European level e-invoicing - only a distant dream? [Background article]

Today, most e-invoicing “ecosystems” and standards are local - either country based, service provider based, invoice sender/receiver based or de facto “standard” email- based. There has also been a lot of discussion around international/EU wide standardization, but not that much is happening in real life.

So, what is hindering the EU from just doing it? Itella Information strongly believes that European level e-invoicing doesn’t have to be a distant dream, however, in practical terms there are a few things that have to be in order to really make it happen: legislation, business model, interoperability, and last and perhaps actually the least challenging - technical standards. Listen to their story:

Cornerstone 1: Legislation

It is difficult to do business if e-invoice is not a legal document. E-invoice, of course, can be used for process efficiency perspective to streamline financial processes, but the paper document also needs to be sent and stored for the authorities. This has been accepted by the most of the European countries.

However, some legislators have put unfair burdens like electronic signature or technical requirements for the electronic invoice to be legally accepted document. This cannot lead into sustainable way of working and utilizing the full potential of the tool. Fortunately, many countries have recently lifted the unnecessary requirements and legislation has been put to the level where it should be: legal compliance requirements rather than technical. Technological topics are left for the market to solve.

Cornerstone 2: Business Model

Another quite often neglected topic is the business model: who actually has the interest, who gets the savings and who pays the bill? In reality, the biggest beneficiaries of e-invoicing are large corporates receiving large amount of invoices and some consumer oriented industries like telecom, media and utilities that also send a lot of invoices. For the rest, it is actually more work than real benefits.

In such environment business models that consolidate the volumes to gain scale benefits and encourage the consolidators to emerge need to be established. Otherwise the transaction costs remain too high for the volume senders/receivers and the startup costs remain too high for all the others and we are stuck - somebody may have an interest to drive the development, but the other end of the “pipe” does not see any reason to do anything.

Cornerstone 3: Interoperability

The third cornerstone is interoperability. The only way to really cover the whole Europe (or world) is to have a lot of market players that work together. There is no single party, or even a single industry, that would be able to cover all geographies and all stakeholders to get real coverage. The customer segments’ needs are just too different. Operators are typical party to cover high end customers. They have special needs, high volumes, need to customize and have value-add services e.g. for error recovery, reporting, activation… Banks, then again are quite natural party to cover SME and consumer segment with very standard services.

Nobody can start providing only e-invoicing services to these segments – SME volumes are too small as standalone service and consumers as invoice receivers are typically not really willing to pay anything. Another very important party is ERP/Billing system vendors. Unless they implement very easy plug&play connectivity with other operators and banks, we can forget the SME segment – which typically rules out just 90-95% of the companies on the market.

Cornerstone 4: Technical Standards

As said in the beginning - technical standards are perhaps the easiest to solve. It is because there are plenty of those already available on the market. And there is really no need to even have only one standard. When we have interoperability in place, the roaming partners will make sure that the formats in interoperability gateways match and the end-customers can easily use whatever standard their software vendors and service providers on the market have agreed to support. Of course, the content of the data can be somewhat limited if we have wider and narrower standards on the market.

But is that really the key issue? The key topic is to have reliable infrastructure, fast and secure delivery and way to automate the basic invoice processing such as booking and contract matching. If we really need to go on the detail level line item matching, this boils down to 1-to-1 agreement of the exact line item content anyway. No single standard can fully cover all countries, all industries and all products/services on the market – or it can but then it is so complicated that nobody will be able to implement it – or so ambivalent that nobody will be able to implement it.

Email/PDF does not solve the challenge

How about email + PDF them: widely available, standard and easy to implement? Not really a true solution, unfortunately. There are too many issues related to email concerning fraud, business secrecy and delivery reliability. And concerning PDF there are some process issues: either PDF is just a “scanned image” of the invoice, or if we start enriching it with metadata we will come back to interoperability topic: what is content of the data? Do we use sender’s format or receiver’s preferred format? Do I need to know all 150 different standards on the market to access all my business partners? Or can we use some middlemen to do the mapping?

Who has the true interest to do something here: sender who saves stamp & envelop (~1 euro) or receiver who would save perhaps 10 euros if they could fully automate their whole process, but probably cannot since PDF is not containing the required data in the desired format? Email-PDF surely has its place as complementary carrier and intermediate solution in some cases, but does not really do the trick.

Time to create the market together

So, European level e-invoicing is actually not as far as it might seem: legislation is already in place in most of the developed countries and there are enough technical standards available. However, the mismatching pieces of the puzzle seem to be mostly related to business model conflicts, missing interoperability frameworks and missing business ecosystems. This is something where service providers need to work together to create the needed connectivity – it is time to forget the monopolism and create the market together!


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