tieto the future of e-invoicing

Contents

Towards Pan-European E-invoicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

E-invoicing one stop shopping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Paper invoicing has NO future – The Tieto way . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Swedbank, in the frontline of e-invoicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Cost Savings Finally Make the (European) E-Invoicing Steamroller Pick Up Speed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

A Tieto publication featuring research from Gartner

Volume 3 Issue2

The future of e-invoicing

2 The future of e-invoicing

Towards Pan-European E-invoicing

For many years, the European Commission and the European Central Bank, working in conjunction with the Single European Payment area, have stressed the importance of migration to electronic invoicing. A mass-market move away from manual paper invoicing is seen as a major improvement in productivity. To help pave the way for such a development, the focus has been on making it easy for EU’s 23 million small enterprises to join digital financial value chains. Besides saving time and money, while improving the service they provide to larger counterparts, this transition enables them to automate their transactions with other SMEs. In 2006, the EU commission established an informal task force . This was followed by a formal Expert Group on e-invoicing . This group of thirty-one members, which started its work in February 2008, has a clear mandate . It aims to identify shortcomings in the regulatory framework concerning e-invoicing as welI as identify and validate e-invoicing business requirements . It also hopes to identify and validate relevant e-invoicing data elements and linkages . Another key part of its remit is to propose responsibilities assigned to standardization bodies and a time schedule for the development of common standard(s) . Finally, it wants to propose a European e-invoicing framework to establish a common conceptual structure, including business requirements, standards and solutions . This group, which I have the honor of chairing, has a strong mandate and a formidable task ahead of it .

The groups mandate runs until the end of 2009 and a comprehensive mid-term report was approved in February . One of the Expert Group’s most important additional tasks is to raise awareness of the benefits of e-invoicing thus speeding up its adoption, both nationally and at a cross-border level . Thanks to the group’s active and inclusive way of working, we are already seeing clear advances in this area .

In regards to its formal task, the identification of shortcomings in the existing regulatory framework, the group’s progress has been better than expected . The EU Commission responded to the group’s request to treat paper and electronic invoices equally by issuing a VAT directive proposal in January 2009 . If adopted, this will remove all technology specific demands placed on e-invoices . What’s more, it would make e-invoicing significantly easier and cost effective for all and help remove any mental barriers, which SMEs may still have . It was gratifying to note that the tax administration in the Netherlands took immediate practical actions in this direction and that the majority of EU member states already support this logical approach .

In support of the EU Commission’s approach of equal treatment The Expert Group has unanimously approved a Code of Practice . This has been recommended for implementation when, and if, the amended VAT directive proposed by the European Commission comes into effect . The Code of Practice describes how businesses can provide the required reliability of their e-invoicing process through technology neutral business controls and procedures embedded in their operations . Although not mandatory, additional supplementary controls, such as managed networks and electronic signatures can also be used .

The business requirements work has focused on crafting recommendations, which make e-invoicing easy, uniform and economical . Removing the mandatory technology specific requirements has been a central demand of small and large enterprises and their associations throughout the EU . The Expert Group recommends that all member states support the equal treatment principle embedded in the new VAT directive proposal and implement it in their national legislation as swiftly as the Netherlands has done .

Next the Group aims to focus next on the issue of standards . We are currently evaluating how Cross Industry Invoice 2 .0, developed within UN/CEFACT, can satisfy the reasonable demands of invoice receivers yet still be easy to implement . It is particularly important to avoid ERP system investments that deliver too little data . Large invoice receivers, enterprises and the public sector will clearly not drive e-invoicing if it fails to fulfill their requirements .

Service providers will have to support many existing standards during a lengthy transition period, but exchanges inside the network should move to CII2 .0 as soon as possible . Once it is accepted, it should be offered by service and ERP providers to enterprises .

The Framework to be proposed also includes a Framework for Interoperability . This will help realize the vision of an EU, where invoices can be sent and received just as easily as payments . To further develop the European e-invoicing framework, we are also working on a proposal for a collaborative governance model . This is another key deliverable that will help ensure the Frameworks success .

Source: Tieto

Bo Harald Chairman EU Expert Group for E-invoicing

3The future of e-invoicing

E-invoicing one stop shopping

As a result of its strong position within the progressive Nordic market, Tieto has gained extensive experience working with some of the world’s most advanced users of e-invoicing. Through strong partnerships with banks and corporate customers, Tieto has become one of Europe’s leading e-invoicing vendors. Now, within the rest of Europe we are seeing the use of e-invoicing accelerating too . The increased numbers of exchanged documents and of invoice issuers and receivers participating in the exchange are evidence of this . In order to fulfill the complex demands created by this diversified European market Tieto offers a managed one stop shopping service . This gives customer the chance to have one vendor look after all aspects of e-invoicing, including the legal and tax related requirements .

Tieto e-invoicing services are organized according to the requirements of different customer groups . The backbone of the Tieto market model relies on partnerships, primarily with banks . Tieto offers banks a white labeled service where Tieto acts as a technical partner, while the bank handles customer relations . The service package includes both Business Value Services and Business Integration Services .

Tieto bank labeled e-invoicing enables banks to offer invoicing services to large corporate customers, SME’s and consumers . Having such a wide ranging scope is essential for telecoms, utilities and insurance companies, which cater to a variety of customer groups and require a unified way of handling them . Tieto also provides e-invoicing directly to large corporate customers, which require demanding solutions for long term projects that include customization and integration with core systems .

As a full service ICT vendor with industrial expertise, Tieto is well placed to provide corporations with an end-to-end e-invoicing solution that integrates seamlessly with their back office systems .

Mats Wikström Vice President Value Networks Tieto

High Volume End Automated message exchange Online conversions, AFI - AFO

(any format in - any format out) Adapters for ERPs Data validation Roaming with other networks

Document Storage and Presentment

eBanking / Self Service Portal

Automated Message Exchange

Low Volume End Self service functions Integrated with eBanking Manual capability File transfer capability Value added applications Semi-automated integration (Print file upload, PO flip)

Business Value Services

Consumer Small and Medium Enterprise (SME) Large Enterprise

Source: Tieto


To increase customer value, Tieto also has roaming partnerships with other leading European vendors . By co-operating like this, it is possible to dramatically increase the size of the virtual networks and the amount of potential business partners within the e-invoice exchange . The customer benefits, as only one service provider is required to reach all business partners, even if those partners are connected to other vendors’ networks .

The migration from paper to e-invoicing won’t take place overnight . Connecting and automating the e-invoice exchange, within a large supplier Network, is a challenging process that takes time . To support the dematerialization of paper invoicing Tieto and its partners offer complementary scanning and printing services for the electronic exchange . Tieto also has a long history working on traditional EDI based message exchanges . Consequently, our services cover the exchange of other Financial Value Chain related documents too, thus enabling full coverage of supply chain message exchanges .

