Global Development of Electronic Invoicing

Karri Lehtonen

Vice President, APAC

Basware Corporation

Global Invoice Volumes

• Global annual invoice volume is ~350 billion,

mostly in paper

• In industrialised countries, invoices represent

~16-30% of the total (addressed) letter volume

and up to 50% in less industrialised countries

• Economical cycles do not have a noticeable

impact on the invoice volume

• Approximately half of all invoices are in B2C

sector and the other half to the B2B sector

(including B2G)

B2B/B2G sector invoices

• B2B/B2G sector is completely fragmented in terms of the invoice senders and

receivers

• Only a few industries receive very high invoice volumes

• The organisations with the highest inbound invoice volumes are:

Industries with high inbound volume Share of all invoices

Retail 10%

Healthcare 5-13%

Public sector 9-15%

Electronic Invoicing

The definition of an E-Invoice

• Strict definition of E-Invoicing:

– Invoice files that are transported and archived fully

electronically from end-to-end in a tax compliant

manner

• Not considered are:

– Invoices which are transferred electronically, but

violate legislation for some reason

– all "semi-electronic" invoices:

• Electronically sent invoices, but printed and

archived by recipients as paper invoices

• Scanned paper invoices

• Invoices, which are transferred and processed

electronically, but supported by paper summary

statements

Motives for replacing paper invoices

• Organisations start E-Invoicing projects for various

reasons:

– External pressure (Suppliers, Customers)

– Internal cost pressure

– Process innovation and automation

– Quality improvement

– Public sector initiatives (with the aim to reduce fraud and

increase tax income and to optimize their own invoice

processes)

– Environmental reasons

Different focus areas in different regions

1) Tax Compliance, strong goverment initiatives

2) Internal efficiency driven initiatives, strong savings focus

3) Trade enablement, harmonisation of cross border rules

TAX AUTHORITIES

SUPPLIERS

BUYERS

1) ASIA & Latin America

2) North America 2) North America

3) Europe

Reduction of Tax Evasion

• According to various

economic theories one of the

main factors in tax evasion is

the probability of being

controlled/audited within

reasonable time

• E-Invoicing can be used as

pre-requisite to secure high

probability of control

• Further E-Invoicing can create

an electronic invoice

record/archive to the tax

authorities in real-time

0 %

5 %

10 %

15 %

20 %

25 %

30 %

35 %

40 %

2001

2002

20

03

2004

2005

2006

20

07

VAT breach in Argentina

Tangible Benefits of Electronic Invoicing

• The Finnish State Treasury have estimated that an incoming paper invoice

incurs costs amounting to €30 to €50 Euros for the receiving company

• By moving to electronic invoicing these costs can be reduced to €10 Euros by

semi-automating the invoice process and to €1 Euro by fully automating the

process

• An in-depth analysis of Politecnico di Milano states that the net benefits are

€4 to € 12 Euros per invoice with VAT compliant E- Invoicing and up to €65

Euro with full integration of the trade process

• With the combination of electronic and automated invoice processing, savings

between 1% and 2% of the organisations entire turnover are realistic

objectives

Public Sector Savings potential

• Average savings potential per invoices is

around 57% for invoice senders

• Average savings potential per invoices is

around 62% for invoice receiver

• Public sector savings potential:

– Austria 600 M€

– Italy 3,000 M€

– Belgium 900 M€

– France 4,200 M€

– Spain 1,800 M€

– UK 4,400 M€

– Germany 6,500 M€

– ...

State 12%

Communities

14% Cities 74%

Savings Potential: Denmark

Environmental Issues

• Every year 30 billion invoices are sent across Europe

alone. A typical invoice is approximately three pages long

meaning that 90 billion pieces of paper were printed out,

posted and flown across Europe in just one year

• If all of those invoices were sent electronically 12.6 million

trees, 105 billion pieces of A4 paper, 13 billion litres of

water and 5.4 billion kWh of power could be saved each

year on just the paper manufacturing alone

• The equivalent of which could power 15.8 million 40W

lamps, constantly, for 24 hours of the day for an entire

year

The carbon footprint of different types of invoices

• In addition to the actual

manufacturing of the paper, the

delivery, archiving and processing of

E-invoices result in significantly

smaller CO2 emissions than paper

invoices

• The carbon footprint of an E-Invoice

is only one third of a paper invoice

• The new Carbon Tax on the

Australian invoices will be

approximately $24 Million AUD per

annum

E-Invoicing service providers

E-Invoicing operator situation

• By 2012, more than 550 e-Invoicing operators

were active in the European market alone

• These “operators” are either start-up companies in

the e-Invoicing field or other types of business

expanding to the e-Invoicing market (e.g. banks,

post, EDI vendors, print shops etc.)

