Latin America E-invoicing: Five Key Differences with the US and Europe

Among the most common mistakes made in approaching electronic invoicing (e-invoicing) in Latin America is to assume that the process is similar to that in North America or the EU. Simply stated US and EU e-invoicing is not the same as Latin America e-invoicing, where in countries such as Brazil and Mexico non-participation equals non-compliance and can result in fines, jail sentences and the inability to ship products.

If that sounds daunting, the reality is no less so. Yet there are also a number of unique benefits that are often overlooked from the Latin American model. One of the most obvious is that local governments have eliminated the operational issues that each shared service centre (SSC) typically tackles on its own with a multitude of supplier networks. So as a chief financial officer (CFO) or treasurer, you can focus on how to turn Latin America into a working capital optimisation project, rather than a supplier enablement project.

Here are the five key basics that distinguish the Latin American model for its US/EU peers.

  1. In many Latin American countries an e-invoice is mandatory
    Although in many of the EU countries we are now seeing governments requiring e-invoices, this is specific to business-to-government (B2G) interactions. EU countries don’t dictate that you must send an approved electronic invoice for business-to-business (B2B) or business-to-consumer (B2C) transactions, or otherwise you can’t do business in the country. Instead, the EU outlines functional requirements if you choose to send an invoice electronically. These functional ‘Lego blocks’ are centred on authenticity and integrity.
    By contrast Latin American countries, including Brazil and Mexico, require you to send a government-signed and approved e-invoice if your organisation meets certain revenue criteria. This includes all B2G, B2B, and B2C invoices. If you don’t, there will be heavy fines, shipping delays and, potentially, a jail sentence.
  2. Latin America requires a real-time, fully integrated process 
    In countries such as Brazil, this is not just about applying a digital signature to a PDF and sending it to your customer via a portal and, in parallel, storing it in a long-term archive. These are highly evolved, real-time interactions with the tax authorities’ IT systems (for example, Brazil’s SEFAZ) that require the use of a government-defined Extensible Markup Language (XML) schema,  a sequencing process, a government signing process, a printing process that defines an output that must accompany the truck, designated barcodes on the print outs, archiving and more. Additionally, the process can be different, depending on whether you are selling goods, services or if you are providing logistics services.
  3. In countries such as Brazil and Mexico, e-invoice approval is linked to your logistics process
    In other words, you can’t ship your product from your warehouse until you receive the approvals from the government on your invoice. This can actually take many forms beyond just your ability to ship. In a worst case scenario the government can confiscate your truck, the physical goods, and levy very strict financial penalties if the invoice information doesn’t match what is on the truck or what arrives at your customer. For example, in Brazil all the fiscal information and approval information must be printed on a Documento Auxiliar de Nota Fiscal Eletrônica (DANFE) that accompanies the truck. This is also the reason why you should always have real time, local language support from your provider and a well-defined contingency process in place.
  4. Latin America defines strict process standards
    In Brazil this is Nota Fiscal Eletronica 2.0 and in Mexico CFDI v3.2, which clearly outlines the XML schema, integration touch points, process, archiving, and printing procedures. Most of the EU regulations will dictate what makes an invoice VAT-compliant, but they do not mandate a specific series of business processes and integration touch points such as Brazil or Mexico. Also, it should be noted that Latin American countries tend to expand upon these process standards, so be prepared to adjust the XML and process during the year.
  5. Latin America e-invoicing will affect your financial IT system configuration
    The solutions needed for compliance in Brazil, Argentina and Mexico require configurations and many times specific localisations to the enterprise resource planning (ERP)/accounting system before you can even send an e-invoice. In Brazil, organisations must ensure that they have not only installed and localized the taxes and fiscal information correctly – which incidentally is no easy task – but they also must comply with the Sistema Público de Escrituração Digital (SPED) reporting requirements.

So the differences are vast for compliance and create a larger implementation workload, but so too are the potential benefits. There is a golden lining underneath the mandate. From an accounts payable (A/P) viewpoint, you don’t have to focus on the operational issues. You can count on your supplier having to send you a standardised, legally valid e-invoice. You can now focus on internal processes, as you do not need to focus on integration or supplier onboarding; and you can now focus on payments and working capital optimisation rather than e-invoice participation.

Because you can count on 95% of your invoice volume to be electronic, the focus shifts to straight-through processing (STP), where electronic data from the invoice is automatically matched to the purchase order and goods receipt. This enables A/P’s staff to focus their energies on those invoices which are more problematic, which in turn allows companies to become more efficient and streamlined.  

In summary, if the goal of STP is to have an invoice received, validated, matched and released for payment with no human intervention then Latin America has figured out how to set up the perfect technical environment. This is only the first step of automation; there are huge advantages to come in the form of financial supply change management. Remember, the barrier to supply chain financing (SCF) has been the slow processing/approval times for paper-based invoices which deplete the payment terms.  Being able to accurately state that the invoice is approved for payment, in many cases as soon as the goods are received in the warehouse, creates the perfect environment for dynamic discounting and SCF.

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