Source: Tieto

E-invoicing one stop shopping


The public sector and corporations within Europe have now begun to realize the benefits of moving away from manual paper invoicing to e-invoicing. This is hardly surprising when you consider that numerous studies have proven E-invoicing brings significant cost savings, frees up increasingly scarce

workforce and helps reduce CO2 emissions. Yet despite these impressive benefits, the use of e-invoicing still remains fairly low at around 3% in Europe. For some this poses valid questions such as “is e-invoicing really going to take off?” and “will the market really tip for this technology?”Andy Grove’s 10X rule of thumb suggests that the performance of a new technology must be ten times the performance of an established technology in order to start a revolution . Various studies in this area suggest that from this point of view e-invoicing more than meets this criterion . It delivers a tenfold increase in cost savings and a clearer conscience due to lower CO2 emissions . Add to that the absolute necessity for increased efficiency due to a diminishing labor force during the next decade and you have a very compelling case for change .

Will the market tip to e-invoicing?Tipping, in this context, refers to a market making the transition to a specific technology or standard .

Paper invoicing has NO future – The Tieto way

Whether the market will tip for certain technology depends on two things . Firstly economies of scale and secondly, demand for variety . Clearly a market is more likely to tip if there are important scale economies, both on demand side economies of scale, such as network externalities and supply side economies of scale, such as lower marginal production costs .

E-invoicing, it seems, provides a perfect example of a technology which provides important scale economies in both the demand and supply side . Network externalities are typically divided into direct and indirect network externalities . E-invoicing is a classic example of a direct network externality, where the utility of the network to the user increases with the number of other users that can be reached . An indirect network externality arises when the utility of a product increases with the number of users because, for instance, there are more complementary products available (Katz and Shapiro 1986, 19941,2; Farrell and Saloner, 19873) . In regards to e-invoicing, there exist a wealth of complementary products including electronic archiving, e-invoice financing, and cash flow forecasting .

Secondly, a market is more likely to tip if there is low demand for variety . Demand for variety in this context describes the preference for special features . Therefore, a market can be served by a single technology if that technology is suitable for all users . Moving from paper invoicing to e-invoicing is a technology shift where one mode, the exchange of invoice data electronically, can serve the whole market .

Some could justifiably argue that e-invoicing, as it is carried out today, is not a single technology, but a collection of various (often incompatible) technologies referred to using one term . This seems a valid argument, as there are many

Markus Hautala Development Director Value Networks Tieto

1Katz, M . L ., and Shapiro, C . 1986 . Technology adoption in the presence of network externalities . Journal of Political Economy 94: 822-841 .2Katz, M . L . and Shapiro, C . 1994 . Systems competition and network effects . Journal of Economic Perspectives 8: 93-115 .3FARRELL, J ., AND SALONER, G . 1987 . Competition, compatibility, and standards: The economics for horses, penguins, and lemmings . In Product Standardization and Competitive Strategy . H . Landis Gabel, Ed . Elsevier North Holland, Amsterdam, 1-21 .4Shapiro, C . and Varian, H . R ., Information Rules: A Strategic Guide to the Network Economy, Boston: Harvard Business School Press, 1999 .

Low scale High scale

economies economies

Low demand for variety Unlikely YES

High demand for variety NO Depends

Shapiro & Varian (1999)4


different formats to choose from, reachability issues to think about as well as various industry sectors and country specificities to address . This fragmentation does not, however, extend to end users as the service providers operating in this field mask these underlying incompatibilities and actively collaborate to solve interoperability issues across different domains .

As an example, we acknowledge the major benefits, which can be gained from the emergence of a global cross-industry standard and actively support such activities . But whether the market will shift towards a single standard or not is not an issue for the end customers . B2B integration and format conversion services offered by service providers allow corporations to use their existing capabilities . They also ensure a smooth and controlled migration to new standards once they are available .

The same principle applies to meeting differing national legal requirements related to e-invoicing . The market would benefit hugely if legislation related to e-invoicing was harmonized across different countries . There is, however, no need for anyone to wait for this to happen as service providers already enable the exchange and archiving of e-invoices in a tax and legal compliant manner across various jurisdictions .

In addition to high scale economies and low demand for variety, a market will tip to one technology if multihoming costs are high . Homing costs are costs and investments incurred to the user due to technology affiliation, such as maintenance costs . In the case of invoice handling, multihoming costs are high . The parallel handling of both paper and electronic invoices generates a considerable amount of additional costs for example the scanning of paper invoices into electronic format .

In summary, e-invoicing is an excellent example of a technology providing significant economies of scale with relatively low demand for variety from end users . Where those demands for variety have to be met, in industry specific variations, national legal requirements and standards, service providers can mask incompatibilities with their offerings and active collaboration . Invoicing is also a task where multihoming costs are typically considerable . Consequently, it seems highly likely that in the future the market will at some point tip to e-invoicing . Precisely when the tipping to e-invoicing will take place depends on critical mass . Rather than a majority of users migrating, what is required to create critical mass is a sufficient number of potential users believing

that this technology will win . The transition to e-invoicing will happen fast once the mass market realizes the benefits and inevitable migration to this vastly superior technology .

Tieto’s general strategy in e-invoicingOur approach to integrating e-invoicing in Europe is based on open standards, industry best practices and collaboration . We view e-invoicing as the first step towards ubiquitous mass market infrastructure for the exchange of commercial documents of all types . To further this, our general strategy in e-invoicing is focused on open and compatible instead of performance and proprietary . We embrace standardization and harmonization as is evident from our active participation in various international standard and interoperability forums, such as ISO20022, UN/CFEACT, EU Expert Group on e-invoicing and EBA e-invoicing Proof of Concept Group .

Tieto’s view on partnering is that no service provider alone has the existing market position, technical capabilities, patents sales force or geographical footprint required to dominate the market and make it take off . In addition to domestic connections, organizations need to reach their business partners located outside their national borders . Suppliers and buyers still face challenges with harmonized, trusted and tax & legal compliant business partner integration in cross-border connections . Tieto’s interchange agreements provide extended access and reach to business partners across a number of different geographies .

Tieto’s view is that the banking sector’s participation is critical to the success of rapid mass-market migration to e-invoicing . Banks can ensure quicker migration by building on the established practice of e-banking and by making use of the trust established through re-use of e-banking interfaces and payment tools . What’s more, banks have the required mass-market sales power to convince customers to migrate to e-invoicing and support them through the transition .

Tieto delivers results as a service

From e-invoicing to Financial Value ChainBased on Tieto’s experience, the cost savings from B2B e-invoicing within services and manufacturing industries typically amount to 1% of a company’s revenue . At a time when many economists predict challenging times ahead, such savings are very welcome .

Cost savings gained from electronic transactions are, however, only one side of the story . Electronic

Paper invoicing has NO future – The Tieto way


transactions can be further utilized as a source for new business services and for revenue creation . Tieto’s Financial Value Chain takes the traditional financial supply chain transaction management to another level by adding value through sophisticated solutions, such as supplier financing, working capital and trade risk management . Electronic business transactions, including e-invoices, can additionally be used for improved CRM through targeted one-to-one customer communications .

Providing the Full RangeTieto’s Financial Value Chain services improve working capital and financial risk management based on digitized business transactions in the network between buyers, suppliers and banks . The service is designed to reach all types of stakeholders, including self-service solutions for consumers and small business organizations, as well as automated messaging for large organizations . Functionality covers the digitizing of the full financial supply chain, from order to cash and procurement to payment, ensuring that all of the transaction parties needs are met .

Results as a ServiceTieto’s Financial Value Chain solutions are available as on-demand services . This service oriented delivery model enables the customer to start using the service with a minimal investment, minimal risk and minimal use of their own resources .

