Government’s adoption of e-invoicing to drive digital transformation across ANZ
As the government takes steps to boost the economy, federal government agencies embrace e-invoicing as part of Australia’s digital transformation journey.
In October 2018, the Australian and New Zealand governments took steps to align their approaches to e-invoicing through the Trans-Tasman Electronic Invoicing Arrangement. The main objective of the Arrangement is to create a seamless Electronic Invoicing, or e‑invoicing, framework that could improve productivity and reduce the costs of doing business in ANZ. In effect, the goal was to create a single, interoperable digital economic market.
In July 2022, the government took a key step in accelerating the digital transformation of key financial processes within federal government agencies by mandating e-invoicing for all federal agencies by 1st July 2022.
The government knows that building digital capabilities can increase business resilience and create new growth opportunities on a local as well as a national scale. Modernising economic systems and financial tools through digitisation are proven drivers for boosting economic activity and efficiency. The e-invoicing initiative, along with the technology that enables it, is one of the key parts of the government’s national digital transformation plan.
The government’s plans for transitioning to a digital economy
E-invoicing represents the last mile of digital transformation in any organisation’s financial operations. According to estimates by Deloitte Access Economics, every time an e‑invoice is used in place of a paper invoice, it can deliver up to $20 in cost savings to the businesses involved.
Currently, approximately 89% of small and medium businesses process invoices manually via paper or PDFs. Every year, there are about 1.2 billion invoices exchanged in Australia alone. Switching to e-invoicing can lead to significant productivity and cost‑efficiency benefits including faster transactions, fewer errors and delays, and more accurate financial management.
The government believes mandating e-invoicing at the federal government level will ensure that it becomes part of the broader digitisation of businesses, save on time and costs, and reduce the risk of email scams and ransomware attacks.
TechnologyOne Chief Executive Ed Chung said e-invoicing is a key step in the digital transformation of accounts payable, and done right, will revolutionise both small businesses and government agencies. “We understand e-invoicing is a high-priority issue for the Government, and we’re committed to ensuring this important economic recovery and digital transformation initiative happens smoothly for the benefit of all Australians,” he said.
Once e-invoicing has a sufficiently wide user base, the benefits are expected to grow exponentially as more and more people adopt the system.
Governments around the world are recognising the advantages of widescale e-invoicing, with countries like the UK and India even going so far as to making it a mandatory legal requirement. Currently, e-invoicing is not mandatory in Australia or New Zealand. But as more and more businesses and governments around the world make the switch, there will be growing movement to adopt it here at home as well. It’s wise for businesses to take steps to prepare for the change now, versus scrambling to update their systems when they're left with no other choice.
How e-invoicing works
E-invoicing is the direct, digital exchange and processing of invoices between suppliers’ and buyers’ financial systems, regardless of the specific invoicing software they use. This is enabled by using a common standardised format that’s readable by both people and computers. E-invoicing removes the need for manually entering or scanning invoice data into the system.
To make e-invoicing possible, the data needs to be shared in a standardised format. That's why Australia and New Zealand adopted the Pan-European Public Procurement On-Line (PEPPOL) interoperability framework.
PEPPOL is a proven, international e-invoicing standard that’s used in over 34 countries around the world and run by OpenPEPPOL, a non-profit association that develops, maintains, and governs PEPPOL specifications.
Organisations looking to make the switch to e-invoicing will need to work with an accredited Service Provider (also known as an Access Point) to connect to the PEPPOL network and use compatible ERP software.
While e-invoicing obviously has its advantages, it needs to reach a critical mass of adoption before we can start seeing the benefits to the economy. This is commonly known as the ‘network effect’, where the number of users in a network will influence the degree to which its benefits can be realised. The more users there are in the network, the more benefits all users will gain, and the more incentives there will be for businesses to adopt it.
Currently, there are only a relatively small number of businesses that use PEPPOL e-invoicing in Australia. That means other businesses don’t have a pressing need to switch, and every business is waiting to see if other businesses adopt it first.
From what we’ve observed in international markets, it seems that even if e-invoicing was mandated for the public sector, which accounts for less than 10 per cent of business invoices in Australia, it could still take several years for it to become widely adopted across the economy.
But there is growing awareness of e-invoicing, with many organisations already preparing for the change. Recently, a number of major accounting software providers for SMEs have indicated that they will be able to support PEPPOL invoicing by mid-2021. It is expected that over 60 per cent of SMEs will be able to use PEPPOL e-Invoicing through their existing accounting software by that time.
Federal government bodies to lead the charge
There is an increasing focus on standardising public procurement and simplifying document exchanges between companies and public entities. The public sector accounts for under 10 per cent of business invoices in Australia, which is why the government’s efforts are starting off there.
