SMEs and Private Sector onboarding - electronic invoices
Introduction and overview of the current state-of-play on eInvoicing onboarding of SMEs and Private Sector in the EU market
The twin transition to a green and digital economy are key priorities for the European Commission. This will mean a more resilient economy through which Europe can recover from the COVID-19 pandemic. The adoption and widespread use of electronic public procurement and electronic invoicing (eInvoicing) will play a major role in realising these ambitions. eInvoicing enables trading counterparties to send and receive eInvoices, based on a robust European standard on eInvoicing for the semantic elements of a core eInvoice (EN 16931). eInvoicing already shows important benefits for the public sector. In recent months, the CEF eInvoicing team launched a series of activities related to SME and private sector onboarding to nourish policy discussions taking stakeholder suggestions and market needs into account. Based on previous input from stakeholders on this topic, the Commission organised an open session on eInvoicing in November 2021. This article brings together the conclusions of this session, including the views of the co-authors, from both the public and private sectors.
This article will:
- Define some key terms and concepts;
- Address the current issues faced within supply chains operating within and across Member States and in particular those relating to the inclusion of small and medium-sized enterprises (SMEs) in onboarding processes and the dissemination of the usage of structured eInvoices (as opposed to paper or electronic images such as PDF);
- Provide a state of play and examples of onboarding initiatives taken at a country level or by the private sector in some EU countries;
- Present the benefits of eInvoicing and the important role played by private businesses in its mass-adoption.
The widespread adoption of eInvoicing and related onboarding efficiency strategies will:
- Optimise growing eInvoicing volumes and make the exchange of invoices among economic operators across the EU, based on the use of common practices, standards and interoperable delivery networks;
- Minimise one-off processes and workarounds used by economic operators to cope with the absence of well-established onboarding strategies that often create additional administrative burdens for all parties;
- Reduce the usage of unstructured (non-digital) document exchanges via multiple channels, which currently cause processing inefficiency;
- Encourage eProcurement life cycle automation in both the private and public sector by including other digital supply chain documents such as purchase orders;
- Enable the utilisation of established technologies and newer emerging technologies.
This article is focused on SMEs and their onboarding into an eInvoicing environment based on digitally structured eInvoicing standards and interoperable networks. So far, larger private economic operators have led the adoption of eInvoicing. There is scope to include SMEs.
There is currently relatively low penetration of eInvoicing into such companies except in a few EU Member States. Where eInvoicing has been adopted it is often based on PDFs rather than structured data capable of being automatically processed [9].
In relation to eInvoicing, accounting and related payments, SMEs operate a variety of systems and approaches. SMEs are likely to have systems similar to larger enterprises based on the use of ERP (Enterprise Resource Planning) systems capable of meeting the requirements for the majority of accounting and billing processes; they are more likely to be able to receive and transfer data to eInvoicing service platforms and networks in digital form.
Small and micro-enterprises are likely to use more basic accounting software often in conjunction with manual processes. They may not be able to generate invoices or invoice data in digital form and will either resist adoption of eInvoicing or expect to be offered easy-to-use solutions that are secure and reliable and involve no expensive investments in technology.
For example, there are various models for eInvoicing activation and ongoing operation by SMEs acting as a supplier:
- an SME is directly connected to the system of a buyer, who provides the facilities for presenting and managing eInvoices without the intervention of another party. A number of public sector entities operate through a government portal for such a model. In some cases, a service provider may be employed to onboard the SME supplier into such a solution;
- an SME uses a service provider solution or platform to which the SME is connected and through which invoices are presented to a buyer or buyers that use the same platform (three-corner model);
- an SME uses a service provider/network access solution to which the SME is connected and through which invoices are presented to a buyer, which is reachable on another platform by means of interoperable networks such as Peppol (four-corner model). This may allow a supplier to connect with a range of buyers because of the interoperable connections created by a service provider with other platforms.
In a more technical way, onboarding involves public authorities, service providers and end-users (acting along with the national eInvoicing legislation and the European standard on eInvoicing) and refers to a practical set of actions such as:
- Establishing the business relationship and performing “know your customer” routines, including identity and operational information;
- Creating a secure technical connection ranging from onboarding into a portal to allowing data file transfer (e.g. Peppol networks);
- Making available digital processes often in the ‘cloud’ and minimising the need for installed software;
- Establishing service level expectations and agreements based on transparency and established data protection procedures;
- Agreeing on the format or data be used in creating the eInvoice, which can be done by the sender, or the provider based on data submitted and will need to reflect the requirements of the buyer. This will also apply to the management of other documents types and response messages;
- Deployment of customer service capabilities/tools and additional value-added services as required;
- In some cases, larger enterprises may choose to be their own ‘self-service’ provider for onboarding.
Successful onboarding strategies must be easy to replicate, accessible, and adaptable (however, as systematic as possible for efficiency purposes). It is a practical issue requiring investment and expertise in management processes and technology which need to generate high levels of customer satisfaction.