For large corporates, we offer automated messaging services, which can be connected to their corporate integration infrastructure . In order to provide a complete business driven packaging of end-to-end services, Financial Value Chain services can be complemented with local integration and application development services from Tieto .

Services for banks are based on a white labeled provisioning model, where the bank defines and delivers the commercial packaging while Tieto produces the technical service:

• BusinessValueServicesincludessupplierfinancing, trading risk management and working capital management .

• BusinessIntegrationServicesincludesthemultichannel digitalization of trading and corporate to bank relations, procurement to pay / order to cash processes (e-payments, e-invoices, SEPA direct debit, e-orders), trading partner onboarding services and tax compliant archiving of business documents .

Building bridgesTieto’s interchange agreements allow for extended access and reach to business partners across a number of different geographies . Our service enables the exchange and archiving of e-invoices in a tax and legal compliant manner in Europe, the USA and Canada .

Source: Tieto

5Shapiro, C . and Varian, H . R ., Information Rules: A Strategic Guide to the Network Economy, Boston: Harvard Business School Press, 1999 .

Control

• ControlledMigration

• Compatibletechnologybutexclusive rights owned by the producer

• E.g.upgradesandupdatesofWindows

• PerformancePlay

• Anewnon-compatibletech.

• Mostrisks

• Attractivetooutsiderswithnoinstalled base

• Requires“waycool”tech.

Open

• OpenMigration

• Friendlytousers(usuallynoswitching costs)

• Severalsuppliers

• Compatibletechnology

• E.g.multiplegenerationsoffaxmachines

• Discontinuity

• Severalsuppliers

• Newtechnology

• E.g.CDaudiotechnology

Compatibility

Performance

Technology strategies, Shapiro & Varian (1999)5


As one of the Nordic region’s leading banks, Swedbank’s (www.swedbank.com) vision is to be the leading financial institution in every market in which it operates. It also aims to be a service leader in the banking industry, and make its customers’ lives and business run smoother through a wide range of easy-to-use and competitively priced financial services. Swedbank’s goal is to have the most satisfied customers in the banking industry. To achieve this, the company is at the cutting edge of product and service development, easily accessible to all customers and provides excellent service.

Swedbank Group has 9,4 million retail customers and 540,000 corporate customers, with 419 branches in Sweden, 272 branches in the Baltic countries and 216 branches in the Ukraine. It is also present in Copenhagen, Helsinki, Kaliningrad, Luxembourg, Marbella, Moscow, New York, Oslo, Shanghai, St. Petersburg and Tokyo. As of March 2009 Swedbank had total assets of SEK 1,831 billion and approximately 21,000 employees.

In the mid-nineties Swedbank was one of the first Nordic banks to launch a B2C electronic invoice presentment and payment service . As a major Swedish bank Swedbank used its established e-banking relation with private customers to complement the existing payment products with e-invoicing . During that time, the B2B e-invoicing market was complex and fragmented and mainly an arena for large corporates active in specific industry sectors . A few years later the B2B market had changed, mainly due to the EU VAT directive, national legislation and the birth of more widely accepted e-invoice formats . As a consequence Swedbank became interested in offering electronic invoice exchange services for corporates of all sizes .

Swedbank needed to establish B2B invoicing as a service, which customers would perceive as a natural part of the cash management offering . The service was expected to handle different formats

Swedbank, in the frontline of e-invoicing

and integration models, therefore making it easy for customers to use . Like all the banks at that time, Swedbank was facing a several development requirements due to regulatory demands from authorities . These slowed down the realization of business-driven development initiatives .

Tieto, a long-term partner of Swedbank’s in B2C e-invoicing, offered its services to cover B2B e-invoicing as well . Instead of selecting a traditional IT system implementation model, Swedbank decided to use Tieto’s white labeled on-demand services . This allowed Swedbank to focus on customer interface, commercial branding, service packaging, marketing, sales and first line support . Tieto provided the required business process competences and delivered the technical services . By embedding white labeled services into the solution, Swedbank was able to scale down the size and resources needed for the project and launch new products faster .

Swedbank’s B2B e-invoicing service is based on end-user centric design and it covers both sales and purchase invoicing between organizations of all sizes . The service enables Swedbank to create solutions, which support its customers’ financial value chain processes beyond payments . The service includes a fully automated off-the-shelf selling process of B2B e-invoicing products, integrated into Swedbank’s existing sales support and ERP systems . It is based on core functionalities of Tieto’s service and also includes customized packages, which are used by Swedbank’s sales force to address individual customer’s needs .

The technical solution consists of the following integrated main components:

1 . Self-Service Portal

• Webapplicationforsmallcorporatecustomers acting as e-invoice issuers, mainly designed for customers with no need to integrate e-invoices with their ERP system

• IntegratedwithSwedbank’sexternale-banking web site

2 . Ready-made adapters for the most common ERP and financial systems

• Plug-inadaptersforcommonERPsystemsin important customer segments

• Plug-inadaptersforwidespreadinvoiceformats

Sarah Hysén Product Manager Swedbank AB Corporate Banking


• Applicableforbothsalesandpurchaseinvoicing

3 . Message handling

• Automatedinformationexchangeto/fromenterprises

• Interconnections/roamingwithothere-invoicing networks

• Handlingofbothbulkandindividuale-invoices

• Trafficmonitoringandanextensivesetof value added services for transmitted information packages, including addressing, splitting, routing, validation and conversion functions

The service introduced a seamless integration of services for both large corporates and SMEs, often sharing the same financial value chains, but having very different business needs . In order to replace labor intensive manual handling, large organizations aim to fully automate and digitize business documents with all their suppliers and buyers . However, some SMEs may not have the technical skills or investment capability to implement an

automated message handling to connect with their business partners . To close the gap, the solution includes self service applications for e-invoicing, integrated with Swedbank’s existing IT systems .

The solution provides Swedbank with a new source of revenue and a more intimate relationship with the customer . It also improves customer retention and enables the further development of other financial services integrated with the trading processes . These include cash forecasting, working capital financing and trade risk mitigation . From Swedbank customers’ perspective the service has made their life a lot easier . Prior to the solution’s introduction they had to send paper invoices, which involved a significant amount of manual work . Now, invoices can be sent electronically, either by using a web application or directly from their ERP systems . For Invoice receivers the benefits are just as impressive . Today, they can integrate invoices directly to their workflow and ERP systems and improve the automation levels of invoice handling . Alternatively, they can use self-service applications to approve and pay received invoices .

Source: Tieto


Cost Savings Finally Make the (European) E-Invoicing Steamroller Pick Up Speed

E-invoicing is finally growing, especially in Europe. The savings have been proved, but the complexity of multinational e-invoicing projects is deceptively challenging. Application managers, CIOs and business managers should use this research to plan e-invoicing projects and to achieve the best cost-savings and benefits.

Key Findings• E-invoicingisacomplexsolutionthatmust

bridge heterogeneous internal business processes of business partners . A substantial amount of IT infrastructure is needed to support these processes, and to address tax and business regulations compliance .

• Becauseofallthemovingtargetsinvolved,the vast majority of e-invoicing projects will be implemented by B2B or e-commerce service providers . On-premises software will be an option only for very large corporations, which are in the best position to provide a high level of control of the solution, and can afford the strong commitment of a handful of technology and business specialists .

