Professional accounting bodies Chartered Accountants Australia New Zealand, CPA Australia and the Institute of Public Accountants have urged the government not to mandate electronic invoicing for businesses, viewing it as an unnecessary compliance cost while businesses are still trying to recover from COVID-19.
E-Invoicing key to COVID-19 recovery
On the contrary though, the Australian government wants to roll out PEPPOL e-Invoicing to shorten payment times and drive economic growth to counter some of the effects of the pandemic.
Electronic invoicing (e-Invoicing) is the digital exchange of invoices between a seller’s and buyer’s software systems via the PEPPOL network and its common e-Invoicing standard. System–to–system data exchange is a significantly more efficient means of transacting than sending paper or PDF invoices that need to be manually entered into company systems.
E–Invoicing minimises errors and cuts processing times. This means sellers get paid quicker and buyers reduce their costs of doing business. This frees up working capital across the economy for additional investment, creating jobs and stimulating growth. Deloite Access Economics has estimated that e-Invoicing could return $28 billion to the economy over the next 10 years.
While shortening payment times would get more money circulating the economy, it’s important to note that the nation can only benefit from e-Invoicing if the majority of businesses get on the PEPPOL network. As a result, The Treasury has held a consultation process and is currently considering options for mandating its adoption.
A mandate: if, how, and when?
While some accounting bodies have advised the government against a mandate, perhaps the more relevant questions should be ‘how’ and ‘when’ rather than ‘if’. For e-Invoicing to deliver value, companies need to be on the PEPPOL network. Without a mandate in place, the volume of trading partners may simply not be there to make transitioning to e-Invoicing worthwhile.
This would be a missed opportunity and leave Australia out of step with much of the industrialised world. E-Invoicing has steadily gained momentum globally over the last decade and currently there are 34 countries using the PEPPOL standard. E-Invoicing plays a key role in helping Australia become a leading digital economy, while simultaneously making it easier for Australian businesses of all sizes to trade internationally.
The key benefit of a mandate would be that it would bring certainty. Businesses would have confidence that their trading partners would adopt the PEPPOL standard, and consequently they would achieve the return on investment, as well as the practical benefits of being able to send and receive e-Invoices.
Likewise, software vendors would know that there is a ready market for their solutions so would develop them. This would stimulate competition, putting downward pressure on price. As more providers offer PEPPOL services and solutions, low cost and no cost options for companies handling few invoices are likely to come onto the market, as overseas experience shows. Many software vendors have also indicated that they will enable their solutions for PEPPOL e-Invoicing at no additional cost to their customers. Therefore, for many companies, PEPPOL e-Invoicing may not be costly to implement.
Timing is everything
The difficulty with a mandate is in deciding its timing and timeframe. KPMG has flagged that large businesses (revenues over $100 million per annum) are already struggling with the compliance burden of reporting their payment times to small businesses under the new Payment Times Reporting Scheme. Therefore, KPMG argues, the timing is not right to legislate PEPPOL.
However, this is in fact an opportune time for large entities to bring in e-Invoicing. While there are, of course, numerous costs associated with setting up systems and processes to report on payments to small businesses, firms would be remiss if they were only looking at capturing reporting times, and not on how to bring their payment times down.
Payment Times Reporting should force companies to address the problems in their accounts payable function because publishing long payment times now poses them serious reputational risk. Using PEPPOL e-Invoicing alongside accounts payable automation solutions to process traditional invoices, is a very effective way of shortening payment times and reducing costs.
Provide enough lead time
KPMG believes that if the government were to mandate e-Invoicing, it should adopt a five-year timeframe – similar to the approach taken in the European Union – to give businesses time to prepare for the change and make necessary system upgrades. This could be the most effective approach, and one that ensures there is choice of solutions on the market.
Further, with more time given to its rollout, companies are likely to have a better experience of PEPPOL as it matures in Australia. As more document types are added to the network, PEPPOL will be able to offer a full procure–to–pay and order–to–cash solution, without requiring trading partners to switch between PEPPOL and previous workflows to transact.
With or without a mandate, the government needs to educate the market on what PEPPOL is, and the key benefits it delivers in terms of:
- Quicker payment times,
- Decreased processing costs,
- Reduced risk of fraud,
- Increased opportunities to trade internationally,
- Lower environmental impact.
The government may also need to go further to incentivise PEPPOL’s uptake if it decides not to mandate. So far, Commonwealth agencies have committed to paying all correctly rendered supplier e-Invoices issued to them up to the value of $1 million within five business days or pay interest on them.
While this is an attractive incentive, it may not go far enough to encourage e-Invoicing down the supply chain. Further financial incentives may also be required; for example, Singapore offered grants for a limited period to encourage early adopters onto the network.
It seems clear there will be resistance to change as long as people perceive PEPPOL e-Invoicing as a regulatory cost to business. When there is consensus that PEPPOL, in fact, creates efficiencies that help businesses to become more profitable, there will be no turning back to old, inefficient ways of doing business. It will be interesting to see whether or not the government decides to mandate. Watch this space!