E-invoicing Compliance Extends Well Beyond Tax

Every once in a while, amidst the routine noise of frequent administrative or legislative tweaking of tax regimes, there are occasionally changes that are really significant. E-invoicing is a big deal. 

By that I mean that the new e-invoicing and real-time reporting requirements cropping up in a growing number of countries have broad implications for tax departments, as well as finance and accounting groups, procurement teams, IT groups and even ESG programs. As my colleague, Vertex EMEA Director of Solutions Marketing, Gunjan Tripathi, has written, “E-invoicing compliance challenges extend beyond just the generation of invoices.”

One of the main takeaways from a sweeping research report produced by e-invoicing and tax compliance consultancy Billentis is that successful e-invoicing compliance – as well as successful e-invoicing and integrated digital trade projects – require a holistic set of considerations, challenges and stakeholder collaborations. While ensuring global tax compliance is a top objective of these efforts, numerous changes and improvements (including those related to master data, finance and accounting process improvements, supplier and vendor relationships, technology investments and upgrade, and more) are just as important to address. Businesses may also need to reconsider whether they have the right resources in place to effectively manage this multi-year transformation. With VAT compliance increasingly integrated into core finance processes like billing and accounts payable, any error in data or process will be immediately visible to tax authorities at the line-item level.

Make no mistake, the scope of e-invoicing compliance initiatives is large. “Electronic invoicing and tax reporting should be viewed not as a project with an end date but as an ongoing journey towards full Integrated Digital Trade,” said Billentis Partner Bruno Koch and Billentis Owner and CEO Marcus Laube, co-authors of The Global E-invoicing Report. 

As finance, accounting, tax and IT leaders assess the work and changes that e-invoicing compliance require, they should zero in on the following challenges that Koch and Laube find in many companies:

• The presence of numerous, disparate ERP systems
• Decentralized processes for the issuance and receipt of invoices
• Lack of control and oversight over paper invoice workflows
• Absence of transparency and invoice processing streams, volumes and methodologies
• Multiple decentralized long-term archives
• Ambiguity regarding the identification of original invoices vs. copies
• Concurrent, yet isolated, initiatives across departments focused on scanning, workflow management, archiving, tax compliance and e-invoicing

These challenges highlight the lack of incentive, other than merely for efficiency, or opportunity for businesses to invest significantly in standardizing systems, processes, and centralizing controls. However, with the rise of digital reporting mandates on the regulatory front and advancements in cloud infrastructure, robotics process automation, and AI, there is now both a need and an opportunity to enhance e-compliance efforts. For businesses that have not yet initiated a comprehensive re-think of the underlying processes, now is the time for a sense of urgency.

The size and cross-functional nature of e-invoicing compliance and related projects are also evident in the collection of benefits that the report describes. These potential gains include:

• Integrated digital trade enablement and improvements: This capability, as Koch and Laube note, “extends well beyond simple automation of invoice processes to encompass all pertinent activities before and after source-to-pay and order-to-cash processes.”
• Working capital management enhancements: E-invoices can streamline operations by reducing exceptions, expediting payments, enabling discount utilization and lowering Days Sales Outstanding (DSO). They also enhance cash management transparency, reduce capital expenditure and facilitate supply chain finance. According to the Euro Banking Association, supply chain finance involves 'the use of financial instruments, practices, and technologies to optimize the management of working capital and liquidity within supply chain processes, fostering better collaboration with business partners.'
• ESG benefits: The co-authors also note that the use of invoicing can improve ESG reporting and performance.
• Getting the organization “future-ready”: Successful e-invoicing compliance initiatives and related digital trade projects also provide a foundation for organizations to quickly (and more easily) adapt to future regulatory mandates as well as to increasing real-time interactions with tax authorities and trading partners, which is quickly becoming the new norm.

As Koch and Laube note, “Characteristics such as platform openness, agility, interoperability, and the adoption of new technologies are vital.” While these qualities and technologies are crucial, collaboration-minded indirect tax leaders should recognize that additional factors must be considered for e-invoicing initiatives to succeed. Besides the benefits for both larger enterprises and SMEs, the latter group will encounter challenges when expanding abroad due to the lack of harmonization in e-invoicing standards and technology across countries. This lack of standardization means that SMEs will face higher relative costs for compliance.

To address these challenges, solutions like Vertex e-Invoicing enable businesses to navigate diverse regulatory landscapes seamlessly. By offering an adaptable, integrated platform, Vertex provides the tools necessary to ensure compliance with varying regional e-invoicing requirements, while also streamlining processes to reduce operational burdens. This helps businesses stay ahead of global e-invoicing mandates without compromising on efficiency or cost-effectiveness and can be a value-enhancer for businesses.

PLEASE REMEMBER THAT THE VERTEX BLOG PROVIDES INFORMATION FOR EDUCATIONAL PURPOSES, NOT SPECIFIC TAX OR LEGAL ADVICE. ALWAYS CONSULT A QUALIFIED TAX OR LEGAL ADVISOR BEFORE TAKING ANY ACTION BASED ON THIS INFORMATION. THE VIEWS AND OPINIONS EXPRESSED IN THE VERTEX BLOG ARE THOSE OF THE AUTHORS AND DO NOT NECESSARILY REFLECT THE OFFICIAL POLICY, POSITION, OR OPINION OF VERTEX INC. ⁠