• Thefirstcasestudiesofe-invoicingindicatethat these projects typically break even (that is, they pay back their own costs) within a year or less .

• SeveralgovernmentsinEurope(andothersaround the world) mandate the use of e-invoicing for government agencies; more are likely to follow in the next year or two .

• It’sonlyamatteroftimebeforee-invoicingbecomes mandatory, wherever you are, whether you are a supplier or a seller .

Recommendations• Startevaluatinge-invoicingproject

opportunities now, regardless of your company’s vertical industry or financial shape .

• Neverunderestimatetheconsequencesofregulation diversity across countries; potential problems are in the details .

• Don’tsellthebenefitsofe-invoicinginternallyin your company too quickly; multicountry e-invoicing projects last years . Proceed with a succession of projects and demonstrate their value one by one . In a large project, if you

make 50% of your invoicing traffic electronic in two years, then you’re doing great .

STRATEGIC PLANNING ASSUMPTION(S)By 2012, at least 20% of all invoices exchanged in Europe will be electronic, up from about 3% in 2009 .

ANALYSIS

1.0 E-Invoicing: A DefinitionE-invoicing cuts through many disciplines, requires a lot of knowledge (spanning business, regulations and IT), and involves a lot of complexity . A good definition of e-invoicing is:

• E-invoicingistheinterchangeandstorageoflegally valid invoices in electronic format only between trading partners .

The interchange does not use or require paper-based invoices . E-invoices have legal validity, and can be used to prove compliance or as tax originals . This research is about e-invoicing in general, and most considerations apply whether you are sending e-invoices or receiving them, unless otherwise stated . Operationally:

• Thesellermustensurethattheinvoicecontainsthe correct data and that it is authentic .

• Thebuyermustverifytheauthenticityoftheinvoice, match it to goods or services received, and execute payment .

• Thesellerandthebuyer(orathirdpartyontheir behalf) must both store the readable and authentic (this comes with a lot of added strong security) invoice for a period of time (see Section 4 .0 European Union Directive 2001/115, and Its Revision 2006/112’ below), and make it available to a tax authority on request .

2.0 Basic Facts on E-InvoicingPayments for goods and services account for about 30% of the gross domestic product of most countries; several countries implement value-added tax (VAT) over those payments (for goods and services): so we are talking about a lot of money, made up of a lot of invoices . With good reason, tax authorities in government have a strong interest in ensuring that companies exchange and store invoices in a secure and reliable way to prevent taxation errors, and to minimize fraud . Thus, tax authorities typically rely heavily on the invoice to establish the commercial and tax implications of a specific transaction .


E-invoicing takes for granted that a company has a clear, structured process, which, on receipt of an invoice, reconciles it with goods and services delivered, accepts it automatically if an agreed-on set of criteria is met, and starts payment . Implementing buyer e-invoicing is more challenging in organizations with fragmented accounts payable (AP) systems and processes . Organizations that have already implemented shared services for AP will realize the greatest benefits, because they already have only a small number of locations where invoices are received .

Where multiple AP systems are in place, implementing an AP invoice automation system can link multiple AP systems to provide one point of interface for e-invoices . However, this will add complexity to the project . Some companies piggyback on the necessity of an e-invoicing project (for example, to comply with a government regulation) to force an internal rationalization effort, and to put some order into their existing processes, in preparation for an electronic solution, because the processes are not that difficult to change (they are just clerical AP processes) . But e-invoicing is not only about this; it is also about compliance with local tax laws and integration with the security infrastructure that is used to exchange invoicing information and to keep the records .

E-invoicing affects internal business processes, mutual agreements among business partners, financial transactions, taxes, and legal compliance, and a lot of the IT infrastructure that supports all this . The business processes to get invoices paid change slightly company by company (and sometimes within a specific company, depending on trading partner agreements, or on different business practices in different geographies, or on the type of invoice); (tax) laws and security norms (for example, e-signatures and how advanced/qualified they are, or the rules for issuing them or building certificates) . On the other hand, for many buyer-supplier communities, the continued prevalence of paper-based or fax-based invoices and the inertia it has produced have severely limited the ability to leverage e-invoices to automate the purchase-order-to-invoice reconciliation processes and the rest of the payment process .

All the above is enough for some companies todecide,“E-invoicingisnotforme,atleastfortoday.”Butonefactintroducesdoubtintothis perspective: The European Associations of Corporate Treasurers identified the average processing cost of a paper invoice across Europe

to be around €30 . It also determined that by using e-invoicing, an 80% cost saving is possible . Confirming this data, initial case studies also indicate that e-invoicing has proved to reduce the cost of processing one invoice to less than €7 . E-invoicing also offers a range of other potential benefits, including improvements in AP processes by reducing invoice processing time and minimizing manual intervention, thus leading to a reduction in operating expenses . This fact alone makes some companies start e-invoicing projects; it makes many more look deeper into the e-invoicing conundrum .

Several studies and surveys are available on the current e-invoicing uptake and on the projected growth in the next years . The results are somewhat different, because several vested interests are in play, but a conservative estimate indicates that in 2008, tens of thousands of European corporations and several million consumers exchanged tens of millions of e-invoices . So, e-invoicing is possible, viable and beneficial – today . The e-invoicing market (made up of several markets; see Section 3 .0 Current Vendor Landscape) started from very little, and is processing tens of millions of e-invoices just four years later . Still, many voices in this area express disappointment at the slow progress and uptake of e-invoicing; we can only observe that they must have had unrealistic expectations from the beginning . Yes, the adoption of e-invoicing remains very modest for now (approximately only 3% of European invoices are electronic), but it is easy to explain why, considering the difficulties and complexities associated with this approach (see Section 7 .0 E-invoicing Challenges) .

One immediate observation is that how you do e-invoicing does not depend only on where your company has its headquarters, or on the country where it is listed on the stock exchange . There are also strong dependencies on the countries from which you receive e-invoices and to which you send e-invoices, because you will have to conform to the norms and business practices of those countries for the e-invoices to be valid there . This research is mainly about e-invoicing in Europe, but it also affects every company that does business with European partners . So, if you are outside the European Union (EU; for example, in the U .S .) but your company does business internationally or plans to do so, this research is highly relevant . Don’t forget that your business partner might even be your own company; because of the VAT implications of e-invoicing, and because intercompany transactions are subject to VAT in


countries with VAT statutes, you may find that the simplest place to start an e-invoicing rollout is between you and (one of) your foreign subsidiaries .

No company that is conducting transactions electronically today will stop doing so . Current projects will only expand, because the more invoices you process electronically, the more money you save . An accounting department that processes twice as many invoices in the same unit of time delivers immediate benefits in savings on resources and in customer satisfaction (users of e-invoicing are starting to see more than 10 invoices processed per hour per full-time equivalent [FTE]; see Section 9 .0 Reasons for Doing E-Invoicing) . Proof-of-concept implementations that began during the past year on a small percentage of invoices will be extended . Gartner expects hundreds of new projects to start in Europe just in the next year . Larger integration service providers offering e-invoicing services expect to at least double their e-invoice traffic in 2009 . Again, even from a conservative perspective, it’s clear that the number of e-invoices exchanged in Europe will grow steadily in double digits for the next few years (see Section 10 .0 The Main Reasons Why E-Invoicing Use Will Grow) .