Many government agencies have already moved to e-invoicing, including the Australian Tax Office, Department of Finance, Department of the Treasury and Services Australia. From 1st January 2020, Commonwealth Government agencies have started fulfilling e-invoices within five days, or they risk paying interest on any late payments. The five-day e-invoicing payment policy applies to contracts valued up to $1 million, when a supplier and a Commonwealth agency both use the PEPPOL e-invoicing framework.
Both the Australian Taxation Office (ATO) and the New Zealand Ministry of Business, Innovation and Employment (MBIE) have become PEPPOL Authorities and have already developed local invoice specifications based on the PEPPOL BIS Billing 3.0 standard, an Electronic Data Interchange (EDI) standard format.
Although Australia and New Zealand have separate PEPPOL Authorities, their functions and technical support activities have been aligned to support one another.
The cash-flow boost to small business suppliers (who cater to the government) for getting paid within just five days versus a month or more is expected to be worth billions in economic benefits.
With federal government bodies leading by example, the government is hoping to lower the risk for other adopters and incentivise businesses to adopt e-invoicing. The Commonwealth Government is also working with state and territory governments and local councils to improve their payment time policies and encouraging them to make the switch.
How e-invoicing will benefit the private sector and SMEs
According to Peter Strong, Chief Executive of the Council of Small Business Organisations of Australia (COSBOA), a policy group which advocates for more than one million small businesses, e-invoicing is a key step in the digital transformation of accounts payable. It can make the lives of business owners easier by securely modernising and automating their financial systems and making trade simpler.
E-invoicing can address one of the biggest pain points of small and medium-sized businesses: long and late payment times. Small businesses tend to have smaller cash reserves and rely heavily on timely payments to maintain cash flow. Payment delays or long wait times create additional cost burdens for these businesses, since they must spend precious resources on resolving payment time issues or toughing it out until the payment arrives. This hinders their ability to grow and reinvest in the business.
From a holistic perspective, late payments create bottlenecks in the supply chain, slowing the circulation of money in the system. In severe cases, they can even lead to bankruptcy or business failure.
Saving time and cutting down on admin are areas where e-invoicing also shines. Traditional invoicing methods are time- and labour-intensive; invoices need to be printed, stored, filed and emailed. At their end, buyers must manually sort, scan and re-type the invoice into their own systems. For a business that deals in a high volume of invoices this way, the costs of paper and printing alone can be significant. E-invoicing can remove these costs and automate the whole process while reducing the risk of errors or missed invoices.
Environmentally friendly, e-invoicing eliminates paper, uses less energy and resources, and minimises the need for physical storage space, which are important sustainability priorities for many Australian businesses and their customers.
E-invoicing is also more secure. PEPPOL e-invoicing usually has electronic validation built in to reduce errors and lower the risk of email scams and ransomware attacks. The PEPPOL network also has an in-built database of addresses to ensure accurate delivery of invoices to the correct buyers.
Some enterprises use their own electronic data interchange (EDI) networks to handle transactions, so they are already benefiting from the digital transmission of invoices. But these proprietary systems can make it difficult for smaller, local businesses to trade with them. PEPPOL invoicing makes it easier for small businesses to use their own software or system to send and receive e-invoices from these enterprises, regardless of the systems they use. Since PEPPOL can also be used together with existing EDI systems, enterprises usually would not need to do much to be PEPPOL-compatible.
The digitisation of book-keeping and accounting functions also means there will be less of a hassle during tax season, with instantly verifiable records available on-demand.
Factors that will influence adoption
While the benefits to e-invoicing are clear from the government’s standpoint, businesses have a lot to consider before committing to a new payment format.
Large businesses are more likely to adopt e-invoicing than small businesses because they tend to process higher volumes of invoices. The type of business activity they engage in will also have a role to play. Purchasing businesses are more likely to adopt e-invoicing than suppliers because they tend to process more invoices.
The technology stack a business currently has is also important. Businesses with IT systems that can support e-invoicing are more likely to adopt it. However, an enterprise that already has its own EDI system may consider e-invoicing redundant.
One of the biggest limiting factors will always be the cost of adoption. The upfront costs of switching to e-invoicing can vary dramatically, ranging from low (e.g. an add-on to their current software subscription) to high (e.g. procuring PEPPOL Access Point and integration costs).
E-invoicing can be a powerful tool for modernising the Australian business ecosystem and defragmenting the accounts payable environment that businesses and government bodies must navigate. But adoption of e-invoicing is a policy issue as much as it is a technological one. SMEs need to be encouraged and incentivised to adopt the standard, even if only to build up to the critical mass required to trigger widespread adoption. Even with these measures, adoption is likely to take some time, but for the goal of realising a vibrant, modernised digital economy, it will all be well worth it.
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