At the start of 2008, the European Commission has set up an Expert Group on the subject of electronic invoicing. The thirty members of the Expert Group should represent all key stakeholders concerning e-Invoicing. The members shall be appointed by the Commission from specialists with competence in the area of e-Invoicing on the basis of applications from industry associations, public sector bodies and individuals representing the interests of all or part of public sector, enterprises and ICT, consumers, financial service providers and standardisation organisations in the field of e-Invoicing.
It is expected that an interim report will be published early 2009, describing the proceedings on the work of the expert group up to now and presenting the aims to achieve in 2009 in areas of legal barriers, business requirements and network and standards.
More information on the subject e-invoicing and related such as the Single Euro Payments Area (SEPA) and the intentions and ambitions on the European scale, please visit the website of the European Commission concerning e-invoicing.
About one month ago, it was distributed a draft of the conclusions of the EC electronic invoice experts regarding future regulation needs to push development and disemination of electronic invoices.
I was disappointed to find that one of the conclusions implies that electronic signature is seen as a barrier for further development of the electronic invoice, and a feature that some of the members of the expert group see as superfluous feature.
In my opinion, electronic documents need ways to reinforce security to allow to tell apart fake documents from authentic documents. Ths is generally true even for informative documents with less impact on companies results.
It is also true that electronic signature is not the only way to reinforce security regarding autenticity of documents. For example, a document can be assumed to be authentic if it is retrieved from a trusted source, even if it is not completed with an electronic signature. But then we must define what are the requirements of such “trusted sources” to keep that assumption.
On the other hand, both approaches, electronic signatures and reference or trusted sources (which in turn frecuently are based in electronic signature derived schemes) need more precise definition to avoid lack of interoperability, which, in my opinion is the real barrier for electronic invoice wide deployment.
Some common authenticity mechanisms are required both for electronic invoices (those that are born electronically from the beginning) and for invoices certified scanning (invoices digital copies that become equivalente to an original, after a security mechanism has been added to a common scanning).
This approach, “certified scanning”, has been initiated in Spain with high success.
Certified scanning is a process in which an electronic signature is applied to a image file while it is scanned from a document paper. This image is stored in a secured database and the main concepts and terms of the paper document are added as metadata to the contextual fields of the image file in the database.
Once a paper document is “certifiedly scanned” the digital copy becomes equivalente to an original, and the paper source can be destroyed. The new “electronic original” can then be used for auditing purposes.
For the companies that receive thousands of invoices, “certified scanning” adoption imply benefiting from most of the advantages of the electronic invoice without dealing with the slow adoption pace that their suppliers could show.
If we want to support “certified scanning” we need a common definition of the requirements for that conversion. And they should not be very different form the requirements for “electronic invoices” .
If we accept authenticity mechanisms not based in electronic signature, they should be common for both approaches. And if electronic signature is still to be used in the future as the authenticity mechanism of the electronic invoice, the broad options in variants should be reduced and clearly defined (in my opinion, the XL definition of CAdES -TS 101 733- or XAdES -TS 101 903- should be used, including both validation and timestamping, from the signer side).
It is evident - paper invoices will disappear from the business to business and business to government sectors and then later in practise also in the business to consumer/government to citizen area. The 5 mega-class reasons are exceptionally powerful and clear to see. Everyone will benefit - especially the consumers and tax payers.
It is only a question of time. And how this can be very short.
In the EU Expert Group work it is becoming clear that there are two domains:
1. Mindset
Once the mindset is that there is NO future for this wasteful practise things will start to happen. And it is already - public sectors in 6 countries and many progressive enterprises have declared e-invoicing mandatory (with near or already passed deadlines). 10 more EU-countries have similar plans. As these heavy duty players defacto force invoice senders to take the step and the market has come up with the needed open standards and economical tools it is inevitable that e-invoicing will be used in all directions. Paper invoices will quickly become an oddity.
Spreading the awareness that paper invoices have NO future is clearly the top priority.
2. Removing obstacles and increasing enablers for a wider unified market
Much of the progress happening now is by necessity countryspecific. Nothing wrong with that - on the contrary - efforts towards moving with the slowest should be firmly resisted. Interoperabity is not that difficult to achieve and move to the coming common mass market standard will anyway take time.
But for those who realize how much the continuos improvement in the wellbeing of European citizens is dependent on unifying European markets it is evident that firmer action should be taken also in the crossborder dimension of this omnipresent - and thus so potential document. Economic strength is both a question of scale and today even more of moving faster into the technology-enabled innovation space.
