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SME e-Invoicing Adoption in Europe

Electronic invoicing isn’t new and has been around some time in the form of electronic data interchange. A question I am frequently asked, and most recently by a UK government Minister, is if e-Invoicing offers such compelling cost savings and efficiencies, then why isn’t everyone doing it?

It’s a great question, and one we are currently attempting to answer within the European Commission’s multi-stakeholder forum on e-Invoicing. The group I am leading is examining the SME market, and asking what the barriers are to full SME adoption. Whichever way you look at it, an SME wanting to initiate e-Invoicing on its own is faced with different challenges and this series of articles intends to examine the choices SMEs have today, and tomorrow.

In a nutshell – it all started with EDI. Back in the day, if you wanted to send/receive and electronic business document with trading partners, electronic data interchange (EDI) within a value-added network (VAN) was the only show in town. With the onset of the internet (and cutting a very long story short) all companies were going to trade electronically over on-line portals (e-Procurement, e-Invoicing, e-Marketplaces) or they would trade directly via point-to-point communications such as AS2. The analysts of the time claimed “EDI is dead” and moved to embrace this brave new world.

That was nearly 15 years ago and yet GXS, the leader amongst many varied B2B e-Commerce companies, still process over 14bn transactions annually across our global network. Why is this? B2B isn’t as easy as everyone thought it was. If you think of the complexity of multiple systems, standards, networks, industry specific processes and also throw tax compliance into the mix, it is not difficult to understand why many companies rely on a B2B service provider to help them with e-Invoicing.

So what are the barriers for SMEs and what can be done to ensure full e-Invoicing adoption? – A big question with many possible answers.

Is it true that service provider e-Invoicing solutions are too expensive? From a personal perspective, I would say no, not at all. Dependant on which range of SME you fall under, there will be a different level of investment but each will provide a guaranteed return on investment (ROI). Examples? Let’s take a mid-range SME with fairly significant B2B volumes, they will require a system that integrates into their ERP (Sage, Quickbooks, Exchequer, etc.) as manually entering data into a web form will be too time consuming, and repeats their existing AR process. This company will typically use a service provider/software solution to integrate, and to map to the many different B2B standards (increasingly these solutions are embedded – we will examine this in later posts).

If the SME has slightly less volume, but still too much to want to use a web form, there are still plenty of options from service providers. Technologies known as ‘print driver utilities’ are easily installed and allow the SME to issue e-Invoices directly from its print run. What does that mean? Instead of printing to paper, the SME prints to PDF – which is then transported either over the internet (web services) or via email to a service provider, who is then tasked with extracting the data from the PDF document (modern PDFs have an underlying semi-structured XML schema). In a similar vein, an SME can issue a scanned image of an invoice, which is then scanned and data captured from the image (OCR) by the service provider, while not my favourite solution as it requires some kind of manual intervention (data completion), it is yet another viable option for an SME.

If the SME is a micro, with significantly low volumes then a web form solution is perfectly adequate, and sometime beneficial. The supplier is provided with an account with a service provider and simply logs in and enters each invoice’s detail for each customer. This may seem repetitive, but they are also able to download the invoice they have just keyed into a data format (typically XML or CSV, with a PDF copy) which they can cut and paste into their accounting software – typically a spread-sheet.

But there is a recurring theme here: service providers. In these situations the SME is typically approached on behalf of one of their larger customers and enrolled into an online network. That is all very well and good, but for an SME with multiple large customers they could be ‘obliged’ to join multiple networks to keep their customers happy (how these networks interoperate is widely debated, and we will examine this subject in a separate post). On the flip-side, by joining a network the SME benefits from the ‘network effect’ (see Metcalfe, Beckstrom or Reed), and shares in the value of being connected to many hundreds of thousands of trading partners, not just for e-Invoicing but for any commercial activity across the procure-to-pay lifecycle.

So with all that said, why would an SME bother to do this on its own? Considering the complexity involved, especially the tax compliance which can be daunting (and expensive if implemented incorrectly) and with no ‘network effect’. The truth is SMEs do build their own B2B and e-Invoicing solutions. Those that have the technical competence do build integrated solutions around EDI, and manage their own complexity, those that do not have the technical resource engage in perhaps the most simple form of e-Invoicing – issuing a PDF attached to an email. This method is widely accepted as the most common SME method of e-Invoicing in Europe, but it does have challenges such as lack of clarity on tax compliance, and the receiver usually prints the invoice at the destination, which defeats the point.

There are other factors that may deter SMEs from engaging in e-Invoicing: Are SMEs concerned with entering into contracts if cash flow is inconsistent? Why do this when I have other priorities? Why must I pay more for e-Invoicing? Who else is doing this and why should I? As we progress through this argument I hope to show that the e-Invoicing marketplace is vibrant, with many different options available to SMEs and there is little reason for any company not to trade electronically.

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