting into ordinary business document exchange.

2.3. Digitalized enterprises enables digitalization of the public sector > lower cost in the public sector > lower tax pressure - both for enterprises and their employees (higher net salary lowers employment cost > more jobs > more tax income).

Cut 50 should be a piece of cake - once the big picture is clear and thus gets a determined and  networked effort is started - especially when this at the same time harmonizes the Single Market (a much larger home market add opportunities to enterprises with the will and skill to grow).

Out of the many (20) listed above - automation of VAT is worth much efforts - both from enterprise and public sector efficiency angle and as it can build the Single Market and cut fraud and the need for VAT avoidance programs. I will go deeper into this separately.

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