Executive Briefings

Tear Up Your Paper: E-Invoicing Is Coming to the E.U.

News out of the European Union these days seems to be all about divisiveness and imminent economic chaos. So it's easy to overlook the latest reforms that promise to make life easier for traders doing business in the region.

Tear Up Your Paper: E-Invoicing Is Coming to the E.U.

Chief among them is the e-Invoicing directive, designed to eliminate paper invoicing and establish a single electronic-invoice format for public procurement across the E.U., by November of 2018.

The new rule isn't the E.U. and European Commission's first attempt to dethrone the paper invoice as the sole permissible form of that key document. An earlier directive from 2006 required member states to grant e-invoices the same treatment as paper, making e-invoicing legal throughout the E.U. for the first time. Now, paper will disappear entirely for public procurement, or business-to-government, transactions.

What has taken the E.U. so long to go all the way? The 2006 directive pushed member states into adopting e-invoicing, but they didn't do it in a harmonized fashion, says Travis Lachinski, freight payment product manager with U.S. Bank. The result was a mishmash of dissimilar formats and rules on such elements as signature requirements.

E-invoicing is common in other parts of the world, including the U.S. and several countries in Central America, notes Lachinski. Until now, however, the Brussels bureaucrats have been no match for the diverging practices of E.U. members, despite a general sentiment in favor of electronic transactions.

The benefits are clear, says Lachinski. Shippers and carriers alike incur huge costs associated with the processing of paper invoices. Then there's the time lag involved in waiting for hard copies to be received and verified. Filing, storage and retrieval are similarly burdensome tasks. With e-invoicing, Lachinski says, "there are cost savings everywhere."

Moving to electronic invoicing does entail some additional costs. Carriers will have to tweak their information-technology systems to allow for the sending of a compliant e-invoice. Shippers can look to outside services for help, but they'll still need to have processes in place that allow for the receiving and archiving of e-invoices.

It all depends, of course, on how advanced individual companies are in their trade-automation efforts. Many are well along in the process, given the tendency of modern-day businesses to trade in multiple markets. While others might be lagging, says Lachinski, “it’s very possible that they could leverage other systems to quickly become compliant.”

The exclusive use of e-invoices is likely to extend well beyond government purchases. Many business-to-business sellers have already gone the path of automation. “The benefits are so clear that we expect there to be wider adoption,” says Lachinski.

One reason why businesses might have been slow to automate invoicing in Europe is the complications surrounding reporting and tracking of the E.U.’s value-added tax (VAT). Such activities are closely tied to the invoicing process, and have historically been paper-intensive. It’s no surprise that companies struggling to meet multiple requirements would hesitate to move quickly toward an electronic format.

There are subtler reasons to embrace e-invoicing as well. A business forced to wait 30 days for settlement of an invoice can’t easily shift to faster payment methods. The rapid processing of e-invoices clears the way for more creative options related to payment terms, says Lachinski.

Don’t wait for the latest rule to kick in before taking action, Lachinski advises traders. “It makes sense to jump ahead of the curve and start doing it now, before your suppliers are demanding it. Early adoption is the key to success. So start saving the money now.”

Comment on this Article

Chief among them is the e-Invoicing directive, designed to eliminate paper invoicing and establish a single electronic-invoice format for public procurement across the E.U., by November of 2018.

The new rule isn't the E.U. and European Commission's first attempt to dethrone the paper invoice as the sole permissible form of that key document. An earlier directive from 2006 required member states to grant e-invoices the same treatment as paper, making e-invoicing legal throughout the E.U. for the first time. Now, paper will disappear entirely for public procurement, or business-to-government, transactions.

What has taken the E.U. so long to go all the way? The 2006 directive pushed member states into adopting e-invoicing, but they didn't do it in a harmonized fashion, says Travis Lachinski, freight payment product manager with U.S. Bank. The result was a mishmash of dissimilar formats and rules on such elements as signature requirements.

E-invoicing is common in other parts of the world, including the U.S. and several countries in Central America, notes Lachinski. Until now, however, the Brussels bureaucrats have been no match for the diverging practices of E.U. members, despite a general sentiment in favor of electronic transactions.

The benefits are clear, says Lachinski. Shippers and carriers alike incur huge costs associated with the processing of paper invoices. Then there's the time lag involved in waiting for hard copies to be received and verified. Filing, storage and retrieval are similarly burdensome tasks. With e-invoicing, Lachinski says, "there are cost savings everywhere."

Moving to electronic invoicing does entail some additional costs. Carriers will have to tweak their information-technology systems to allow for the sending of a compliant e-invoice. Shippers can look to outside services for help, but they'll still need to have processes in place that allow for the receiving and archiving of e-invoices.

It all depends, of course, on how advanced individual companies are in their trade-automation efforts. Many are well along in the process, given the tendency of modern-day businesses to trade in multiple markets. While others might be lagging, says Lachinski, “it’s very possible that they could leverage other systems to quickly become compliant.”

The exclusive use of e-invoices is likely to extend well beyond government purchases. Many business-to-business sellers have already gone the path of automation. “The benefits are so clear that we expect there to be wider adoption,” says Lachinski.

One reason why businesses might have been slow to automate invoicing in Europe is the complications surrounding reporting and tracking of the E.U.’s value-added tax (VAT). Such activities are closely tied to the invoicing process, and have historically been paper-intensive. It’s no surprise that companies struggling to meet multiple requirements would hesitate to move quickly toward an electronic format.

There are subtler reasons to embrace e-invoicing as well. A business forced to wait 30 days for settlement of an invoice can’t easily shift to faster payment methods. The rapid processing of e-invoices clears the way for more creative options related to payment terms, says Lachinski.

Don’t wait for the latest rule to kick in before taking action, Lachinski advises traders. “It makes sense to jump ahead of the curve and start doing it now, before your suppliers are demanding it. Early adoption is the key to success. So start saving the money now.”

Comment on this Article

Tear Up Your Paper: E-Invoicing Is Coming to the E.U.