Some argue that the share of crossborder invoices out of the total number of 30 billion is so small that there is limited needs for EU efforts. Here one should remember that the very reason for both payments and invoicing being so local and fragmented has been national regulation and infrastructure. Now we are moving towards one-bank-account-being-enough for all of the €-area. What could be the reason for it not being possible to send invoices in the same way? With the right mindset it should not be particularly difficult. But of course it takes the right attitude:
1. the e-invoicing service must be irresistably easy to use for the 24m SMEs (just like payments are starting to be)
2. there must not - in the base case - be any need to invest or install software - just a template in a secure environment - this makes both the knowledge and financial threshold disappear
3. all services where authenticity and integrity is on an acceptable level must be accepted - technology-neutrality (no mandatory PKI seriously adding cost and complexity)
4. electronic documents should not be treated essentially differently from paper documents - they are anyway automatically more safely transmitted and have traceability (the opportunity to fight fraud should naturally be used by creating rules for the network)
Excellent progress is being made - but there is naturally much more to do. But it all starts with the mindset - understanding the inevitability and the reasons for why it should really be speeded up and contribute to a stronger Europe sooner rather than too late.
Technology has had a significant influence on commercial banking, says Ian Watkinson, head of e-invoicing, Royal Bank of Scotland. “The internet has changed the way we do business forever and there is a greater drive for automation and a genuine move away from paper,” he says.
In June, RBS entered into a multi-year electronic invoicing agreement with Accountis, a developer of secure financial document exchange and payment systems. The white label agreement will enable RBS to provide a VAT-compliant e-invoicing service to its corporate customers.
“For our customers we see e-invoicing as a fast-track to saving time and money. In addition to eliminating paper and automating manual processes, users of the service will quickly benefit from real-time document management, faster settlements and better working capital optimisation,” says Watkinson.
Transaction-based services such as e-invoicing are becoming more important as financial institutions seek to recoup revenues lost in other areas of banking such as investment banking and payments. E-invoicing is considered a first step in automating the financial supply chain – the flavour of the month in commercial banking. George Ravich, chief marketing officer at Accountis’ parent company Fundtech, says there are “many opportunities” for banks to extend their relationships with corporates to provide more fee-based services. Fundtech promotes the concept of “just in time cash”, where banks can service their corporate clients very well by knowing their cash needs at any moment in time. Electronic invoicing is fundamental in this, he says, as it provides the information that is needed throughout the supply chain.
Watkinson says e-invoicing is a strategic addition to RBS’ existing product portfolio. He agrees with Ravich on the significance of e-invoicing: “By offering additional transaction services such as e-invoice delivery, we will gain greater visibility of our customer’s end-to-end, financial supply chain transactions” he says. “This will help us to improve our understanding of their business and strengthen our long-term relationship. It also places us in a better position to offer additional services such as supplier finance provisions and other innovative finance arrangements.”
Along with working capital management, the financial supply chain is seen as an important area where banks can add value for corporate clients. Tom Buschman, founder, chairman and chief executive of corporate standards body Twist Process Innovations, told delegates at the International Payments Summit in London earlier this year that the supply chain was “all about collections”. Companies want predictability in collections processes, he added.
His views were endorsed by a number of other speakers. Ray Zabarte, global head of supply chain finance, transaction banking at Standard Chartered Bank said supply chain finance was about “getting information sooner” and the ideal would be to get information directly, in real time, from corporate customers.
Roger Ward, financial services EMEA consultant at CSC Computer Sciences, said that in optimising the use of cash, the company looked to its banks for solutions. However, the offerings are very fragmented, as were the needs of different corporates.
Chris Pickles, head of marketing, BT Global Financial Services, said one of the main problems regarding collections was that “inefficiency makes money”. He wants to know how banks can help speed up the collections process for a large corporate such as BT, which has a wide variety of customers using different payments methods. Top of BT’s wish list is clearing and finality of payments on a T+1 basis. However, there are significant stumbling blocks such as the cheque, which slow down collections considerably.
Electronic invoicing holds promise, he says, because the earlier an invoice is delivered, the earlier a payment could be made and this was applicable all the way through BT’s customer base, down to retail clients. Banks should also work on integrating bank account data to help with reconciliations. “Consolidation and reconciliation are key in the collections process, but we are amazed at the lack of standards in the banking industry. Banks told everyone they were using ISO standards but that is not the case.”
