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Reimagining invoices for the 2020s

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Gunjan Tripathi explains why you need to forget everything you know about invoices and start again.

Invoices, or a form of invoice, have been used as a means to record trade for thousands of years. The first known ‘invoice’ dates back to 2,900 BC. Written in the ancient language Cuneiform, Sumerian temple priests are thought to have kept track of agricultural produce bought and sold, with simple drawings created to show the items that needed to be kept in their records. And up until very recently, any invoice produced or received by businesses has followed the same lead in that they have been ‘visual’ – a human has been able to look at it and understand it. This is now changing as the need for visual invoices starts to decrease. As a result, tax teams everywhere need to forget everything they know about invoices and instead look to the future.

Progression of the humble invoice

Invoices are, arguably, the backbone of the business world. A business cannot operate if it does not receive funds in exchange for the goods or services it provides, and is unable to record its revenue accurately or comply with tax authorities without an invoice. Yet, despite the rapid digitalisation of the finance function over the past 30 years, invoices have remained relatively unchanged. Yes, digitalised, but the format essentially has not been updated for decades.

But now, as countries – particularly in the EU – start to mandate e-invoicing through proposals such as VAT in the Digital Age, understanding and implementing new processes is vital for businesses everywhere.

Market research specialist IMARC Group predicts that the e-invoicing market will reach $35.9 billion by 2028, a growth rate of 20% over a five-year period (2023–28). This makes the need to adopt change vital.

Digital invoice or e-invoice? More than semantics

Many businesses remain unclear about what the term ‘e-invoicing’ means. Some may consider anything deemed an ‘electronic’ invoice – such as a PDF version of an invoice, through to automated invoices – as an e-invoice. However, the reality is that for tax authorities – many of which are beginning to mandate e-invoicing, such as in Italy – they look very different to anything that has been created in the past.

The key element of an e-invoice is that it is essentially written in code so it can be generated by a machine, and interpreted and read by a machine. The visual format has become secondary; the objective in adopting this level of automation is not to view the invoice, except in some irregular cases, but instead use data from the supplier in a machine-readable format that can be automatically imported from the buyer’s accounts payable system to a seller’s accounts receivable system, without requiring any manual data entry.

The future is e-invoicing

Those who believe that e-invoicing is a simple progression of how invoices operate are underestimating its broader impact and the potential risks involved with poor implementation. In the absence of standard compliance obligations in different tax jurisdictions around the world, businesses need to:

  • Be aware of any upcoming changes;

  • Understand the different mandates they will face; and

  • Begin to overhaul their financial systems and tax processes accordingly.

And with global tax authorities taking different approaches to e-invoicing and working in different languages, it can be complicated for businesses to stay on top of all the rules and technical requirements.

Ultimately, e-invoicing should be considered as a strategic issue for every company; it is imperative to invest in a system that supports multiple models because e-invoicing is core for revenue collection and procurement. Secondly, the system increasingly needs to support e-invoicing-related near-real-time or real-time reporting mandates because push-back from tax authorities or delays in invoice processing should be expected if invoices are not compliant. Senior leadership teams should be aware of these scenarios and have a safety net in place in case something goes wrong.

As the future unfolds, the success of businesses will rest on their ability to embrace the transformative power of new invoicing technology and overhaul their financial systems and tax processes accordingly. Embracing e-invoicing is no longer just a choice but a necessity for sustained growth, compliance, and competitiveness in the global marketplace.

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