3.0 Current Vendor LandscapeMany competing and varied vendors are trying to solve various aspects of e-invoicing, including:

• Banks

• Creditcardcompanies

• ERP-relatedpurchasingapplicationsvendors

• Pure-playe-invoicingproviders

• Marketplaces

• Integrationserviceproviders

• Electronicdatainterchange(EDI)technologyproviders

• B2Bsoftwarecompanies

• Supplychainfinancespecialists

Historically, each vendor has addressed only one specific side of the e-invoicing puzzle: Today, supplier (or buyer) e-invoicing frequently is addressed by a different set of vendors from customer (seller) e-invoicing, which frequently is addressed by a different set of vendors set general e-archiving – and the list can go on . Today, these are different markets, just as the issues the vendors address are somewhat different (for example, customer e-invoicing solutions have a

strong industry focus, whereas supplier e-invoicing solutions are generic, because AP processes are the same across industries) .

Recently, some larger integration service providers in B2B have been combining supplier/customer e-invoicing with archiving for tax purposes, offering services for the whole e-invoicing space across several countries . By looking at the bullet list of vendors at the beginning of this section, these new offerings by larger integration service providers today address a much wider set of requirements . It must be noted though that the vast majority of these offerings is incomplete: however, leveraging ongoing harmonization efforts, they already deliver significant benefits, so they are starting to sell well .

E-invoicing solutions have a wide range of users:

• ITstafftoinstallandoperatethesolution(possibly outsourced)

• Administrativepayments/accountingstaff(could be outsourced, too, but it’s less frequent)

• Taxauditorsfromtaxandrevenueagenciesoutside the company who want to see evidence of real, paid, unchanged invoices (and all of them) kept for a number of years

The complexity of catering to such diverse constituencies of users adds to all the other difficulties of putting an e-invoicing solution together (see Section 7 .0 E-invoicing Challenges) . Also, e-invoicing solutions need to closely follow several moving targets, and must immediately demonstrate tangible benefits; for these reasons, e-invoicing solutions delivered as a service in Europe tend to be much more popular and easy to consume than software-based solutions .

4.0 EU Directive 2001/115, and Its Revision 2006/112As this directive’s ID number indicates, the original directive was issued in 2001, and was revised in 2006 (see http://ec .europa .eu/taxation_customs/taxation/vat/traders/invoicing_rules/index_en .htm), withaviewto“simplifying,modernizingandharmonizing the conditions laid down for invoicing inrespectofVATintheEU,”forallmemberstates.A core theme of the directive was to promote the efficient cross-border creation, transmission, acceptance, storage and retrieval of invoices . Since it went into effect on 1 January 2004, all EU member states must accept e-invoices for VAT purposes – if two conditions are fulfilled:



• Theotherpartyagreestoexchangeinvoicesinelectronicformat.Article232states,“Invoicesissued pursuant to Section 2 may be sent on paper or, subject to acceptance by the recipient, they may be sent or made available byelectronicmeans.”

• Theintegrity(nonchangeability)andauthenticity(the declared source being the actual source) of the e-invoices are guaranteed in transport and storage .

To allow for technological differences between each member EU state, and to remain technology-neutral, the directive allowed for several ways of meeting the two conditions . For example, the requirements to ensure authenticity and integrity can be met either through advanced or qualified e-signatures or through EDI with contractual security measures (see Section 8 .0 E-Signatures, EDIorthe“ThirdOption”?forabriefdiscussiononthe alternatives) .

Unfortunately, this technological flexibility has led member states to adopt state-specific versions of the directive, which have disparate requirements for meeting the functional objectives . These requirements, in turn, have led to more-stringent or less-stringent controls in different states (for example, in the U .K ., no e-signature is required; in Germany, the enterprise must create the signatures using a certificate issued by an approved certification authority and issued to an approved individual representing the enterprise) .

The directive includes policies about:

• Integrityandauthenticityguaranteesthroughe-signaturesor“EDI”or“othermeans”(thedirective states that invoices are not required to be signed)

• StorageofinvoicesinanyEuropeancountry

• Contentofinvoices

• Outsourcingofinvoiceissuancetothirdparties

• Self-billing(thebuyerissuesthee-invoiceonbehalf of the seller based on received goods or services – as opposed to waiting for the seller to issue and send an e-invoice)

Invoice storage location and retention period (ranging from three to 11 years) requirements also vary widely among countries . Some countries have specific requirements about whether invoices can or must be retained in the sender’s country versus the receiver’s country or a third country altogether . There are also state-specific requirements for the use of outsourcing providers that may or may not

operate or be trusted in the sender’s or receiver’s home country . Some countries require time stamps at specific points in the e-invoice life cycle . All this information must be linked together for proper accounting and tax processing . In addition, these stipulations overlap with the regulatory framework governing e-record every EU member state already has in place .

The e-invoicing directive explicitly states that third parties may issue the invoice in the name and on behalf of the supplier . It is generally assumed – although usually not explicitly regulated – that the buyer can also outsource some or all tax-relevant processes to a third party . This opens up a variety of new lines of business for B2B infrastructure vendors to extend existing B2B projects to e-invoicing, and to maximize the value of investments that IT end users have made in B2B projects .

In an announcement issued at the end of January 2009, the commissioner for taxation and customs of the European Commission unveiled proposals to make e-invoicing subject to the same rules as paper-based invoicing – without mandatory controls such as EDI or e-signatures as a precondition . This deregulation, if approved, would give businesses freedom as to how to prove that their invoices are real and unchanged, but the deregulation would not change the fact that every company ultimately must be able to produce such proof for their EU invoices . Any change to the current regulations would require unanimous approval by all (27, at the time of this publication) EU member states . This new regulation, if approved, is not likely to formally enter into force before 2013, at the earliest, and e-invoicing projects typically break even within one year, so holding investments only because a change in regulations may be coming is not a good idea .

5.0 Countries That Mandate the Use of E-Invoicing for GovernmentThe first European country acting on the European directive was Denmark, which made e-invoicing mandatory for the public sector in February 2005 . The scanning of documents at the post office was possible initially, but has since been replaced with direct sending . Approximately 15 million transactions that the state previously handled on paper are now managed electronically, with huge benefits . According to Claus Juhl, of the government’s digital task force, public-sector savings amount to around €100 million in three years; this result gains importance when you


consider that Denmark’s population is only 5 million . Sweden set a deadline for public-sector e-invoicing readiness (not completely mandatory) in July 2008; it’s too early to discern the real difference e-invoicing is making .

Finland is an active e-invoicing country in which a number of consolidators cooperate with a growing bank scheme supported by the government . Finlandhassetapublic-sector“e-invoiceornoinvoice”(paperinvoiceswillbereturnedto the sender) deadline for the end of 2009 . Several major corporations in Finland (including, interestingly enough, some of the biggest paper companies in the world) are enforcing the deadline already . Most government ministries in Spain will honor only e-invoices from September 2009 . Italy mandated use of the European directive (by prohibition to accept and pay paper invoices) in 2008, but even more than the level of readiness of public-sector suppliers, it’s the red tape and internal cultural resistance that are making the transition difficult . Implementation seems to be postponed to later in 2009, inevitably causing confusion .

