Credit: Shutterstock photoBy Diego Caicedo, Co-Founder & CEO of Portal Finance
Electronic invoicing, or e-invoicing, is on the rise around the world as governments and businesses realize its many undeniable benefits. E-invoicing not only cuts down on operational costs by expediting the invoicing process, but it also helps cut down on the number of parties necessary to generate, organize, and track transactions.
The current state of e-invoicing in the U.S.
The United States government processes over 19 million invoices each year. However, only 40% are processed electronically, while the remaining invoices are processed using a mix of manual and electronic systems.
The United States Treasury has estimated that by implementing e-invoicing across all federal government agencies, it could help cut costs by 50% for an annual savings of $450 million. For U.S. companies, the savings are just as remarkable. Paystream Advisors estimates that businesses are able to reduce costs by $4 to $8 per invoice when migrating from paper to e-invoicing.
Despite the significant opportunity to boost efficiency and reduce costs, the U.S. is still in the initial stages of e-invoicing adoption in comparison with other countries around the world. According to a report by the Federal Reserve Bank of Minneapolis, there are a number of barriers the United States still faces when it comes to electronic payment and invoicing adoption. For example, electronic payments are still more complex for organizations than check payments in the U.S. and the electronic payment and invoicing systems that do exist are not ubiquitous.
E-invoicing adoption in the U.S. versus Latin America
In the U.S., there are more than 150 different service providers that offer automated e-invoicing initiatives and many other solutions are on the rise; however by 2024, it is predicted that only 38% of organizations will have converted to electronic invoices.
This is far from impressive when compared to countries such as Brazil, Mexico, and Chile, where e-invoicing adoption rates have already reached more than 90%. In fact, more than 97% of billing is filed electronically in Chile, one of the first countries in Latin America to implement mandatory e-invoicing in 2003. Latin America is one of the largest adopters of e-invoicing, with the region generating approximately 11 billion of the projected 30 billion e-invoices exchanged worldwide each year.
The good news is that interest in adopting e-invoicing is on the rise among the U.S. government and organizations. As global usage continues to skyrocket and become the norm, The U.S. Office of Management and Budget recently announced that public sector suppliers will begin using e-invoicing in 2018, which will undoubtedly lead to increased savings and efficiency across the U.S. government and encourage other organizations to follow suit.
The benefits of e-invoicing are undeniable as proven by many countries in Latin America. Not only have these countries shown how e-invoicing can benefit the government and businesses, but they’ve also shown how e-invoicing can benefit the average consumer and the economy overall. Here’s a look at what the United States can learn from the prolific adoption of e-invoicing across Latin America.
Widespread adoption of e-invoicing is achievable
Governments in Latin America have taken the lead on e-invoicing implementation and in many countries, it is now 100% mandatory. Not only has mandatory e-invoicing been a powerful way to bring the shadow economy and fraudulent activities into the light but it has also helped businesses streamline their tax filings and reduce costs associated with filing.
Because of mandatory e-invoicing, tax compliance and revenue in Latin America has increased. For example, according to the Federal Reserve Bank of Minneapolis, the Chilean Treasury stands to gain $600 million in additional tax revenue annually from e-invoicing through the reduction of fraudulent invoices. The Mexican Tax Administration Service claims that for every dollar invested in tax control, they have gained back over $61 in tax receipts.
Businesses in Latin America are also benefiting from the mandatory changes. For example, Coca-Cola Andina in Brazil reduced their inbound invoicing costs by nearly 70% when they made the switch to e-invoicing.
Though many organizations in the U.S. are independently adopting e-invoicing, a push from the government in the form of mandatory compliance could help make e-invoices the standard and lead to benefits like these much faster.
E-invoicing can foster development of the “real-time” economy
The real-time economy is an environment where all transactions between business entities are generated digitally, automatically, and in real-time as they occur. There are a number of benefits for a society’s transactions to take place in real-time. Not only can it lead to substantial increases in productivity but it allows governments and companies to gather detailed information directly from transactions and make forecasts about the economy in real-time.
When Mexico moved to e-invoicing, it involved standardization of how products and services are classified for reporting. This standardized catalog of product and service codes gave Mexico’s tax authority greater insight into how individual businesses operate and into the economy as a whole. With this information, the country was able to better understand what is being produced and consumed within its borders.
E-invoicing benefits small- and medium-sized businesses
There are plenty of ways e-invoicing helps governments and larger organizations cut costs and automate their systems. However, there are also many ways it benefits small- and medium-sized businesses as well.
First of all, e-invoicing can help businesses save time. With faster communication between buyers and sellers, businesses can reduce the time spent chasing late or unpaid invoices with automated payment reminders. Time spent finding and fixing invoice errors is also reduced, which can even lead to better customer relationships.
E-invoicing also helps businesses increase their cash flow, as invoices tend to get paid faster when delivered electronically, and it helps minimize fraudulent activities or information falling into the wrong hands. Most e-invoicing solutions provide SSL protection and security encryption, protecting the data of businesses and their customers.
In Mexico, it’s estimated that paper invoices used to cost around $12.50 a piece and there were more than 150 rules governing their processing. With e-invoicing technology, processing, delivering, and storing invoices is now cheaper and easier for businesses. Not to mention, paperless invoicing is also better for the environment.
Moving forward
While many countries in Latin America have achieved astonishingly high adoption rates of e-invoicing by mandate, the U.S. continues to lag behind. As we move further into a digital-first world, it will become increasingly difficult for organizations to remain competitive and compliant if they do not make the move toward more efficient digital processes.
The good news is the technology exists and there is plenty of proof around the world that e-invoicing can benefit all members of society. With increased government participation and more success cases emerging from countries where e-invoicing is already standard, we could see e-invoicing adoption rates in the U.S. improve greatly over the next few years.
Diego Caicedo is the CEO of Portal Finance, a platform that evaluates electronic invoices from companies and leverages e-invoicing and open data in custom solutions for financial partners to fund SMEs.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
