USA E-invoicing – why Europe’s PEPPOL could be a template for success

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USA einvoicing PEPPOL

In my last post, I discussed how The Office of Management and Budget (OMB) has issued a memorandum announcing the future mandating of electronic invoices for Government suppliers by end of fiscal year 2018.

Since that announcement, we have seen a new administration take over Government in the USA and the UK has started its Brexit negotiation from the European Community.

So how far has the US come in the last six months and is anything likely to change under the Trump administration? For those of you who missed my last post, we discussed how the USA could learn from Europe; citing an example of how the Scottish Government has made electronic invoicing available to all its public bodies and was encouraging electronic invoicing through a central shared service.  

My article generated lots of interest within the USA and it should be noted that, while Europe still struggles to implement and come to terms with a myriad of regulations, the USA has a unique opportunity to create a more workable solution that is

1) easier to implement and that

2) encourages organizations to trade electronically.

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The question is whether the OMB will mandate electronic invoicing or will this become one of the Obama initiatives that the new administration will quietly remove. After all President Trump was elected on a mandate to cut waste and make the Government more efficient and transparent (Executive Order 13576).

Will it happen at a cost of more regulation by mandating electronic invoicing and, if this is what US businesses and the people want, where do they go to find out more about electronic invoicing and its benefits?

Federal Reserve Work Group for electronic invoicing

The good news is that there has been some momentum in the US. One of the challenges for any national initiative is how to gain acceptance of a policy and help increase B2B payment efficiency, and the Federal Reserve recently convened a new work group under the Business Payments Coalition, which is focused on increasing electronic invoicing adoption. 

Starting with a clean sheet of paper, the working group is collating and creating a catalog of existing electronic invoicing formats, data elements, standards, and exchange protocols used by US businesses, and will release the catalog through ANSI X9 as a technical report in 2017; this is great news and just the start of a longer-term program needed to educate the US market.

Todd M. Albers is a senior payments consultant at the Federal Reserve Bank of Minneapolis and he chairs the Business Payments Coalition electronic invoicing working group. Interestingly, Todd recently wrote that he believes that it is doubtful the OMB will ever enact a policy that requires businesses to exchange electronic invoices and that it will be down to system vendors, payment service providers, banks and corporations to help drive adoption to increase adoption in the US.

I broadly agree with Todd’s view and this presents us with several major challenges, because although there is a desire to effect change, the US is currently sitting on $19 trillion dollars’ worth of debt and whilst businesses are anxious to grow, they will want to do that without additional cost and bureaucracy.

Europe's PEPPOL could be a useful template

So how do we make things simple for them? Well, the good news is that (again) the USA can look towards Europe for the answer. The work done by the electronic invoicing working group will provide guidance and sample standards for businesses and providers to reference, which will no doubt help; but perhaps the OMB should consider creating something like the PEPPOL initiative currently in use in Europe?

The Pan European Public Procurement On-Line or PEPPOL (as its better known as) is not a new concept. It is a mandatory rule in some European countries, but the network has been used in public procurement since 2011, with millions of Business-to-Government and Business-to-Business transactions being processed every month. 

PEPPOL allows government organizations, corporate businesses and their suppliers to use a standardized connection for e-ordering, electronic invoicing, electronic credit notes and advance shipping notifications.

PEPPOL's advantages

The advantage of PEPPOL’s approach is that it removes the need for an organization to create an individual EDI connection to each of their suppliers.  One of the biggest barriers over the years to network liquidity is that every new supplier needs a new connection (at a cost to the supplier) and that the traditional EDI (Electronic Data Interchange) approach means that every point to point supplier needs an individually negotiated contract to provide a hard-coded service to each buyer – this can be both time consuming and expensive.

PEPPOL lets an organization have a single connection to the outside world, by which they can trade with current and future suppliers across Europe. More importantly, the supplier only needs one connection (or access point) to the PEPPOL network to reach all the other PEPPOL-connected trading partners.

This approach has seen an increase in network liquidity across Europe as more and more organizations subscribe to the service. However, Europe has had plenty of time to find the right approach and we should remember that in the early days of the EU electronic invoicing directives, the original mandate for electronic signatures confused many European businesses and actually restricted electronic invoicing adoption. It proved costly and created confusion depending on which country you were working with – which confirms that a regulated ‘light’ touch solution is required to help promote liquidity and increase the adoption of electronic invoicing or e-invoicing:  so should it be the approach we look at in the US?

So why change?

We all want to make money in the most efficient way possible and we have a duty of care to our shareholders and owners to continually refine business practices and create efficiencies which contribute to our bottom line. The cost of manually entering, or using OCR to process invoices is an accepted overhead in many organizations – very rarely do organizations change current business practices unless they are being forced to look at operating costs or are renewing their existing provider’s licenses.

Indeed, in the latest OMB memorandum issued on 12th April 2017 there is reference to ‘better leveraging technology and improving underlying business processes’ to help streamline the Federal Government and although it doesn’t talk about standardization across Government bodies, it is something that all departments, agencies, commissions, etc.  (not just those subject to the CFO Act of 1991)   should consider when cutting costs.

So, if the Government knows how important this is, what should small, medium and large sized businesses do – what’s in it for them?

Organizations that embark on a strategic review of their business practices see real benefits in capturing invoice data more efficiently, so that it can be matched to purchase orders. Electronic invoicing also helps them understand what they are buying and captures early payment discounts and perhaps, more importantly, allows their administrative staff to focus on their core business objectives, rather than inputting or correcting invoice data for their finance systems.

The future is in our hands

Whilst the ROI case is often compelling, the fact is that the clear majority of businesses in the US don’t have to adopt electronic invoicing – unless they are a supplier to the government. Cost, lack of knowledge, trepidation, and current business practices are all barriers to adoption. However, the work of the electronic invoicing workgroup will go some way to mitigating those barriers by helping to define standards and by providing information and educating businesses. Todd Albers is right, the future of electronic invoicing education and adoption will fall to the collective hands of the system vendors, payment service providers, banks and corporations.

This article was published by EBN Online

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