Approximately 10 other European countries are in the process of setting up deadlines for mandatory e-invoicing in government . The size of a country seems to matter most; the smaller the country, the faster it can adopt e-invoicing . Some remaining countries might already have a lot of e-invoicing experience, due to the activity of local businesses (such as Poland with its retailers, or France and the U .K . with their utilities over EDI) .

Outside the EU, the Singaporean government has allowed e-invoicing since 2003, and has made it mandatory since May 2008 . Mexico has been pushing e-invoicing (mandating the use of e-signatures), albeit with some local twists in regulations, similarly to Brazil, where e-invoicing is already common in some public-sector areas . Chile, Uruguay and Costa Rica are in the process of passing similar legislation . Australia, New Zealand, Taiwan, Indonesia and Malaysia as well have started legislation on e-invoicing .

6.0 Situations in Other CountriesOutside the EU, important European countries such as Switzerland and Norway also allow e-invoicing . Switzerland has closely coordinated its legal framework for e-invoicing with that of the EU, but only e-signatures are allowed – there is no EDI option or other alternative . Norway (not an EU member, but closely aligned with the EU), contrary to Switzerland, does not have explicit requirements

for the use of e-signatures for e-invoicing, but mandates guaranteed integrity of e-invoices during the whole e-invoice life cycle, including storage .

In the U .S ., there is no real VAT concept in taxation, but the final transaction between buyer and seller carries a tax that depends on state and federal administrations . This tax is generally enforced by examining the records of a company, which the Internal Revenue Service regulates very heavily for taxpayers who keep records only in electronic format . Despite a 1996 law that requires the U .S . government to make payments electronically, only 27% of federal contractors use e-invoice presentment and payment (EIPP) to present invoices, and only 26% receive payments from the government via EIPP . Many companies (several U .S . government agencies have e-invoicing mandates as well) send and receive payments electronically, but the purchase-to-pay and order-to-cash processes are not fully automated, nor are they particularly well-integrated to process or produce e-invoices . There are no explicit requirements for e-signatures .

The Canada Revenue Agency (CRA) has issued a series of circulars on electronic transactions and records for income tax purposes . These rules also apply to e-invoices .

According to TrustWeaver, a pure-play e-invoicing technology provider that bases its business on the research it conducts on international e-invoicing norms, the situation in other areas of the world is still at initial stages of development:

• Japanisanotableexceptionamongeconomically strong Asian countries in that paperless invoicing is not permitted without explicit approval from the tax authorities .

• E-invoicing,asknowninotherpartsoftheworld, is prohibited in China . The Chinese tax authorities are rolling out a central-government-controlled e-hub under the Golden Tax Project, which will increasingly be the only permitted channel for invoicing, reporting and paying applicable taxes . The project is designed for the communication of tax-relevant transaction information among businesses, which makes it an automated law enforcement engine requiring little manual intervention by the tax authorities .

• E-invoicingremainsillegalinthevastmajorityof African countries . Some Northern African countries, such as Tunisia and Morocco, have mature regulatory and institutional frameworks for the recognition of electronic transactions



(including e-signatures) in general, but they do not have specific regulation for e-invoicing .

• SouthAfricahasallowede-invoicingsinceSeptember 2002, but e-invoicing traffic remains low among businesses and tax authorities .

7.0 E-Invoicing ChallengesAs anticipated by the considerations in the previous sections of this research, there are a number of intricacies in doing cross-country e-invoicing projects . Supplier e-invoicing and generic e-invoicing projects with all business partners in one country are considerably easier, and this tends to be the initial point of many e-invoicing pilot and emerging projects . However, the vast majority of midsize to large organizations in Europe and the rest of the world has suppliers or sales channels or customers outside their home countries, and because the value of an e-invoicing solution typically is related to the number of invoices processed electronically, restricting the projects to one country is not generally wise, viable or both .

This section highlights the main difficulties international e-invoicing projects suffer from so that stakeholders will be aware of and actively work to avoid them .

We have introduced the several axes of variance of e-invoicing requirements (internal and multienterprise business processes, IT infrastructures, law and security, to name a few), and how they cause differences, from the seller’s and the buyer’s perspectives; it is common, for example, that different laws will apply to buyers and sellers . This, by far, is the most common source of difficulties in e-invoicing projects, and is compounded by regulations and general requirements that are not fixed in time; these often change because interpretations and practices evolve .

For example, the European directive explicitly talks about EDI as a way of transporting invoice information having the attributes of integrity andauthenticity.ButwhatisEDI?Theconceptof“EDI”(andof“e-signatures”)differsamongcountries, and largely consists of rules that existed long before the e-invoicing directive . Frequently, the legal and business definitions of these concepts are not the same . The directive refers to a definition of EDI from a 1994 EuropeanCommissionrecommendation:“Theelectronic transfer, from computer to computer, of commercial and administrative data using an

agreedstandardtostructureanEDImessage.”SotheCommissionreallymeans“B2Binfrastructure,”under the current Gartner definition . Some EU member states (for example, Lithuania) still define EDI strictly as systems using a specific EDI for Administration, Commerce and Transportation (EDIFACT) standard only . Is Web EDI (where one transacting partner manually keys in, supplements and/or approves invoice data) EDI under the directive meaning, and will tax authorities recognize itassuch?WhattradingpartnersconsiderEDIwillnot necessarily be viewed as EDI by tax authorities, and vice versa .

Another complication with the current EU e-invoicing system is that most requirements that are in practice are not published by member states and are extremely difficult or expensive for businesses to obtain, interpret and monitor . In the absence of information, how do e-invoicing systemshandleerrors?Eventhisbecomescountry-specific, because of the tax implications of a wrong invoice and the possible actions you might want in place to deal with or correct the error . At the moment, there is a knowledge gap between businesses and tax departments around requirements, liability and legal questions . Wide knowledge differences frequently exist between different revenue department workers . Sometimes businesses end up educating the revenue services on their own legislative texts, with the inevitable delays for discussion and interpretation . Big accounting firms, such as PricewaterhouseCoopers or Ernst & Young, are only slowly getting into the business of certifying e-invoicing solutions . Thus far, this is happening in Scandinavian countries and in the U .K ., and is likely to be extended to other geographies, but it is difficult to predict how quickly this will occur .

Additionally, if you are procuring or running an e-invoice solution, then how do you know that it is compliant with the EU directive, or with the varioustaxlawsabroad?Thereisnosuchthingas compliance with the EU directive itself; what matters is whether there is interoperability with your business partners and fulfillment of local requirements as applied by local tax authorities, VAT laws and general industry practices . Mexico is the only country that is putting in place a certification program for e-invoicing; in Europe, the European Committee for Standardization is working on“goodpracticeguidelinesfore-invoicing,”butit will take at least two years for this work to be finished and for all tax authorities to endorse it . In addition, major cultural differences persist among countryviewsofa“typicale-invoicingprocess,”


and these differences will continue to slow the adoption of e-invoicing for years to come .

8.0 E-Signatures, EDI or the “Third Option”?The e-invoicing directive requires invoicing parties to guarantee the authenticity and integrity of e-invoices in transport and in storage, through e-signatures,EDIor“othermeans.”Torespectthe various ways of guaranteeing authenticity and integrity of the processes in use in Europe, and to allow each member state to build on the policies they have already, the directive is not intentionally prescriptive .

