PEPPOL in a nutshell
PEPPOL enables businesses to exchange documents, such as purchase orders and invoices, in a standardised format between their financial systems. With all required fields on the screen filled in, data arrives in the trading partner’s software complete and ready for processing.
As a result, e-Invoicing immediately reduces the rate of exceptions. Currently, 20-30% of all paper-based invoices have to be treated as exceptions. This means staff need to spend time investigating the exception and resolving it, adding to the cost of processing and lengthening payment times.
Through improved data quality and more efficient delivery, e-Invoicing enables:
- a higher rate of straight-through processing,
- quicker payment times, and
- lower operating costs.
The ATO predicts that by switching to e-Invoicing trading partners will share savings of around $20 per invoice in the costs of issuing and processing paper-based invoices. Extrapolated across the economy, the Government says savings could amount to $28 billion over the next decade.
E-Invoicing reduces the cost of doing business, which frees up working capital for companies to do more. It also makes it easier for Australian and New Zealand businesses on the PEPPOL network to trade with each other.
What does it mean for your business?
If your trading partners are government agencies or large businesses, you may be encouraged (or even obliged) to switch to e-Invoicing as soon as possible. The Government has mandated that all Commonwealth agencies will transition to PEPPOL by 1 July 2022, with all the larger ones doing so by 1 July 2021.
To encourage widespread adoption of PEPPOL e-Invoicing, the Government has said that it will pay supplier e-Invoices up to the value of $1 million within five business days or pay interest on them. With many small and medium-sized businesses struggling with cash flow, this is an attractive offer: Currently, 53% of payments from large businesses to small businesses are late.
“When the Obama administration moved to 15-day payment times, a Harvard Business School survey found that it created 75,000 jobs and delivered an additional $6 billion to US workers’ pay packets.”
-Kate Carnell, Small Business Ombudsman
The Government’s mandate is designed to accelerate the roll out of PEPPOL across the nation. After all, for e-Invoicing to have a transformative effect on the economy it needs to be in widespread use. But for individual businesses that make the transition, they will enjoy benefits regardless; buyers and sellers will achieve:
- efficiency gains,
- cost savings, and
- reduced risk of fraud.
Data is transferred quickly, easily and safely through the PEPPOL network. The exchange is very secure because all trading partners need to be registered and authenticated on the network by an access point provider. These services are provided by software companies who need to be approved by the ATO in Australia and the Ministry of Business Innovation and Employment in New Zealand PEPPOL and meet and maintain strict cyber security standards.
Here’s how PEPPOL works:
PEPPOL operates as a 4-corner model as shown:
The PEPPOL network sits between corners 2 and 3. Buyers can only receive invoices through one access point provider, whereas invoice issuers can send through several access point providers according to their business structure and needs. Larger companies, for example, may have many business units with sales departments, and several ERP and accounting systems in use.
The sender’s access point (corner 2) will use the buyer’s ABN and the PEPPOL Service Metadata Locator (SML) and Service Metadata Publishers (SMPs) to retrieve the correct destination details for the customer. Therefore, the supplier does not need to know what finance system its buyer has in place; as long as the buyer is registered to receive PEPPOL e-Invoices, they will receive the data into their system. If they are not registered to receive e-Invoices, the sender’s access point will notify the invoice issuer and provide a back-up option of sending the invoice via email attachment.
The 4-corner model is significant because it allows businesses of all sizes and differing requirements to participate on the network at low cost. This contrasts with an Electronic Data Interchange (EDI) system that has a 3-corner structure (supplier, buyer and network operator), which is expensive to access.
Large trading partners often impose EDI on their supply chain to digitalise the exchange of business documents, improve communication and limit manual processes. The costs involved can, however, prohibit small and medium-sized businesses from trading with large organisations. Ultimately, this negatively impacts both companies.
What are the costs involved with PEPPOL?
The costs of PEPPOL e-Invoicing will depend on the solutions that the businesses opt for to gain access to the network. Many times the functionality will be incorporated into the systems they are already using; other times it may be appropriate to invest in new software solutions.
