Mandated process changes can sometimes bring the opportunity to transform a cost centre into a strategic team for the business. The automation and digital transformation that e-invoicing brings is one such opportunity that can help raise the value and output of the tax team.
So, first what is e-invoicing?
There’s still a bit of confusion about this topic. While it's a broad term, encompassing many automated and digitalised methods of invoicing, e-invoicing is a specific subset, it refers to a more advanced and automated form of invoicing. One that automates data exchanges between business partners' financial systems, including accounts payable, in a machine-readable format with no manual intervention. This automation and integration distinguishes ‘e-invoicing’ from ‘digital invoicing’ formats and methods.
Long before tax authorities started to mandate e-invoicing, businesses in Nordic and Scandinavian countries led the way. They championed the adoption of this from a genuine understanding that it brings efficiencies and value to the business. These countries realised that automated information exchanged within transactions means improved accuracy, reduced risk and removed uncertainty. The tax authorities within the Latin America region then flipped this perspective, becoming the first to realise that e-invoicing software was a very useful tool in support of the accurate collection of tax due. Today, new digital VAT regulations emerge at pace. However, tax authority adoption of e-invoicing automation has not been uniform across all countries, and this presents a significant challenge for VAT paying businesses.
What does e-invoicing mean for your business?
Across the European region, older models of reporting (in the era before real-time reporting) meant that data was generated around transactions by businesses in a process that was detached from the tax team. Tax teams would receive the data either at the end of the month, quarter or year. They had to make the best of it – left to make reports to the tax authorities under unrealistic time pressure, prone to data inaccuracies and risks. They couldn’t fill gaps or address any weaknesses that they might see in the data upstream. Unanticipated occurrences were common and a band-aid work around was business as usual.
The growing requirements for real-time, or at least near real-time, tax reporting mean the process now has to be embedded upfront. Tax considerations must be taken into account from the outset because there is no room for manual workarounds after the event – problems must be fixed up front. This shift has moved tax to the beginning planning phase of the lifecycle of a transaction – the business can no longer make it an afterthought.
Today, the tax team collaborates with the IT and finance functions – all the transaction owners have a seat at the table. The tax team can pause or even stop a transaction from its completion when the necessary details to complete tax reporting are missing. Which means that when done right, processes geared toward accurate and real-time e-invoicing can turn a cost centre into a strategic team with some important benefits trickling through the business. E-invoicing solutions can improve so much more than tax compliance and reporting.
The value of certainty with e-invoicing
This new way of working has given businesses some much valued certainty in an uncertain world. Thanks to e-invoicing the tax reporting requirement across transactions are known and mapped for upfront. With accurate and complete transactions, the interaction with tax authorities regarding standard queries and audits is minimised due to less discrepancies in tax paid versus tax owed. The CFO can reduce risk and accurately forecast for tax provisions as changes in tax position become less probable. Armed with accurate forecasting, even the pricing for their customers can be improved. It’s not just the tax authorities but the entire business that benefits from knowing the true tax liabilities. In many cases, the benefits that mandated e-invoicing brings far outweigh the effort that was needed to comply.
Data insights that create business value
E-invoicing generates baseline data for trend analysis of financial transactions. This is valuable for optimising business processes, strategic decision-making and even identifying market trends. Data can be integrated with business intelligence (BI) tools, allowing businesses to create dashboards, reports and a useful overview of financial performance. Transactions can be monitored in real-time, potential bottlenecks can be identified and supply chain processes can be optimised.
Managing your risk
Accurate and timely financial data is the key to minimising risk. For example, businesses can avoid late payments or non-compliance fines. The accuracy it creates is a win-win for business and tax authorities.
Bringing competitive advantage
E-invoicing can be a differentiator because it’s a message for customers and partners that your business is technologically forward-thinking and committed to compliance and efficiency.
Take a strategic approach for maximum benefit
Many businesses that Vertex collaborates with have several different tax technology and e-invoicing solution providers in place across the different countries and jurisdictions that they operate in. This makes compliance activities even more complicated. Too often e-invoicing software adoption has been piecemeal, with no standardised and optimised approach. This has led to very different process ownership, in silos within a business. When there’s no global, organisation-wide policy and several e-invoicing solution vendors in place, compatibility and integration challenges are created. Businesses have less control over accuracy. It’s hard to be sure each system is up to date or how much e-invoicing compliance is really costing. Ultimately, this approach means that as a business you’ll be spending more time and resources than is necessary. Perhaps more significantly, by taking a more strategic approach and finding a partner to work with across the business, you’ll unlock those higher value benefits as well.
Vertex stands apart from other e-invoicing service providers, providing scalable and streamlined e-invoice management, seamless integration to financial systems, and global country coverage. Vertex solutions together can provide continuous compliance, such that you have to enter the transaction only once and then Vertex does the rest of the work:
Our continually evolving solutions portfolio means that the complexities are no longer a hindrance for business growth or compliance.
We work with businesses in true partnership, providing the technology and tax content relevant to a company’s jurisdictions of operation. This means that, despite the growing challenges and intricacies of VAT, GST or Sales & Use Tax; the time, energy and resources required for compliance is no longer a burden. Our customers get to focus on what matters most – their core business activities and processes that help support their successful growth.
Please remember that Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in Tax Matters are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.