However, some member states are more prescriptive than others, so it is up to each government tax office to rule on whether a specific method of guaranteeing authenticity and integrity is acceptable . A lot of government tax offices worldwide simply do not have the necessary knowledge to do this .

Historically, different methods have been employed in different countries to guarantee the authenticity and integrity of e-invoices; for example, there is a lot of EDI use in France and Germany, and a lot of “othermeans”inuseinSwedenandFinland,andmost of these systems can guarantee integrity . In a few cases, authenticity is guaranteed, too, or can be guaranteed by extending the functionality of the system (typically through e-signatures) . But whether the tax authorities in all the countries where you implement e-invoicing recognize those methods as valid for tax purposes is another question .

Security never was a necessary component of EDI . A lot of EDI systems are far from being secure, because the threat of breach is not high enough, and the potential damage of a breach can be reasonably contained . In other words, the fact that a system can legally qualify as EDI says nothing about the guarantees it provides for e-invoice integrity and authenticity . Nearly all EU member states have additional requirements that systems must comply with under the EDI option . Furthermore, EDI (remember the directive basically means generalized B2B with that – see Section 7 .0 E-invoicing Challenges) and e-signatures are not two mutually exclusive options . Modern B2B standards make room for the use of e-signatures; for example, point-to-point security standards (like Applicability Statement [AS2]) are based on e-signatures as the most effective way to guarantee integrity and authenticity (and nonrepudiation – the receiver cannot say that it

didnotreceivethee-invoice).Most“managednetworks”runbyintegrationserviceproviders’useof certificates for authentication and/or signing of certain types of content .

Using e-signatures will mean dealing with poor interoperability internationally, and you certainly don’t need even more problems in your e-invoicing projects . However, consider that:

• Ifyoure-invoicingprojectincludesbusinesspartners in Switzerland, Mexico or Brazil (or if you are running your e-invoicing project from one of those countries), then you have no choice; these countries mandate e-signatures . To comply with the e-invoicing directive (for which the e-signature is only one of the three allowed options), no EU member state strictly mandates e-signatures; however, e-signatures seem to be the preferred option for Spain and Germany .

• Tope-invoicingpure-playvendors,andthe integration service providers using their software, are slowly getting around interoperability problems, and working solutions are in place for some countries .

• E-signaturesarebetter-regulatedthane-invoices; requirements are fairly clearly defined in most countries .

• E-signaturesoftwareisnowavailableatreasonable pricing (if you choose a service-based offering, then you will use your service provider’s software, and the cost of this approach is generally subsidized between different users – in other words, if you do e-invoicing through a service provider, then you don’t need to worry about the cost of e-signature software) .

• Nomatterhowyoudoe-invoicing,theneedfor e-signatures will arise in some way in the requirements when you start analyzing how to implement integrity, authentication, secure storage or time stamps (required in several countries – for example, Italy) .

In summary, for your e-invoicing project:

• IfyourcurrentwaysofdoingB2Bcanguarantee the authenticity and integrity of e-invoices in transport and in storage, and if the tax authorities in all the countries you are doing e-invoicing in accept this, then it’s likely that your current B2B system can deliver all e-invoicing benefits (and you might be doing e-invoicing already) .



• IfyourcurrentwaysofdoingB2Bcannotguarantee the authenticity and integrity of e-invoices in transport and in storage, then estimate how difficult and expensive it would be to add this function . You are likely to be forced to introduce e-signatures at some point, but the extension costs often are repaid quickly by the savings (ensure that you carefully estimate savings and costs before starting the project) .

• IfyourB2Bprojectsdonotdealwithinvoices,or if extending their functionality proves to be too costly, or if you are starting e-invoicing from the ground up, then you are better off planning for an e-invoicing project using e-signatures, despite all the complexities associated with this approach .

9.0 Reasons for Doing E-InvoicingSo far, this research has surveyed several arguments against e-invoicing, and we have covered in some detail the complexities associated with it . However, there are excellent reasons that prompt companies to face these complexities, deal with them and start an e-invoicing project .

To reduce invoice-processing costs, the first thing companies try is centralized invoice printing and scanning (with or without optical character recognition) . More large organizations are increasingly trying this option, because they can negotiate costs down with printing and scanning providers and, thereby, cut paper invoicing costs sometimes drastically, somewhat reducing the pressure to move to full-fledged e-invoicing . Printing and scanning do not require process adaptation, but are mainly add-ons to well-tested paper-based processes . This alternative does provide savings, but this is only a fraction of what an e-invoice project can deliver (see Section 11 .0 CanPaperand“E”GoTogether?).

The next step is to formalize the existing, unchanged invoice processing process(es) into a business process management suite or a workflow . This puts more order into the work, and gives more visibility over the processing of an invoice . However, in this case, the savings are marginal, and they need to be offset from the costs of the software being used to support the workflow, and of training the invoice processing staff for using the software .

Most of the e-invoice savings are due to more-streamlined payment processes, taking humans out of the picture as much as possible, and providing the whole set of data that is needed

to reconcile the invoice with the goods or services received (typically, by integration with an ERP package) . The vast majority of e-invoicing implementers that have done invoice printing and scanning have found that it is not enough and have moved on to something else . If you need to send e-invoices to the governments in Europe or the supply chain masters who mandated (or will shortly mandate) e-invoices, then printing and scanning will be of little use .

By implementing supplier e-invoicing, you immediately remove one of the biggest issues in AP – the processing of paper invoices . These frequently must be manually entered into the AP system, which is time-consuming and error-prone . Also, when paper invoices are routed around the organization for approval, they sometimes get lost and frequently get delayed . E-invoicing addresses these issues and improves AP efficiency, without having to make major changes to internal processes .

Current case studies indicate that you can quantify e-invoicing savings in many ways, including the cost per invoice, as above, or the total savings due to reduced number of resources and computing power (60% to 80%, as compared to paper invoice processing), or even a percentage of a midsize to large company’s turnover (approximately 1%) . Whichever way you decide to demonstrate savings, the clear indication from case studies is that the savings for companies that have to deal with a large volume of invoices (more than 100 per day, inbound and outbound) are significant , because of the economies of scale obtained by aligning technical, business and compliance strategies . Other benefits include:

• Betterspendinganalysis,leadingtosomespending reduction

• Fasterprocessingtimesandpaymentcycles

• Enhancedcontractperformanceanalysis

• Bettertrackingandenforcingoftradingpartnercompliance with commercial terms

• Improveddisputehandlingandavoidance

• Opportunitytorealizemoresupplierrebatesand discounts

• Betterauditabilityofinvoicesthroughintegrityand authenticity guarantees

• Easieravailabilityofdataforregulatorycompliance, for example, supply chain traceability

• Greenerapproach,bigreductionsinconsumption of paper


The potential for benefits is much greater for the buyer than the supplier/customer, because the buyer is improving internal processes for handling invoices and typically has to process a lot of them, compounding the benefits (which is why we are seeing a bigger uptake in buyer e-invoicing and customer e-invoicing) . However, e-invoicing does provide benefits to senders, too, such as improved customer satisfaction, reduced administrative costs in credit collection, more-effective capital management and cash flow control (suppliers can see when invoices will be settled, so they can forecast receipts more effectively), and, above all, lower customer churn . This would apply also to smaller senders, which would not have the e-invoicing volumes of the suppliers .

