Cloud accounting software has been making waves for well over a decade now, making the more tedious elements of bookkeeping simpler, quicker and smarter.
The efficiency of auto-generated electronic invoices (or e-invoices) has so far been a nice-to-have, however as more countries are mandating this updated invoicing method as compulsory, it’s important to really understand how it can help your business, and uncover the additional gains that SMEs enjoy from this technology.
In 2019, the UK government made e-invoicing mandatory for all public sector contracts starting from April 2020. Australia has followed suit, mandating e-invoicing for all federal government agencies by July 2022 with private businesses to have their own date to come. But what is behind this change?
In a nutshell, e-invoicing alleviates the risk of human error and inconsistency for businesses and governments. Using a standard framework, like the Peppol framework adopted in Australia and New Zealand, both issuer and recipient are set up to accept the same datasets making payment and reconciliation far easier. The machine-readable invoice removes the need for any manual viewing and data entry, allowing a re-allocation of time and resource, and therefore greater productivity.
For the government agencies themselves, e-invoicing has a hugely positive impact on reducing VAT and GST fraud thanks to automated and compulsory data availability. The EU alone loses around £150 billion a year in VAT fraud - clearly not an insignificant amount - which gives further justification to more countries (Italy being the most recent) extending the requirement to cross-border B2B contracts.
Additionally, the mandates contribute to many public sector priorities such as financial transparency, sustainability and the drive to wider digital transformation already commonplace in the private sector.
As the world continues to digitise, the move to e-invoicing is a natural one, particularly in the highly competitive and pandemic-affected times we are in. Communication between global supply chains is strengthened via this upgrade as is the ability to procure new contracts. The Poppal framework, for example, enables businesses of any size to connect once to the e-invoicing network, which then gives them the ability to immediately trade with anyone else on the network. Essentially, an entirely new business network is there for the taking, one that may have previously been closed off to smaller businesses making for a more competitive market and potentially, a more even playing field.
Perhaps more immediately compelling though are the findings from a recent Deloitte study. It found that e-invoicing will help SMEs save around AU$20 per invoice, which adds up to as much as AU$40,320 in savings each year per SME. Of the participants who had made the transition to e-invoices, three quarters stated that the biggest impact has been time and money saved, while over half stated that it helped to improve the accuracy and security of their record keeping.
The study shows how the magnitude of the efforts and time going into everyday admin is underestimated, as are the opportunities and advantages of streamlining them. But, thankfully, the change is simple.
Getting set up with e-invoicing is more straightforward than ever before, and if in doubt, your accountant will be in the know as it increasingly becomes a compliance requirement or a simple, logical step-change for better functioning.
There are various software leaders in the space, making e-invoicing simpler and more seamless.
For many SMEs, the benefits will be felt pretty quickly. However, there’s even more to be found beneath the surface.
By replacing PDF, email and paper invoices with e-invoicing, valuable data is automatically fed into your accounting system and made mineable for business intelligence and process insights.
For example, with digital cross-border invoices where foreign currency is central, SMEs can discover unrealised FX loss for each transaction made. These losses may have previously been hidden or absorbed into the business because it was hard to see the impact of live currency volatility on paper based invoices sealed in an envelope.
Specialised foreign invoice management software, like Fluenccy, changes this.
For example, when used as an add-on to Xero, Fluenccy uses what is already digitised and available to present simple insights on how foreign currency volatility has affected the local cost of the invoice so far and unlocks future savings going forward.
Our own research shows that by switching to digital foreign currency invoices and using software like Fluenccy, the average SME could save around $28,500 a year.
An action as simple as switching from buying the full currency amount at the time of invoice payment to buying currency in advance over four automated installments can net significant reductions in foreign currency loss, and even pick up some local currency gains.
From a purely financial perspective then, a small business with cross-border trade has the potential to gain a possible $70,000 a year (based on Deloitte’s research and our own) in reduced currency losses and processing time savings by switching to e-invoices. This is quite the no-brainer.
It’s clear now that not only is e-invoicing the future for all business, but that it also holds within it a plethora of advantages for SMEs that spreads to many corners – enabling greater business productivity and revenue. Even if it’s not yet compulsory for B2B contracts within your country or industry, it’s wise to get on board with e-invoicing to start reaping the benefits sooner rather than later.