Existing eInvoicing onboarding challenges within the Single Market
Directive 2014/55/EU mandates the implementation of eInvoicing in public procurement, based on a receiving capability of invoices presented in the European standard in each EU Member State. All public contracting authorities must be able to receive and process eInvoices conforming to the standard from domestic and intra-EU senders. However, the Directive does not stipulate any obligation for the suppliers to public contracting authorities to send invoices in a structured and electronic format. As a result, many contracting authorities are capable of managing eInvoicing, but due to a low take-up on the supplier side, eInvoices still represent a very low percentage of the invoices exchanged [2]. This under-performance in eInvoicing adoption can be explained by various factors such as:
- The lack of a mandate and an obligation to issue eInvoices. Despite the economic benefits, smaller economic operators' willingness to invest in digital solutions remains low. However, an obligation does not remove the need to offer easy-to-use eInvoicing solutions;
- Inefficient communication about eInvoicing benefits and insufficient general information on eInvoicing provided to suppliers, which then must apply additional efforts to search for approaches and guidelines on eInvoicing practices;
- Lack of resources within both the public and private sector to focus on the implementation of eInvoicing, which requires time, expertise, human resources, and a willingness to change;
- Unduly heterogeneous business practices across the eInvoicing environment resulting in large variety and complexity experienced across business sectors and various supply chains. This complicates invoice process standardisation, which aims at more uniform business practices, the usage of the ‘just right’ amount of data, a closer alignment across EU Member States in terms of legal requirements, and more concerted change management strategies.
- Insufficient focus on the practical onboarding and the lack of engagement from qualified stakeholders involving policy-makers, technical provider, eInvoicing experts and the end-user community;
All these issues prevent the mass-adoption of eInvoicing and generate reluctance on some SMEs toward the adoption of eInvoicing. This is often due to the fact that SMEs’ resources are promptly allocated to primary business activities and therefore not dedicated to system implementation.
Consequences for businesses often turn into increasing operating costs and administrative burdens caused by human error and diversified business practices and exchange methods of trading partners. These administrative burdens also generate inefficient processing and barriers to trade.
Onboarding initiatives among the EU countries
There are initiatives led by EU governments and/or projects from the private sector. The selection presented below aims at raising awareness about stakeholders about lessons learned and potential solutions to build on and contribute to the mass-adoption of B2G and B2B eInvoicing.
Initiatives by the EU Member States
Initiatives from the private sector and reflecting the role of service providers and the accountancy profession by making the link with the end-users
Benefits of eInvoicing mass-adoption within the private sector
The large-scale adoption of eInvoicing will be gradual. On one hand, normalising eInvoice submission to public contracting authorities for B2G transactions is necessary. On the other hand, the exchange of eInvoices should become the by-default billing method for B2B transactions. For both aspects, there are three categories of users involved: (i) public authorities/ governments, (ii) eInvoicing solution and service providers and (iii) business partners (i.e. earlier called 'end-users"). It is important to point out that each user type sees different opportunities in eInvoicing, however often targets similar benefits.
Public authorities and EU governments | eInvoicing solution and service providers | End-users (i.e. business partners) | |
Decrease VAT gap and tax fraud | x | ||
Creation of a unique flow of eInvoices for a systematic processing | x | x | x |
Increase of the eInvoicing volume exchanged through the solution | x | ||
Ensure safety for business partner authentication | x | x | |
Decrease processing costs and enable resources allocation for core activities | x | x | |
Reduce of administrative burden | x | x | x |
Enhance eInvoice transmission between counterparts | x | x | x |
Reduce impact on the environment | x | x | x |
Facilitate of cross-border trade | x | x | x |
Contribute to process automation and emerging technology implementation | x | x |
In December 2020, the CEF eInvoicing team published the update of the Benefits Analysis of the Directive 2014/55/EU implementation produced in November 2019. This document showed the different type of benefits experienced by public authorities after adopting eInvoicing based on data provided by the EU Member States representatives.
[1] https://ec.europa.eu/info/strategy/recovery-plan-europe_en
[2] Reported by the Ireland and Luxembourg country representatives as part of the data collection for the Update of the Benefits Analysis, 2020.
[3] Direct procurement is the act of acquiring raw materials and goods for production. On the contrary, indirect procurement refers to purchasing services or supplies required to keep the day to day business running.
[4] Information extracted from ChorusPro monitoring functionalities - numbers reported by Cyrille Sautereau, eInvoicing representative for France.
[5] https://www.vie-publique.fr/sites/default/files/rapport/pdf/277192.pdf
[6] CEF-WHITE-PAPER-INPUT, 24 November 2020 (document with authors)
[7] For more information about interoperability and GIF, "Transmitting eInvoices" article, CEF Digital.
[8] https://www.statista.com/statistics/878412/number-of-smes-in-europe-by-size/
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