Here are some examples of different scenarios that could play out:
Roger runs a small business, providing leadership development training to managers in the public and private sector. Some of his clients have advised him they would like to receive PEPPOL e-Invoices going forward.
Roger’s online accounting software package will enable PEPPOL e-Invoicing by mid-2021. He’ll be able to send invoices through his software at no extra cost to his existing subscription. There is also a back-up option of sending an invoice via email attachment should the customer not be registered on the network to receive invoices.
Lisa is a freelance writer and editor. Her clients include ASX-listed companies. Lisa currently generates her invoices from templates and emails them through to the manager who has commissioned her work. Issuing and following up on overdue invoices is time-consuming for Lisa.
Some of Lisa’s key clients have told her that they would like to receive PEPPOL e-Invoices. Lisa decides to subscribe to an accounting software package designed for small business to be able to e-Invoice. While this subscription costs her, it gives her back time to write and earn money. The new system means that she is paid quicker, which alleviates financial stress for her and her family.
David runs a restaurant and uses desktop accounting software to manage his purchasing. He buys supplies from a range of wholesalers, many of whom are issuing PEPPOL e-Invoices. David wants to continue using his existing software and can do so by procuring the services of a PEPPOL access point from an accredited service provider. This enables him to receive PEPPOL e-Invoices through his current software.
Maria is a finance director in a local government authority that processes a high volume of invoices a month. Maria oversees accounts payable and wants to move the organisation to PEPPOL e-Invoicing to have a centralised and digitalised system, visibility of all invoices, and better spend management.
The council’s ERP offers receiver access point services as part of their subscription. However, when Maria and her colleagues consider their requirements, they realise that they need a greater degree of functionality than the ERP is offering. What they really need is an automated accounts payable solution that can process PEPPOL e-Invoices.
This is because the council needs automatic compliance checks and configurable business rules to manage invoice exceptions and the approval process. While e-Invoicing reduces the rate of exceptions through better quality data, there will always be some discrepancies between what is ordered and what is invoiced that the council needs to manage to ensure correct payment.
With a huge number of suppliers delivering and maintaining council services and infrastructure, Maria and the team know that the transition period to PEPPOL e-Invoicing could be several years. Further, it may only be when contracts come up for renewal that the council can re-negotiate its terms with suppliers.
Maria does not want a situation is which some suppliers are e-Invoicing and others are still sending in paper invoices or email attachments that need to be processed manually. By opting for an automated accounts payable solution that provides PEPPOL e-Invoicing, the council can handle invoices in whatever form they enter the organisation.
An accounts payable automation solution uses Optical Character Recognition (OCR) technology to capture data from paper invoices and email attachments. So whether the data enters the accounts payable solution via OCR or PEPPOL e-Invoicing, it will feed into a configurable workflow engine for exception management and approval.
While a new solution comes at a cost, Maria has run the numbers and expects to gain a return on investment within 18 months. The software will significantly decrease the number of invoices that staff need to get involved with and the amount of time they need to spend working on them, enabling the council to reduce operating costs, while simultaneously improving accounts payable performance: preventing duplicate payments, enabling early-bird discounts, and avoiding late payment fees.
Things to consider
When selecting a PEPPOL access point provider, it’s worth considering whether the solution offered continues to fulfil your current – as well as upcoming – needs. Initially there will be a period of transition and it may not be ideal to run two processes simultaneously.
- Does the e-Invoicing solution also allow you to process paper and digital invoices?
- Does it allow you to set business rules to manage approvals and exceptions?
- Does it capture a complete audit history of all invoices that enter your organisation?
What do you want to achieve?
For many businesses, the way forward is to decide what your needs are with regards to sending and receiving invoices. From this standpoint you can find the service provider that offers the best functionality to meet your requirements.
E-Invoicing provides the potential to transform the business-to-government and business-to-business landscape in Australia, providing tangible economic benefits on both a micro and macro level. Let’s embrace a digital future and see where it takes us as a nation.