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Home > Operations Management Best Practice > Electronic Invoicing in the European Union

Operations Management Best Practice

Electronic Invoicing in the European Union

by Hansjörg Nymphius

Executive Summary

This article examines the following issues:

  • The EU Expert Group on e-invoicing and the European framework.

  • The goals—more effective value chains and streamlined information flows.

  • The current state of e-invoicing.

  • EDI as a precursor to e-invoicing.

  • Growth in the supplier market.

  • Issues with current models of e-invoicing.

Introduction

Europe is entering a crucial stage in the development of electronic invoicing. The European Commission (EC) has made the development of e-invoicing an objective in both the 2002 and the 2005 eEurope Action Plans.1

The invoice, just to summarize, consists of an itemized account of goods shipped, services performed or work done, an amount expended or owed, and a demand for payment. It may contain a range of other administrative or logistics information, and usually will state applicable taxes payable. It is the crucial link, or perhaps the pivot, between the physical and financial supply chains and, accordingly, has been described as the “queen” of commercial documents. It is important to note that in traditional invoicing all these features are derived from a single paper document, often with the word “invoice” on it.2

Two years ago the EC formed an Expert Group on e-invoicing with the aim of establishing a Europe-wide framework that allows for the standardized exchange of e-invoices by all market participants, particularly those involved in purchase and supply. Studies indicate that implementing electronic invoicing on a Europe-wide basis could reduce supply-chain costs by €243 billion, by streamlining business processes and driving innovation.

The Expert Group initiative emerged from the EC’s “Broad-Based Innovation Strategy,” launched in September 2006, which recognized that “Europe cannot compete unless it becomes more inventive, reacts better to consumer needs and preferences, and innovates more.” This in turn goes back to the Lisbon Treaty, which aims to enhance the efficiency of Europe through installing innovation at all levels and by implementing modern democratic institutions. “E-government, or the ready availability of government services over the internet, including online payment and online invoicing—which equates to e-invoicing—is seen as a natural part of this progression. The Lisbon Treaty aims to make Europe the most competitive and dynamic knowledge-based economy in the world by 2010.”

In recognizing and reacting to the competitive challenge facing Europe, two aspects emerge as the basis for improving European competitiveness in a global economy: Efficiency and certainty. More efficient value chains reduce cost; improving the certainty of the environment in which they operate makes them more competitive.

Streamlining the flow of information in any value chain will reduce inefficiencies, improve certainty, and reduce costs. As Europe moves to adopt the Single Euro Payments Area (SEPA), it is logical that this is linked to the business processes that settle a vast majority of business-to-business (B2B) and business-to-government payments. SEPA is expected to contribute significantly to the Lisbon agenda.

Electronic invoicing involves the replacement of manual paper-based routines with new integrated systems and processes. Expected benefits include the creation of integrated supply chains which are more cost-effective, less error-prone, faster, and simpler to manage. Other benefits include improved customer care (typically, as the joint EBA/Innopay report, “E-invoicing 2008,” points out, nearly half of customer queries relate to invoicing) as well as improved risk management. Cross-selling and up-selling opportunities can also enabled through electronic invoicing, the report notes.

The outlook for these developments is promising despite obvious barriers to initial adoption. The European Banking Association (EBA), as a force for collaboration in the European payments industry over many years, is strongly committed to working with all stakeholders to identify practical solutions and to working closely within the European Electronic Invoicing Framework (EEIF) as it develops.

Today e-invoicing in Europe across all organizations, from government to the private sector, has a relatively low penetration, just as in North America and the Asia–Pacific region. There were some 28 billion invoices (paper and electronic) in 2006 in Europe. Approximately 50% of these invoices were B2B and the remaining 50% were business-to-consumer (B2C). However, the growth in e-invoicing is rapid, as would be expected from a low base, and annual rates of growth of 60%–100% are mentioned, with some markets growing at an even faster rate. So far the various country-specific e-invoicing initiatives amount to between 2% and 3% of the total invoices issued, with the total number of e-invoices issued in Europe being around 490 million in 2006 and, when the statistics have been finalized, are expected to be around 710 million for 2007. The leaders are the Nordic countries and Switzerland, with adoption rates of around 10% in B2B invoicing. The Swedish government, for example, decided that all government agencies had to be capable of handling invoices electronically by July 2008, a move that is expected to generate savings of around €400 million over the next five years.

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