• Banks tend to concentrate on B2C and SME

invoicing

• Other non-bank operators have approximately

85% market share in all electronic invoices

Standards

• Lack of information about existing standards

combined with some inflexible organisations

has resulted in the re-invention of dozens of

niche standards (domestic or industry focus)

• There are about 10,000 different ERP

solutions in Europe alone, all have different

integration points

• That is why most e-lnvoicing operators offer

any-to-any-data-formatting services

• As a result, senders and recipients of invoices

using such services are independent of any

standards and they no longer need to wait for a

market dominant standard

The global E-Invoicing landscape

Different E-Invoice Streams and Sectors

• The USA is leading the market for E-

invoices to consumers (B2C)

• The market leaders in the Business-to-

Business (B2B) and Business-to-

Government (B2G) segment are located in

Europe and Latin America

• This year (2011), roughly 5 million European

businesses and 75 million consumers are

expected to send or receive electronic

invoices. They likely exchange more than 3

billion E-Invoices.

Classic market development pattern in most countries

1. B2C Biller Direct

2. B2C Consolidator

3. B2B Large organizations

4. Mass market

Adoption

Time in Years 0 10

Global E-Invoicing Market 2012 B2B, B2G, G2B and B2C

Source: Billentis 2012

Europe

• The expected market penetration of E-Invoices will be above 50% in

2017 for the B2B/B2G segment

• This should be achievable without any intervention from politics and

economical development

• B2C invoices

– About 20% of European households receive electronic invoices

– Roughly every second consumer in Nordic countries prefers to

receive electronic invoices via internet on-line banking

– In other countries, most consumers prefer to receive electronic

invoices via email

Invoices received by enterprises

0% 20% 40% 60% 80% 100%

Finland

UK

Denmark

Norway

Estonia

Romania

Hungary

Sweden

Latvia

Russia

Germany

Austria

Czech Rep

Lithuania

Poland

Fully Electronic

Email

Scanned paper

Paper

In 2011 the market grew by more than 35%. Sustainable annual growth rates of more than

30% are also expected for the coming years in the B2B and B2C segments

EU Wide Focus on E-invoicing

• The European Commission is focusing its efforts on

removing barriers to the broad-scale adoption of electronic

invoicing in Europe

• Four key priorities on this topic are:

– Ensuring a consistent legal environment for E-Invoicing

– Achieving mass market adoption by getting SMEs

onboard

– Stimulating an environment that creates maximum

reach between trading partners exchanging invoices

– Promoting a common E- Invoicing standard

• EU Commission has set a target for E-Invoicing to be the

norm of invoicing by 2020

• New directive 2011/7/EU [22], focusing on timely payments

to SMEs

North America

• Approximately 5.1 billion E-invoices were delivered in

2010 in the US and E-Invoices are likely to overtake

paper in 2016

• In the B2C segment the US is 3-4 years ahead of

Europe

• On the other hand the Northern American B2B/B2G

market seems to be 2-3 years behind Europe and

some Latin American countries

• The annual E-Invoicing growth rates of about 25%

are increasing, but are still almost 10% below

European rates

US Federal Initiative (July 2011)

Latin America

• In contrast to the rest or the world, most Latin American

countries have gone straight ahead to phase 3 (e.g. Chile)

and phase 4 (Brazil). Argentina and Mexico are other

advanced markets in Latin America

• The initiator for the market activities in most cases is the

government

• Although the legal requirements are among the strictest

worldwide, some countries in Latin America seem to take

over the global leadership role

• The Latin American model is also inspiring larger

countries in Asia

ASIA Pacific market

• Most countries are in evolution phase 1

and 2: Large bill issuers stand with "Bill

presentment" via their company portals or

internet banking

• Market leaders are Singapore, Hong

Kong, Taiwan and South Korea

• Singapore is the only country with a active

government initiative, E-Invoicing has

been mandatory when doing business

with the government since 2005

Market Evolution

Public Sector’s key role in development

• The public sector is in an excellent position to initiate

the breakthrough in the mass market

– In many countries, 2/3 of local enterprises are

suppliers to the public sector

– Public sector bodies have the power to push

these suppliers to send invoices electronically

– Federal government is also in the position to

modify the legislation in a user- friendly way if

necessary

Current Market Trends

• Fees for paper invoices

– Paper invoicing surcharges are becoming more and more popular in

some countries (EUR €1 - €3.50 to consumers and EUR €5 - €25 for

businesses)

• More innovative rollout models:

– "Opt-Out" rollouts

– Online Banking; when customers type in payment data, they receive

a pop-up message inviting them to receive the invoices electronically

(customers can activate this enhanced service with a simple mouse-

click)

Break Through to Mass Market

• Initiatives which did NOT achieve a broad break-through

– Classical Opt-In models practiced for on-boarding of suppliers

– Low-cost or free services

– Standards

– Removal of legal barriers

• The key criteria for a substantial breakthrough are

– Obligations for trading partners to support E-Invoicing

– Excellence in the on-boarding process; “carrot and stick”-

policy; make registration process and usage of E-Invoicing

services as easy and quick as possible

– Appropriate service offered to all sizes of trading partners

including any-to-any data formatting and e-archiving

Governments that have banned paper invoices

– Denmark, from 1/2/2005

– Singapore, from 1/5/2008

– Sweden, from 1/7/2008

– Italy, from 1/7/2008

– Finland, from 1/1/2010

– Brazil, from 1/4/2012

– Kazakhstan from 1/1/2012

– Greece, from 1/9/2012

– USA, from 1/1/2013

– Norway, from 1/7/2013

– Nepal, Mexico, Netherlands, …

How about Australia?

Thank you

www.basware.com.au