e-Procurement and e-Invoicing

Corporations have realized the benefits of digitalization in procurement (e-Procurement) decades ago. They have developed an automated resource planning system, invoice digitalization via optical methods (OCR), electronic transfer of orders, delivery notes and invoices (EDI systems). Until recently these systems were only available to large organisations.

Now even small and medium enterprises (SME`s) are able to digitalize processes within their own organisation. They implement smaller ERP systems but already able to automatize several stages of procurement cycle as resource planning, purchase requests, approvals etc.

However, the area of e-Invoicing is a specific one, because the communication occurs between various external subjects and it is still fairly untouched by digitalization. It stays the last weak spot in the procurement process chain which prevents a fully digitalize e-Procurement.

In Europe, over 99% of the businesses consists of SME’s, most of which are self-employed/sole proprietors. It is, therefore, a huge challenge to bring the necessary level of standardization in such a diverse area. Although the potential for savings and process improvements are great.

EU takes a lead

By the beginning of this decade, the European Commission and EU member states realized this potential within their flagship initiative A Digital Agenda for Europe (strategy for 2020), which gives prominence to achieving a single digital market and calls for the removal of the regulatory and technical barriers that prevent mass adoption of e-invoicing.

This creates important opportunities for improvement. The mass adoption of e-invoicing within the EU would lead to significant economic benefits. Furthermore, due to the close link between invoicing and payment processes, the creation of the Single Euro Payments Area (SEPA) offers a launch pad for interoperable European e-invoicing schemes.

The Commission wants to see e-invoicing become the predominant method of invoicing by 2020 in Europe.

In some countries, e-invoicing is also largely motivated by fiscal considerations and the need to
improve tax collections associated with the supply of goods and services.

Not all e-Invoices are the same

In general, the digital invoices can be divided into two main categories by the level of digitalization:

1. visual digital invoices (e.g. pdf, jpg)
2. structured data e-Invoices

Visual digital invoices are only a first stage of digitalization. It allows digital archiving, eliminates paper consumption and postage cost. But the real benefits come only in the second stage of digitalization – structured data e-Invoices – they allow excluding any manual processing and full automatization.

Benefits from electronic invoicing

One distinctive feature of the e-invoice is its potential for automation, especially if the invoice is sent in a structured format.

In general, the benefits of e-invoicing includes:

1. paper savings
2. process improvements
3. reducing administrative burden in VAT area
4. reducing CO2 emissions
5. convenience aspects of e-invoices for consumers

In more detail, for the companies, the efficiency improvements can be found in the following areas:

1. eliminating manual tasks,
2. achieving higher reconciliation rates,
3. shortening processing cycle times,
4. reducing penalty interest,
5. improving quality control,
6. improving companies’ responsiveness by providing real-time information,
7. enabling electronic authorisation,
8. enabling authorisation schemes and control points in workflow,
9. enhancing information integrity through authorisation measures and event logging,
10. allowing better decision support,
11. supports geographic independence through web-enabled workflow and electronic filling.

Enabling further evolution

Achieving the second stage of e-Invoicing – structured data invoice opens the doors for promising digital technologies as blockchain and big data analytics.

Blockchain technology would fit well with the concept of electronic invoicing or e-billing in the wider sense.  Theoretically, the blockchain could be utilised to validate a transaction, deliver an e-invoice and facilitate payment, entirely automatically.

Big data analytics applied to the vast amounts of structured e-invoicing data would open many additional services or insights into e.g. pricing optimisation.

Status of EU e-invoicing efforts

The EU has taken a number of steps to promote the e-invoicing vision in recent years. The key measures were:

• The VAT Directive 2010/45/EC - placing e-invoicing on an equal footing with paper,
• The Directive 2014/55/EU on e-invoicing in public procurement – it goes further and introduces the standards for structured data e-Invoices.

The VAT Directive was already transposed to legislation in Europe, including the Slovak republic. It supported the spread of visual digital invoices, which are now significantly more common than several years ago.

The directive on e-invoicing in public procurement is still in the process of transposition to local legislative. After its publication on 16 April 2014 several years were granted to develop a technical norm (semantic data model) for e-invoicing. It was finalized and published on 17 October 2017 (nr. EN 16931)

European Committee for Standardisation has reviewed several syntaxes already used in practice and eventually choose two of them as part of the technical norm – UBL 2.1 and UN/CEFACT Cross Industry Invoice)

After the publication of the technical norm the e-Invoicing project has entered the implementation stage with the following final deadlines:

• 18 April 2019  - Deadline for the Member States to transpose into national law and implement the Directive (for contracting authorities and entities)
• 18 April 2020 - Extended deadline for contracting authorities and entities which are not central government authorities

Rules only for public procurement

The directive is only regulating public procurement (B2G), therefore no mandatory rules will be imposed on transactions between private companies or consumer (B2B or B2C).

However it can be expected, that the implementation of the unified European standard for e-invoicing in the B2G sphere, will strongly promote and motivate the implementation of already developed standards in the B2B area.

How the Slovak government prepares for public e-Procurement

European institutions (CEF Digital) regularly monitor the status of the e-invoicing directive implementation by member states. According to the state published for June 2018, there is very little progress in the implementation of the e-Invoicing Directive.

In Slovakia, the competent authority regarding the e-invoicing is the Ministry of Finance and the Office for Public Procurement.

Currently, there is no legislation in this field. There is no e-Invoicing platform available and general public contracting authorities are not using e-Invoicing. Reportedly, a political communication about the use of e-Invoicing is under preparation.

What other countries do?

In total 6 countries has published the deadlines for transposition of the e-Invoicing directive to their local legislation so far.

An interesting development on e-invoicing is now in process in Italy. Italy has requested the EU to grant permission to introduce mandatory e-invoicing regime.

For the public sector, it has started on 1 July 2018 and general B2B and B2C e-invoicing starts on 1 January 2019. In Italy, an e-Invoice must only be transmitted using the Interchange System (Sistema di Interscambio – SDI), managed by the Italian Tax Authorities.

Currently, the format of e-invoice in Italy is not yet compatible with the new EU norm for e-Invoicing - EN 16931, but a project to incorporate these standards has already commenced.

An invoice issued in a different format (paper, other formats) or not transmitted via the SDI is considered as “not issued“ and consequent penalties may apply.

The countries in Europe are on their journey to overcome the obstacles in implementing truly digital eProcurement including structured data e-invoicing. At least on its expansion beyond the sphere of corporations. EU institutions have made significant progress in legislation and in technical standardization toward this aim. The Slovak republic could do more to support these initiatives and upgrade the status of the digital economy in our county.