E-invoicing – also known as electronic invoice presentment and payment (EIPP), or electronic bill presentment and payment (EBPP) – is a low-cost transaction processing system that leverages information technology to transform a manual and paper-oriented billing process into a faster and more efficient electronic version of data messaging and record keeping. There is no one well-recognised definition of e-invoicing.
It can mean anything from scanned copy of a bill sent through an email network to a highly sophisticated electronic document sent through dedicated channels and maintained in an organisation’s integrated system. Different processes in the full cycle of e-invoicing include transforming a paper document into an electronic version, creation, transmission and reception of an electronic bill, automated entry into the buyer’s accounting system, its validation, payment methods and dispute management. E-invoicing is becoming increasingly relevant, since it represents the supporting element of supply chain finance.
The idea of e-invoices stems from the increasing focus on paperless trading. Paperless trading can be loosely defined as business transactions involving the exchange of data by electronic means. It requires all participants in the trading activity to realise and implement a standard process of exchanging and accepting the contracts or bills documenting transactions.
Depending upon the nature of the transaction, the process of paperless trading can involve a number of agents like insurers, transport organisations, excise and customs departments, banks and financial organisations. Needless to say, the government authorities (e.g. clearing, customers, excise, tax departments) play an important role in this chain. Therefore, to facilitate greater efficiency among all participants, these public departments must set certain standards regarding components and formats of electronic bills/invoices, their transmission processes and their legal status.
From a logistical perspective, electronic bills and invoices help to reduce the amount of paper used for documenting and storing transaction information. Through e-invoicing, billers can dispense with a number of manual processes including printing, mailing, documenting, storing and reconciling paper invoices. The adoption of e-invoicing standards offers faster and more efficient data transfer, reducing the duration of billing cycles. Timely notifications and updates on invoice status, faster transmission of invoices for payers’ approval and quicker dispute management systems enable better customer service. Payers get regular updates on invoice status and payment timings which enable them to estimate cash outflow with higher certainty, thereby helping them achieve better and more efficient working capital management. Eliminating costly paper invoices and reducing the time and manpower required to manage them offers significant cost-reduction opportunities as well.
E-invoicing in Asia
E-invoicing in Asia is at a nascent stage. This is due to a number of reasons, including lack of regulatory framework, lack of established standards, tax impediments, lack of government initiatives and lack of proper understanding of the overall system among the participants in the trading chain. Most e-invoices exchanged in Asia come from the business-to-consumer (B2C) segment, and few technically qualify as e-invoices. Business-to-business (B2B) invoices electronically exchanged are just beginning to emerge. It is difficult to make estimates that have a solid statistical basis, due to the lack of official publications. In Asian countries, attention and investments are far more focused on the ‘paperless trade’, i.e. the dematerialisation of trade documents, such as bills of lading, accompanying documents, loading and customs papers.
There is regular and ongoing re-evaluation of standards and regulations relating to the adoption of international standards of communication. It is, however, a widespread practice at the governmental level to develop standards that adapt to the needs and uses of each individual country. The regulatory frameworks are at different stages for different Asian countries and legal aspects are regularly developed. Rather, it is taxes and fiscal constraints (for example, in China and India) that make recourse to e-invoicing impractical.
Hong Kong and Taiwan, with high levels of trade liberalisation, well-established IT standards, sound legislation systems, comprehensive document standards and strong government support, are at a relatively advanced stage. To strengthen the information infrastructure in Hong Kong, the government formulated a ‘Digital 21’ plan. With the cooperation of 12 other private entities, it funded Tradelink, which provides a service of electronic trade services to about 70,000 trade companies in Hong Kong. In 2000, the paper form customs entry service ceased to exist. All declaration documents have since been submitted electronically. In order to promote the use of e-invoices, the government has increased the lowest cost for submitting paper documents while decreasing the cost for submitting electronic documents. The present customs entry application procedures are now 95% electronic. All the documents are provided with authorised electronic authentication service licences, electronic signature and encryption functions and can be transmitted freely within the network.
