Are Billions Being Wasted on E-Invoicing?

I received details of a presentation recently where it was stated that 80% of all invoices globally are sent as PDF attachments to emails. 

It also went on to say that governments are seeking to change this practice by forcing every business to use structured e-invoices.  Invoices in PDF format will be specifically excluded from the definition of e-invoices. 

Why are governments across the globe moving towards invoices structured in XML or JSON format? 

  1. They are unaware that technology has advanced to the point where OCR (scanning) is being replaced by new technology that can extract data from PDF invoices with 100% accuracy. 
  1. They want access to every invoice in real-time to prevent tax avoidance. 
  1. They have seen what Cambridge Analytica, Facebook, Google, and others have done with ‘big data’, and they want to use similar technology to monitor what is being bought and sold in their market. 

What is an E-Invoice? 

As the name implies, an e-invoice (electronic invoice) is sent electronically instead of being sent through a postal service.  Most commonly, e-invoices are used for business-to-business (B2B) or business-to-government (B2G) transactions. 

20+ Years of Slooooow Progress 

Back in the late 1990s, I met a group of government officials who were researching the potential to implement electronic invoicing using a standard format.  The more I spoke with them, the more I realized how much time and effort would be wasted.  They spoke about flying out to other countries to learn from them, committee meetings, inter-departmental reviews, etc. etc. etc. 

A decade later I encountered another group of government officials with the same mandate, repeating the same research, running pilots that incurred a cost for all participants, but not moving forward. 

Where is the Money Being Wasted? 

From the timescale outlined above, it is clear that many governments have spent significant sums developing standards for e-invoicing when the platforms on which those standards are based have been surpassed by new technology. 

If companies are forced to implement these ‘new’ e-invoice format standards, they will incur significant costs from: 

  • Changes to their ERP or accounting software to make them compliant, both for sending invoices and for receiving them in the new e-invoice standard. 
  • Fees to service providers to handle the subtleties of different ways in which standards have been interpreted, and the customisation that will inevitably occur to handle industry-specific data that needs to appear on invoices. 
  • Internal projects to plan for the impact of the new e-invoicing standards. 
  • Implementing workarounds when the government approved e-invoice format does not contain everything required by a supplier or a customer.  We already see this with EDI, the longest established type of e-invoice standard where supporting documentation is often exchanged outside the EDI structure. 
  • Engaging with suppliers and customers as part of the on-boarding process. 
  • If your company supplies products into multiple industries, you may be faced with having to deal multiple e-invoice formats, increasing complexity and cost. 

All of this expenditure is completely unnecessary as newer technology eliminates the need for e-invoicing standards. 

Wait, are Standards Not a Good Thing? 

Before technology that can extract data from PDF invoices with 100% accuracy was developed, I was paid as a consultant to help develop an e-invoicing standard for the construction industry. 

There was a UK standard for house builders, but it proved to be unsuitable for companies and their suppliers involved in civil construction.  So, the government paid for a standard to be developed that was never widely adopted.  The key reason for non-adoption was because of the challenges and costs required to change IT systems to adopt the new e-invoice standard. 

The Eureka Moment! 

Prior to developing technology to extract data from invoices with 100% accuracy, OnePosting operated a traditional e-invoicing model for a major client in Canada. 

Progress was slow, taking 12 months to get the first 9 suppliers live.  When we developed the ZERO Error technology for extracting invoices from PDF invoices with 100% accuracy, the next 90 suppliers were implemented in 30 days. 

The key reason why implementation went so quickly after our technology was deployed was because suppliers were not forced to make any changes to their IT systems.  For most of our clients, their suppliers don’t even know that the invoices they send as PDF attachments are being processed through a ZERO Error automated process. 

In fact, one significant supplier to our client in Canada who originally provided data in EDI format, switched to sending invoices in PDF format because their EDI output did not include a restocking charge.  It would have taken them 18 months to build this feature for EDI invoices and would have been very costly, but switching to PDF invoices was done at no cost because the data was already available there. 

5 Key Risks from Adopting an E-invoice Standard 

Five key risks to business posed by governments forcing compliance with an e-invoicing standard: 

  1. Governments are working off the false belief that data cannot be extracted from PDF invoices with 100% accuracy. 
  1. They have invested large sums to date in devising e-invoicing standards. 
  1. There will be significant costs to business.  Any savings that advocates of e-invoicing advance are likely to be offset by the costs of implementing and operating it. 
  1. A single standard is unlikely to be suitable for every industry, so there will be ‘extensions’ and exceptions, all of which will increase costs for business. 
  1. There is a significant risk, (that I will deal with in another article), that e-invoice data will be used in ways that lead to financial loss for some companies. 

Is an e-invoice standard worth it now that technology has advanced significantly?  Probably not.  Government can get what it needs by providing a simple API and a standard for the key data they require (supplier tax number, buyer tax number, total subject to each tax rate on an invoice, tax charged at each tax rate, invoice number, invoice date). 

This provides everything they need to prevent tax fraud, is easy to implement, and preserves the confidentiality of invoice data. 

Finbarr McCarthy