In an article recently featured in PYMNTS.com, The U.S. Government’s e-Invoice Mandate: Better Late Than Never, we were reminded of the mandate given to all companies doing business with federal government agencies. All such companies are required to submit their invoices to the government electronically by the end of the fiscal year 2018.
With this in mind, it may be worth clarifying a few points. First, what is the government’s definition of an electronic invoice? In an article published by Receivable Savvy, What is Electronic Invoicing, Why Should Suppliers Care and Who Are the Major Players, we identified what an electronic invoice is:
The electronic exchange of invoice and related business information (purchase orders, credit notes, debit notes, etc.) between a supplier and their customer where no paper or paper-related invoice is created, no manual intervention is necessary once the invoice leaves the possession of the supplier, and insertion of the invoice data into the customer’s accounting system is automatic.
By this definition, it makes sense that true electronic invoicing includes data submitted via third-party e-Invoicing networks and Electronic Data Interchange (EDI) but not data sent via email or a small business billing solution such as QuickBooks. What is not clear is whether the government also considers invoices submitted via government-created portals truly electronic.
Second, if true electronic invoicing is facilitated by third-party networks, EDI and possibly government-created portals, must the supplying company use a single method or are multiple methods allowed? As of now, some agencies have contracted with different e-Invoicing network providers prompting the question about interoperability. If a supplier can submit an invoice to one agency using one network, must they then connect to a different network when submitting an invoice to another agency? Because different networks use slightly different technologies along with different requirements, consistency may not be the primary objective here. With that said, it appears that streamlining approval processes and payments may be of greater interest, with electronic invoicing positioned as a means to an end.
Clarification may be needed regarding these issues, especially if mandates for government agencies one day evolves into mandates for all businesses. The Federal Reserve Bank of Minneapolis published the report, U.S. Adoption of Electronic Invoicing: Challenges and Opportunities, outlining the desire to find strategies for improving the U.S. payment system. Admittedly, one of the best ways to improve payments is to streamline the invoice-to-cash process (a necessity for faster payment) by addressing the front end of the process via electronic invoicing. If this is done successfully across all government agencies, can this model then be successfully rolled out to all U.S. businesses across all industries? There are challenges to making this a reality. The sheer number of commercial businesses, practices, transactions and invoices in the U.S. economy is massive. The Federal Reserve report indicates there are as many as 25 billion invoices exchanged annually in the U.S., with only 25 percent of them being electronic. Because the federal government receives an estimated 19 million invoices each year, of which only 7 million are submitted electronically, the government landscape – while still large – is much more manageable compared to all commercial business transactions.
Global adoption of e-Invoicing, specifically within countries such as Brazil, Mexico where mandates exists, and in certain European countries where electronic adoption has outpaced the U.S., is made easier because of the existence of a Value Added Tax (VAT). Because every invoice, anywhere along the production line incorporates a VAT, submitting invoices electronically comes with a more practical reason for doing so. Since no VAT exists in the U.S., implementing e-Invoicing at every transaction will likely be met with resistance, especially for smaller companies that believe such a transition would be cost- and resource-prohibitive, at least initially.
Mandating electronic invoicing for the US government can be a very good thing – especially if it helps suppliers get paid faster. Perhaps the bigger question is whether the US government will mandate electronic invoicing for all companies doing business in the US, not just the federal government. That may sound like a tall order. After all, how can the US government force a private organization to conduct business a certain way if they are not inclined to do so? As of now, without some form of government mandate or some significant new technology (such as the incorporation of artificial intelligence or blockchain), it will likely take another 10 to 20 years for electronic invoicing to become as ubiquitous in the U.S. as it is in South America and Europe.
For now, we’ll have to see how the implementation of the government’s mandate progresses for the balance of this year and whether next year will see 100 percent compliance.
Ernie Martin is Founder and Managing Director of Receivable Savvy. He brings over 25 years of experience in financial supply chain management, marketing and communications and draws upon his extensive experience to share knowledge and best practices with AR professionals. His resume also boasts time at several well-known brands and companies such as Tungsten Network, Delta Airlines, CIGNA Healthcare and Georgia Pacific as well as a number of years as an independent consultant.