E-invoicing in Taiwan started in 2006 with only seven companies registered as users of e-invoices; the figure has risen to 11,275 in 2008. In Taiwan, the uniform invoice is a standardised receipt that is issued by shops and businesses and is a form of enforcement to register and pay for the prevailing value added tax. With the increasing popularity of online channels for business transactions, e-uniform invoices are also issued. In 2000, the Taiwanese Ministry of Finance set up an e-invoice platform and an ad hoc group to promote the use of e-invoices; it is responsible for making rules, regulations and exchange formats concerning the development of the e-invoicing system. A programme was rolled out in 2006 to plan and implement an e-invoice integrated service platform to resolve the lack of a standard information exchange between value-added service centres and to set standard processes and guidelines to effectively shape the e-invoice environment. By 2008, there were over 70 value-added service centres and over 11,000 registered corporate users, estimated to have risen to 20,000 in 2009.
Countries such as Japan and Korea, with good levels of trade liberalisation, helpful legislative systems and comprehensive development plans by the government authorities are at a medium stage of development. Traditional Japanese business practices are quite different from EU and US practices. Cash payment is more convenient in Japan. Payment with note (promissory note) is the most popular mode of payment. This is one reason for the slow adoption of e-invoices. There is a move to implement e-promissory notes in Japan. About 7,700 – mainly larger – companies (0.2% of all companies) have signed up to use e-bills. According to tax accountants, e-invoices or e-documents are very rare in Japan. The Japanese government is enhancing the link between the automatic customs clearance system for cargo and other related systems, trying to make it a ‘one-stop’ service and enable the system users to go through all the required procedures with the transmission of electronic information.
In Korea, the economic development level, compared to other countries, is higher, as is the level of trade liberalisation. The application of paperless trading has been reflected in B2B business-to-government (B2G) and the relevant sections of the trade chain. The legislative environment for paperless trading, as well as basic standards for data transmission for commercial purposes has been established. As a result, business and government are fully enjoying the benefits and advantages of paperless trading. Participants in trading have realised resource consolidation on electronic bill transmission, as well as cross-border paperless trading in some areas. Korea started a Trade EDI project in 1990, led by the government. The electronic bills on customs, trade administration and international transport have achieved the 100% paperless target.
China and India, with low levels of trade liberalisation and evolving regulatory and legislative systems, are at a developing stage. Volume of e-invoices reached an estimated 97 million in China in 2009, with a total value of US$2,813bn. However, there currently are almost no e-invoices in the B2B segment in China or India. Electronic bills are extensively used in the B2C segment, especially in the telecom sector. In China there is no official programme involving exchange of e-invoices in the B2G segment either. Even though there are a number of procurement websites available, the Chinese government doesn’t yet have an e-procurement system.
These websites are very different from one another, even in usage of standards and formats, and are mainly used for publishing procurement information. Even though e-invoicing is not very popular in China, paperless trading has been used in a few sectors, including customs clearance, administration, transportation, etc. Over 25% of documents related to trade have been transmitted electronically. However, paper bills are still required, because the legal status of electronic versions has not been fully recognised. Development of e-invoicing systems is at a very basic stage in India. In many cases, paper invoices are converted to PDF and sent via email to customers. Some customers also keep hard copies of invoices along with the electronic version. As a result, digitisation in the order, invoicing and delivery process is not too advanced.
The use of alternative transmission channels is still undeveloped in Asia. The tendency is to maintain a centrally managed, government-owned channel. Central governments and local administrations are very active in promoting the digitisation of commercial documents. This does not necessarily mean, however, specific recourse to the use of e-invoices. The development and adoption of electronic billing are far more consistent in the presence of government programs devoted to the creation of procurement service centres.
Paperless trade is more popular in Asia and more appreciated than e-invoicing. Fiscal rules represent an obstacle to the full deployment of initiatives and their dissemination on a large scale. The relatively low level of knowledge of rewards tied to the electronic processing of invoices in economically advanced countries (e.g. Japan) indicates an urgent need for greater investments in education and training. Another reason is the not-yet-complete integration of the procure-to-pay (P2P) and order-to-cash (O2C) corporate processes. The quest for integration is closely linked to companies’ level of sensitivity to offers of integrated banking services of cash and trade.
Asian companies have a substantial lack of confidence in banks as their technology partners. An increase in marketing, conference events, and education activities on the theme of e-invoicing by operators who want to penetrate this market is expected. In general, an important part in the process of dissemination and adoption of the programmes for e-invoicing is the so-called ‘onboarding’; i.e. the involvement of suppliers. While today companies are still running programmes to persuade suppliers to embark on e-invoicing, a more mandatory form of relationship building is expected.
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