The Australian government is leading a campaign to accelerate the adoption of electronic invoicing, recently announcing more funding for electronic invoicing to help businesses reduce costs and increase productivity.1. The adoption of electronic invoicing has great potential to simplify processes and help your small business customers get paid faster.
Find out what these changes mean for accountants and the systems that will support them.
What is electronic invoicing?
Electronic invoicing (e-invoicing) is the possibility of sending invoices directly from the financial systems of one organization to another. It’s the fastest and most economical way to ensure invoices are approved, processed and paid. This is not to send invoices by email, nor a PDF invoice, but rather a software generated invoice.
It is a practice that has been used for decades. Some large companies established data links for the transfer of documents, including invoices and purchase orders as early as the 1960s, but these custom systems were never designed to be scalable. It normalized thanks to the company’s resource planning systems in the 1990s, but this functionality was still reserved for the high-end of the city.
The rapid growth of e-commerce and other digital business processes in recent years has been accelerated by the COVID-19 pandemic and the federal government is also updating public policy to reflect this.
The great news for accountants and their clients is that $ 15.3 million is set aside to encourage businesses to use electronic invoicing. This is very welcome and will help small businesses manage their cash flow better.
Federal government adopted Pan-European Public Procurement Online (PEPPOL) standard for electronic invoicing2. This standard allows organizations to exchange documents such as invoices and remittances between their respective financial systems, regardless of the software they use to create those documents.
PEPPOL is used in over 30 countries including England, France, Germany, New Zealand and Singapore. It identifies an invoice recipient using their Australian Business Number (ABN). With over 1.2 billion invoices sent to Australia each year. Deloitte Access Economics estimates3 Electronic invoicing has the potential to generate $ 28 billion in savings for our national economy over 10 years.
What are the benefits?
Manual invoice processing is expensive. The Australian Taxation Office (ATO) estimates that it costs on average more than $ 30 to process a paper invoice and almost $ 28 for a PDF version sent by email.4. Not having to manage every invoice means the cost of processing an electronic invoice is less than $ 10. This makes it up to three times more profitable, with those savings shared between buyers and sellers.
Manual processes can also introduce hidden costs such as late fees and missed early payment discounts. These financial penalties reduce hard-earned profits for small businesses, but electronic invoicing helps avoid them by allowing for better planning.
Electronic invoicing also significantly reduces the risk of paying fraudulent invoices, as all businesses using the PEPPOL network are registered and identified using their Australian Business Number (ABN). Australian Competition and Consumer Commission estimates fraudulent invoices cost businesses $ 132 million in 20195.
There are also significant benefits associated with the elimination of time and cost inefficiencies. The switch to electronic invoicing eliminates the need to re-enter or scan invoices into financial systems, make corrections or find missing information. Working to a common standard will ensure that data is entered correctly before an invoice is sent.
From a small business advisor’s perspective, the biggest benefit is helping their small business clients get paid faster. Technology has done a lot to improve business processes, but the cash flow problems created by late payments continue to be a big problem for small business owners. Having an invoice sent directly from one financial system to another removes the possibility of it getting lost in the mail, either ignored, or simply ignored in someone’s inbox.
It’s also the greenest option as electronic invoicing brings small businesses, and the many large businesses and government departments they serve, closer to paperless operations. Eliminating the cost of transportation and electronic processing means using less energy.
Electronic invoicing also offers many small businesses significant new opportunities that you can help them explore as they can more easily supply large organizations.
With electronic invoicing, they are also able to buy or sell more easily across international borders, notably in New Zealand thanks to the Trans-Tasman electronic invoicing agreement, which saw the two countries agree to common approaches to this important technology. Australia also has an agreement to work with Singapore on electronic invoicing and will be able to work with other countries using PEPPOL in the future.
Why is this happening?
Technology has improved many processes over the past decades, but cash flow is still one of the biggest issues for small businesses and their accountants. A lot of it comes down to efficiency and reliability, as people often miss an email or forget to execute it. There are so many potential points of failure in the chain between generating an invoice and receiving payment.
There have also been issues with large organizations implementing longer payment terms and waiting until the last possible moment to settle invoices. ASBFEO research estimates that more than half of invoices are paid late (53%) and are 23 days late on average. These overdue bills are worth $ 115 billion, or $ 52,000 for every small business in Australia6.
Where from here?
The Australian government has pledged to process 80% of invoices electronically by the end of this fiscal year and all invoices by June 2022.7. He is also consulting with large companies and small businesses on the wider adoption of this technology.
Telecommunications operators and utilities will play a key role in achieving this goal, as they reach such a high percentage of businesses. Bookkeepers also have a crucial role to play as trusted financial advisors to small business owners.
A consultation on potential mandatory and non-mandatory adoption options is also underway, with the Treasury noting three potential outcomes: a mandatory adoption requirement for all businesses phased in over time; a mandate for large companies only; and a flexible non-regulatory approach so businesses can choose when to adopt electronic invoicing8.
The move to electronic invoicing is part of a larger shift to digital services that will improve productivity, freeing up time for more valuable work. It will help business owners and bookkeepers improve record keeping, track bad debtors, meet reporting obligations and increase cash flow.
The first step is to ensure that customers adopt systems with a clear commitment to electronic invoicing. Then, they have to validate ABNs of business customers, ensuring that this data is entered into the systems so that they can send electronic invoices. Remind customers who supply government to ask their contract managers if they already support e-invoicing.
The most significant early adoption may well be seen in local councils, as they typically have higher levels of exposure to small businesses. But whatever organizations your small business clients provide, electronic invoicing will play an important role in ensuring that they get paid on time in the future.
What is QuickBooks doing to support electronic invoicing?
Intuit QuickBooks supports sending and receiving electronic invoices by giving accountants a choice from the app store the partners connect to the PEPPOL electronic invoicing network. We also participated in an ATO facilitated electronic invoicing pilot, which showed how easy it is to get started with electronic invoicing.
You can learn more about how Intuit QuickBooks can help you help your clients deploy e-invoicing through the adoption of cloud-based accounting software. here.
1Factsheets on the 2021-2022 budget, https://digitaleconomy.pmc.gov.au/fact-sheets/sme-digitalisation, consulted on 12/21/05
2Options for the compulsory adoption of electronic invoicing by companies, https://treasury.gov.au/consultation/c2020-122716, consulted on 12/21/05
3Introduction of electronic invoicing (e-invoicing) in the Australian market, 2021, https://www2.deloitte.com/content/dam/Deloitte/au/Documents/tax/deloitte-au-tax-insights-5-e-invoicing-310321.pdf, consulted on 12/21/05
5Scams cost Australians over $ 630 million, ACCC, 2020, https://www.accc.gov.au/media-release/scams-cost-australians-over-630-million, consulted on 12/21/05
6Legislation may be the only way to set payment deadlines: Ombudsman, ASBFEO, 2020, https://www.asbfeo.gov.au/news/news-articles/legislation-may-be-only-way-fix-payment-times-ombudsman, consulted on 12/21/05
7Electronic invoicing, ATO, https://www.ato.gov.au/business/e-invoicing/, consulted on 12/21/05