E-invoicing Standards and How these are Influencing the Adoption
Concerns about the technicalities and time involved in getting a digital invoicing system up and running have resulted in relatively slow adoption of e-invoicing by Australian companies. However, several recent government developments should increase the pace of e-invoicing adoption.
For the past few years, the Australian government and tax authorities have been working towards introducing a common e-invoicing framework across Australia and New Zealand. This was achieved in February 2019, when both countries announced that they would adopt the Pan-European Public Procurement On-Line (Peppol) interoperability framework, a standard used by 34 other countries internationally.
Introducing a global e-invoicing framework creates an environment in which more businesses will see the benefits of relying on the automated transmission of e-invoices between the buyer and the supplier rather than sending paper or pdf-based invoices.
More recently, the announcement of another important government initiative is also likely to fast track the adoption of e-invoicing by government suppliers. In early November, the Australian government committed to rolling out five-day payment terms for suppliers submitting e-invoices of less than $1 million. The new payment terms will come into effect on January 1, 2020.
The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, considers the government’s new e-invoicing payment terms to be a game-changer for small businesses that have contracts with a federal government agency. She says the next step will be to apply this to businesses throughout the supply chain in both the government and private sector.
E-invoicing promises to be particularly beneficial for small businesses that rely on healthy cash flows to sustain their momentum and grow. The digital sharing of invoices between supplier and customer speeds up the process of invoicing, eliminates processing errors and reduces processing time. It also allows small businesses to monitor and follow up on invoices more effectively.
According to the Australian Small Business and Family Enterprise Ombudsman, about 20% of traditional invoices are sent to the wrong person, and about 30% contain incorrect information, which results in delayed payments. Late payments are also an issue for small businesses. Ombudsman Kate Carnell says, “Our Small Business Counts report shows that late payments continue to hamper small business viability, with half of all small businesses reporting late payments on 40% of their invoices.”
Although there are definite advantages to e-invoices, adoption has been hampered by the technical changes that companies must make to their accounts receivables process and software, as well as the perceived financial cost and effort of moving over to an electronic invoicing process.
The Australian Tax Office has been a significant force behind ongoing efforts to encourage the shift from paper or pdf-based invoices to e-invoices and has been doing so since 2016. The revenue authority also viewse-invoicing as a more efficient method because it reduces the number of invoices being lost or delayed because of their direct and automatic transmissions between the software systems of the buyer and the supplier.
At the end of October this year, the ATO was registered as the Australian Pan-European Public Procurement On-Line (Peppol) Authority, responsible for replicating the internationally established, collaborative e-invoicing framework across Australia and New Zealand that was announced earlier in the year.
There is no doubt that companies and the broader Australian economy have a lot to gain from shifting over to e-invoicing that aligns with the Peppol standard. The Australian Small Business and Family Enterprise Ombudsman says research shows the difference in the cost of processing a paper invoice, estimated to be about $30, and an e-invoice, about $9, is significant and would result in much-needed savings for small companies in particular. With nearly 1.2 billion invoices exchanged a year in Australia, the potential economic benefit amounts to $28 billion over a decade if all businesses switch to e-invoicing.
There is little doubt that government efforts to put in place a common e-invoicing standard that makes digital invoicing much more accessible and easier to navigate will pay dividends as companies see the benefits of moving away from paper and to digitising their accounts receivables process.