e-Invoicing the key for Government agencies looking to do business with SMEs

Tuesday, 04 October, 2016

Procurement and invoicing are some of the most highly formalised and standardised workflows, with almost universal applicability across public and private sector organisations. They are also one of the areas where organisations are increasingly facing demands for greater efficiency, transparency and performance.

Completely digitising the handling and flow of formal messages that occur during purchase and invoicing has many significant financial benefits. Human-based interventions can be minimised, greatly reducing administration costs and speeding up routine tasks enormously. For suppliers, this can lead to lower overheads, less need for trade credit, and more rapid and reliable payments. Buyers benefit through improved transaction accuracy and visibility, fewer administrative overheads, and the potential for better pricing from suppliers.

Many large private sector businesses have implemented elaborate technology solutions to try to improve their invoicing workflows. Still the vast bulk of invoices are generated via manual transactions involving small businesses. The Australian economy is estimated to have roughly 1 billion invoices generated each year.

The last twenty years have certainly seen wide-scale replacement of paper documents with PDF equivalents exchanged via email. This is obviously an improvement over purely paper-based workflows, but it still has many inefficiencies and pitfalls. Emails containing PDF invoices are easily lost or misdirected, there is limited verification of the identity of the sender or veracity of the information, and it often involves physical scanning of paper. Worst of all, the PDF workflows used today often require the manual entry of basic invoicing data into electronic systems, even in situations where OCR technologies are in place.

The technologies required to reliably and securely exchange transaction information between organisations are now very well established, and across the world, are routinely used on a large scale by governments for invoicing and procurement. These systems involve the exchange of structured machine readable data in standardised formats, with automated validation of suppliers and purchasers. Typically, these systems are implemented as open messaging networks that allow access to any participating businesses within the network.

On the world stage, Australia is lagging the rest of the world in automated electronic invoicing. On the flip side, that means there are still significant productivity improvements and cost savings that can be achieved.

Countries with the highest market penetration for electronic invoicing between businesses include Brazil, Mexico, and European countries such as Denmark. In each of these cases, the government-mandated use of e-invoicing has dramatically lifted usage rates and market penetration.

Research firm Billentis estimates that in 2015 the average overall adoption rate for e-invoicing across Europe is 28%, while in Australia it is below 15%. In Brazil, it is estimated that more than 90% of all B2B invoicing is handled via e-invoicing.

The slow adoption of sophisticated e-invoicing mechanisms within Australian government agencies has had clear flow on effects to the private sector, and been a major factor in Australia’s overall poor e-invoicing performance.

In June 2015, the Australian Bureau of Statistics estimated that 90% of active Australian businesses have four or fewer employees. It is also estimated that approximately 500,000 small businesses are suppliers to Australian government agencies, with the vast bulk of the transaction volume between the public and private sector occurring at a state and local government level.

Given the scale of transaction volumes carried out between Australian government agencies with small and micro businesses, it is clear that any effort to achieve efficiency improvements will require government leadership, to help standardise invoice data exchange formats and foster the use of new e-invoicing mechanisms.

While the Australian Federal Government has indicated they do not currently intend to mandate an e-invoicing standard, as has been done in Brazil, they have encouraged the formation of the Digital Business Council, an initiative which is led by public sector agencies, technology providers and industry bodies.

The purpose of the Digital Business Council is to consult and establish working groups to help create a common interoperable framework for e-invoicing within Australia. Initial data exchange formats and mechanisms have already been documented, allowing pilot projects to commence with both public and private sector participants.

One of the technology providers that has actively led the standardisation process and is participating in pilot projects is MessageXchange, an Australian-developed cloud platform designed to allow businesses to automate the direct exchange of information in a highly secure manner. MessageXchange has pioneered cloud-based automation of supply chain workflows.

The current MessageXchange platform already handles the exchange of electronic messages for many of Australia’s most successful businesses, including Computershare, Australia Post, Telstra, Costco, The Good Guys, and Harvey Norman, transacting more than 100 million messages per year.

According to John Delaney, Managing Director of MessageXchange, the benefits of moving beyond emailing PDF invoices to clients are a no-brainer. “Every level of government in Australia is looking to encourage small, innovative businesses to take part in government procurement. The best way to handle this efficiently is to learn from some of the biggest, most streamlined supply chains in the world — Australia’s retailers.”

“World class retailers handle this diversity of small business suppliers by providing simple, highly automated cloud-based platforms for their suppliers to use — at no cost to the supplier. This ensures there are low entry barriers for new suppliers, and they can on-board suppliers rapidly, at low incremental cost.”

Image credit: ©stock.adobe.com/au/momius

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