Despite the championing of e-invoicing at conferences and elsewhere, 20 years on from its inception, less than 5% of invoices are electronic, according to the Euro Banking Association. In a study by Cap Gemini, released to coincide with the launch of the single euro payments area, the European Commission identified potential savings of €238 billion through the use of e-invoicing. There are barriers, however, including the fragmented nature of the market (there are around 300 service providers and a wide variety of models) and legal and VAT issues, along with a lack of standards have also contrived to stymie significant growth.
Bo Harald, head of the executive advisors unit at TietoEnator, says one way of accelerating the adoption of e-invoicing would be to declare that “paper invoices have no future”. Harald is chairman of the European Commission’s Expert Group on E-invoicing, which is working to develop a single standard for e-invoicing.
Implementing a bank e-invoicing service within a corporate’s accounts receivable department will improve operational efficiencies, leading to faster payments and reduced days sales outstanding (DSO). This in turn will reduce a corporate’s working capital requirements. A bank can also provide invoice-based financing services such as factoring and reverse factoring. In accounts payable departments, e-invoicing provides an opportunity to implement early payment discounting schemes, reducing overall spend.
In developing its system, RBS wanted to make the service as easy as possible, says Watkinson. “We did not want to force change on our corporates in the way their accounting and ERP systems work. The service is designed to make it easier for corporates to exchange financial trade documents with their suppliers and customers.” While many of RBS’ large corporate clients are happy to make electronic payments, they continue to invoice in paper.
Watkinson says RBS will further develop the service and is investigating the possibility of more closely integrating payments and linking with supplier finance. “In approving invoices more efficiently, customers can get closer to the benefits of the supplier finance model.”
Dave Shilling, a corporate business analyst at software developer Misys, says a major issue in commercial banking is the shrinking of margins. Banks have to look beyond traditional services to improve revenues and they are turning to treasury and transaction banking.
Misys is focusing its attentions on cash pooling and will launch its Global Cash Pooling product at Sibos in Vienna in September. He says cash pooling has been a relatively underdeveloped space in cash management. “Corporates have cash and it is all over the place. They want it in the one place so they have greater visibility and control,” he says.
There are barriers to this, however. For example, regulations can prohibit the free movement of money across borders. There are also cultural barriers – local companies are not always happy for headquarters to centralise cash away from local managers. Banks also present barriers when it comes to cash pooling, says Shilling. “Corporates like the sound of cash pooling services but their banks are reluctant to offer them. Very few banks offer cash pooling as a service and if they do, it is generally expensive and sometimes a bank will insist the corporate moves all of its accounts to be with the providing bank.”
At present, corporates currently have very little overall visibility of the financial supply chain. E-invoicing services can provide detailed status information, such as proof of delivery, acceptance, query and approval status for all documents involved in a business transaction from purchase order to invoice.
Sarah Jones, chief executive of SCF Capital, a boutique merchant bank specialising in supply chain finance, says corporates do not realise they can gain financing much earlier if they invoice electronically. Underlying business models, including terms and conditions, need to be reviewed in order to improve supply chain financing, she said.
However, corporates have to be wary of pushing suppliers to pay too fast if they are financially weak – this would raise their cost of borrowing and reduce their ability to access working capital.
The Expert Group on Electronic Invoicing, set up by a European Commission Decision with the task to contribute to the creation of a European eInvoicing Framework, has published its first status report.
The Expert Group on e-Invoicing started its work at the end of February 2008. The Expert Group consists of 30 specialists representing all stakeholders: consumers, SMEs, large enterprises, service providers and public authorities.
The tasks of the Expert Group are to identify business requirements and responsibilities for the execution of specific work, as well as to steer the creation - by the end of 2009 - of a European e-Invoicing Framework.
The purpose of the European e-Invoicing Framework is to establish a common conceptual structure to support the provision of e-Invoicing services in an open and interoperable manner across Europe.
The Expert Group has issued a short status report which provides stakeholders with information about the progress of the Group’s work since its formation. Until now, the Group has held several meetings and established a series of initiatives to address a key opportunity for enhancing efficiency and productivity in the digital environment. A mid-term report will be issued before the end of 2008.
Bo Harald, chairman, EC Expert Group on e-Invoicing, spoke to Finextra at EBAday in Helsinki about the progress being made by industry bodies to lay the groundwork for wider adoption of e-invoicing in the European single market. In this video he outlines some of the benefits for corporates, SMEs and banks in increasing financial supply chain efficiency, and describes the steps being taken to achieve standard processes and a common legal foundation for e-invoices in Europe.
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