As always in B2B, the key in e-invoicing projects lies with the recognition of the shared benefits that suppliers and buying organizations can realize . This typically implies improved business processes (with the associated organizational and change management challenges) and technology additions .

10.0 The Main Reasons Why E-Invoicing Use Will GrowAfter a few dormant years, e-invoicing adoption is finally increasing . Although none of these reasons in isolation is likely to be enough to warrant continued growth, all of them together are driving and will continue to drive increased widespread adoption:

• Stronguserdemand,becauseofthebenefits,especially savings

• Increasedsupply,andanassociatedincreasein the maturity and effectiveness of e-invoicing solutions; in particular, several banks are promoting e-invoicing in their strategies (especially in Spain, Finland and Switzerland)

• Moregovernmentsmandatinge-invoicing,especially in the EU

• Increasingavailabilityofviable(andcompelling)e-invoicing references and case studies as more companies adopt e-invoicing

Other factors may come into play (for example, some e-invoicing pioneers are asking suppliers for extra money to process paper invoices), but the four factors above will constitute the main push . Thus, e-invoicing will grow steadily during the next few years, despite all the difficulties overviewed in this research, simply because the momentum of these factors is stronger than the decelerating force of the difficulties .

11.0 Can Paper and “E” Go Together?The road to full e-invoicing is gradual . First, you will make electronic-only a subset of all invoices, according to several criteria (selected business partners or types of invoices, for example), then you will gradually increase the number of invoices that can be dealt with automatically, or with minimal human intervention . So, for practical purposes, paperand“e”willneedtogotogetheranywayfor a few years . During this transition, companies should ensure that a tax inspector can easily and clearly distinguish in the accounting systems between what is done electronically and what is not . Companies tend to deal with this years-long “transition”indifferentways,asdescribedinthissection . Because of internal process intricacies (or because it is hard to get small suppliers to go electronic), certain types of invoices will tend to stay on paper, at least in the initial years of e-invoicing initiatives .

To ease the transition, some companies continue to accept and issue paper invoices, and to accept and issue e-invoices at the same time for the same goods or services, as a sort of transition to full e-invoicing . Receiving paper and electronic records for the same invoice will not remove the problem (which, primarily, is processing the paper invoice), and will duplicate work . Except for brief periods of time during pilot programs, this is not an ideal situation, and dramatically raises the costs of dealing with invoices, instead of driving them down .

More frequently, some companies are receiving invoices electronically, but they also keep paper copies for tax and legal purposes . Doing this (electronic data transfer) is quicker, less-expensive and less-complicated than full-fledged paperless e-invoicing and still delivers some benefit . However, in a solution like this, you still incur high invoice storage costs (driven down only partially by scanning) and higher fixed costs of reconciliation between what is on paper and the electronic transactions . This means that you won’t harvest the full scale of benefits that e-invoicing can deliver, having done most of the work for it .

Yet, there is plenty of room for development . Some studies estimate that pure e-invoices (with no paper summary attachment) currently represent only 2% to 3% of the total amount of invoices in Europe, so the market potential is immense . Bo Harald, chair of the EU e-invoicing expert group, says that paper invoices have no future . In the long term, it is difficult to disagree with him . In the short term and midterm, there is still a lot of complexity to



deal with, but the cost pressure of these difficult economic times, and the tangible benefits that even partial e-invoicing solutions can deliver, can work wonders .

The steamroller is in motion, and it is only a matter of time until e-invoicing becomes a mandatory requirement, wherever you are, whether you are a supplier or a seller .

12.0 Extended List of Recommendations• Nomatterwhatverticalindustryorfinancial

shape your company is in, start looking for e-invoicing project savings opportunities now . Don’t hold out for regulations and interoperability to get better; you can reap good benefits from e-invoicing today .

• Planyoure-invoicingprojectsaccordingto how many invoices you can process automatically and based on the countries they will progressively touch – the faster you build critical mass, the greater the difference to your company’s bottom line:

• Calculateyourcurrentaverageinvoiceprocessing cost, and confirm it with the business .

• Usethisnumbertoshowthesavingsyoure-invoicing projects have brought .

• Createabusinesscasethataccountsforthe true, anticipated volume of invoices that can be electronically accepted and leveraged by your purchasing community .

• Takeintoaccountthatthesimplestpointat which to start an e-invoicing rollout may be between you and (one of) your foreign subsidiaries:

• Ingeneral,becausee-invoicingoftenleverages existing B2B infrastructure, focus your initial e-invoicing projects in countries where B2B and invoice exchange is already happening and maturing (such as Scandinavia, Germany or the U .K .) .

• Bewareofthefurtherconstraintsandlimitations on where your country (or the countries you do e-invoicing to and from) allow e-invoices to be stored .

• E-invoicingservicesarespringingupworldwide, especially in Europe, so ensure that the solution you choose:

• Addressesallthethreefundamentalaxesof e-invoicing (business process, law and security)

• Iscertifiedbytaxauditorsforasmanycountries as possible (especially those you have a steady flow of invoices from and to)

• Connectswithotherserviceproviders,certified e-invoice networks and banks

• Youwillmaximizethebenefitsofbuyere-invoicing if you have centralized AP processes supported by shared services . If the data is messy, then e-invoicing won’t save you money (because of the degree of manual reconciliation work needed) . Good technology applied to bad processes creates no benefit .

• Multicountrye-invoicingprojectslastyears,so don’t sell the benefits internally in your company too quickly . Instead, proceed with a succession of projects and demonstrate their value one by one . Learn to walk before thinking you can run . In a large project, if you make 50% of all your invoicing traffic electronic in two years, then you’re doing great .

• Thesizeofyourorganizationmatters:

• Ifyouareamidsizeorsmallorganization,then a service-based e-invoicing offering is likely to be more economical and advantageous for you .

• Ifyouarealargeorganization,thenyoumay have the scale to run software for e-invoicing and keep the competencies associated with it, especially if special functional requirements must be met . But evaluate services-based e-invoicing offerings anyway, because they may still be applicable to a large percentage of your invoices, and may deliver savings over in-house projects .

• Neverunderestimatetheconsequencesofregulation diversity across countries; most problems appear in the details . Work with your auditors to research and track, on an ongoing basis, the VAT law and e-invoice requirements in each country where business will be conducted to ensure compliance . Or, work with the e-invoicing solution supplier that will provide these services .

Source: Gartner RAS Core Research Note G00166951,

Paolo Malinverno, 14 April 2009

All Tieto material in this publication is © 2009 by Tieto .

The future of e-invoicing is published by Tieto . Editorial supplied by Tieto is independent of Gartner analysis . All Gartner research is © 2009 by Gartner, Inc . and/or its Affiliates . All rights reserved . All Gartner materials are used with Gartner’s permission and in no way does the use or publication of Gartner research indicate Gartner’s endorsement of Tieto’s products and/or strate-gies . Reproduction and distribution of this publication in any form without prior written permission is forbidden . The information contained herein has been obtained from sources believed to be reliable . Gartner disclaims all warranties as to the accuracy, com-pleteness or adequacy of such information . Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof . The reader assumes sole responsibility for the selection of these materials to achieve its intended results . The opinions expressed herein are subject to change without notice .

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