Insights for Procure-to-Pay and Finance Leaders

Fail_3_2013

Failing to deliver? Part 3: The ideal e-invoicing directive

The European Commission has a unique window of opportunity: To advance European businesses to a position of competitive advantage and to foster a new booming IT industry that can take it’s services to foreign markets. The upcoming e-invoicing directive is the key to making it happen, so it is important that we get it right.

This is the third blog post about the draft EU directive on e-invoicing. Here I will be presenting a vision for where an e-invoicing directive could bring Europe and what the four pillars of a new directive should be.

In my first blog post I looked at the development of the GSM standard in Europe and how it gave the European mobile telephone industry a competitive advantage that lasted for many years. My argument is that we could do the same in the field of e-invoicing and end-2-end e-procurement.

In my second blog post I took a deep dive into the draft directive and tore it apart looking at the four biggest flaws. It can be boiled down to the following statement: Wrong tools, too little and too late.

Lets look at the business case. The press release talks about public sector savings of up to €2.3 billion and the draft directive also talks about benefits in terms of environmental impact, and reduction of administrative burdens. I think it is symptomatic that the draft directive only considers savings and benefits in the public sector. Why is it that the opportunities and savings in the private sector are completely neglected? Is the impact on private sector (positive or negative) not worth the decision makers consideration? An initiative like this will have a huge impact on the private sector and the benefits in terms of better financial liquidity and savings will exceed the public sector savings many times over.

Here is my vision for Europe two years after the right e-invoicing directive has been implemented by all member states:

E-invoicing is just as easy as sending an email. Any supplier to a public sector or private sector buyer can send an electronic invoice just as easily as we communicate via email today. All the supplier needs to do is to connect to one (and only one) service provider. The service provider will have reach to all private companies and public sector institutions across Europe.

European small and medium sized businesses (SME’s) are growing faster due to easy access to capital. You might ask – “What has e-invoicing to do with getting access to capital?”. E-invoicing has everything do with getting access to capital. Data is the foundation for a bank or a financial institutions ability to lend money to a company. Today funding is primarily based on a holistic view of a company derived from historical data which in many cases are outdated. How well are they doing? What is the growth? What is the influx of orders from buyers? Based on this information they will be given a credit – and very often the owners will be asked to provide collateral. With granular data (like e-invoices) the lending of money can also be more granular and based on real time data. Yes – I will lend you money on that particular invoices which has been approved by your customer. Granular funding does not scale in a paper-based world because the labour cost of evaluating each invoice and checking that it has been approved is too high. This is not so in an electronic world where the decision to fund can be handled automatically.

Digitalization of other business processes is taking off. Establishing e-invoicing towards the public sector in Europe required alignment of Service Providers to do roaming / peering under the PEPPOL model. All public sector institutions and private companies had to choose a service provider. This process took a couple of years and had its difficulties but the drive from public sector made everyone switch. Everyone is now doing e-invoicing and there has been significant process savings in both public and private sector. The push is now to increase the volume of electronic purchase orders. A high ratio of purchase orders to invoices makes it possible to automatically approve invoices that have been matched against their purchase order. Other industries are focusing on digitizing other processes (e.g. logistics). But the foundation for this acceleration of digitalization was the establishment of a common infrastructure that was context neutral – it could be used to transport any electronic business document.

European service providers and IT-companies specializing in B2B products are booming. The e-invoice directive’s “mandate to send e-invoices for suppliers” in combination with the establishment of a common European infrastructure for e-procurement resulted in 80% of European businesses doing electronic invoicing within a few years. This revitalized the old service provider industry and gave birth to a whole new generation of IT-companies that developed new value adding products. These companies are now exporting their solutions and services to a global market which is gradually implementing the “European model”. Larger nations like the United States of America, have not seen the same development due to the lack of public sector mandate, common standards and common infrastructure.

Private sector is saving is €12 billion. The press release for the draft e-invoicing directive talks about public sector savings of up to €2.3 billion. In the EU, the public purchase of goods and services has been estimated to account for 16% of GDP. So assuming that the private sector accounts for the rest and that it can save as much money as the public sector on the initiative – then the private sector savings amount to €12 billion.

I think that most Europeans could subscribe to a vision as described above. But the best thing is that this vision is not very far from reality and it is very cheap to implement. Most infrastructure investments with a similar return would themselves cost billions of Euro. But in regards to implementing e-invoicing standards and infrastructure a big chunk of the investment has already been made in the PEPPOL project.

This leads me to talk about the ideal e-invoicing directive (finally). The ideal e-invoicing directive has a vision that puts Europe on the forefront of the “procure-to-pay” digitalization curve. It is a directive that has a vision for European businesses that will provide them with a competitive edge in a globalized world. It is a directive that focuses on opportunities for increasing the liquidity for small businesses across Europe rather than solely focusing on public sector process savings.

The four pillars of a new e-invoicing directive should be:

  • Suppliers to public sector must deliver invoices electronically. The directive must mandate the use of electronic invoices in all public procurement. It is an obligation for all public sector institutions to only accept electronic invoices and an obligation for suppliers to submit invoices electronically to public sector buyers.
  • Member states must implement the directive within two years. All public sector buyers affected by the directive must implement the ability to receive electronic invoices within 24 months.
  • PEPPOL is endorsed as the underlying e-invoicing infrastructure. The directive must require that all public sector institutions uses a service provider that is connected to the multilateral PEPPOL infrastructure.
  • Existing standards for e-invoices already published by CEN BII are used. The directive must mandate the ongoing standards effort already handled by CEN in BII. The directive must not force public sector institutions to support more than one standard. When considering this option – list the costs and benefits and remember that every standard in the end will be massaged into an ERP system with a different data model. One semantic data standard and one mandated syntax. Let the service providers handle conversion between different syntax expressions of the same semantic data model.

A few final words. Even if the draft directive is implemented as is – it is still good that the EU Commission is now taking concerted steps in the right direction. I sincerely hope that my three provocative and also – admittedly – polemic blog post about the draft e-invoicing directive will give food for thought for the changes that could be implemented in the final directive.