*connectedthinking cfo seminar 2 march 2005, roularta conference center the “what, how and why”...
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*connectedthinking
CFO Seminar
2 March 2005, Roularta Conference Center
The “what, how and why” of electronic invoicing
Ine Lejeune – Leader Global VAT & GST NetworkMarc Joostens – Senior VAT ManagerPieter Breyne – Principal Advisor
Page 2
Agenda
• Introduction Definitions The legislative process
• ConsiderationsBusiness case Processes & solutionsVAT rules
• Conclusions & our proven approach
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Introduction
Page 4© 2005 PricewaterhouseCoopers
Introduction – Putting things into perspectiveVAT Interdependencies (project) model (VIP model)
Your industry and your business
Your project team, scope and deliverables
(ITX) Strategy
(e-)invoicing(e-)archiving
Compliance andstructuring models
Accounting and ERP systems
Structuring and compliance
(e-) invoicing(e-) archiving
Internal controls (Sarbox), tax audit and litigation
Page 5© 2005 PricewaterhouseCoopers
Introduction - Definitions
Electronic Invoicing has two main variants :
- Electronic Bill Presentment and Payment (EBPP)• The business-to-consumer process (B2C) by which bills are
presented and paid through the internet• Relatively simple process• Increasingly being adopted by mass-billers (e.g. utilities)
- Electronic Invoice Presentment and Payment (EIPP)• The process by which companies present invoices and make
payments to one another (B2B) through the internet• Relatively complex process• Not yet widely adopted
Page 6© 2005 PricewaterhouseCoopers
Introduction – The legislative process
• The EU Commission’s SLIM initiative• The EU Commission’s eEurope initiative• PricewaterhouseCoopers’ study on (e)-invoicing and (e)-archiving
in the EU in 1999• The European e-business Tax Group (EeTG) (1999-2003) • The EU Directive on (e)-invoicing and (e)-archiving of 20 December 2001 • PricewaterhouseCoopers’ book: E-invoicing and E-archiving in the EU, Norway,
Switzerland, Czech Republic, Hungary and Poland (2003)• National implementations by 1 January 2004 / 1 May 2004 in 25 Member States• OECD Working group and guidelines (2003 - … co-chair PwC)• Revision UN/CEFACT Recommendation 6 (December 2004 - … contribution
PwC)• Mixed working party Cabinet Hervé Jamar (Belgium, 3 February 2005 - ….)
(contribution PwC)• Working Group PwC (1 March 2005 - …)
Be involvedBe involved
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ConsiderationsThe business case
Page 8© 2005 PricewaterhouseCoopers
The business case Some numbers
Business to Consumer Business to Business
Average online American household receives 11 bills/month
US companies produce 15-17 billion consumer bills p.a.
Bill presentment and payment costs for billers and consumers = 80 billion USD
US
Eur
ope
Average individual European consumer receives 4 bills/month
European companies produce 20 billion consumer bills p.a.
Bill presentment and payment costs for billers and consumers = 95 billion €
An SME with turnover of € 2.5 million sends on average 7.500 invoices/year
European business to business e-trade amounts to 777 billion USD
A Belgian subsidiary of a large consumer electronics firm sends 400.000 invoices p.a. to other members of the group
US business to business e-trade amounts to 870 billion USD
80% of invoices is generated by four industries: finance, insurance, telecoms & utilities
Source: PwC analysis – various sources
Page 9© 2005 PricewaterhouseCoopers
The business case Value creation strategies and e-invoicing/e-archiving
Business to Consumer Business to Business
Value Decrease customer transaction costs Example: allow customers to verify invoice details on line (especially valid for recurring invoices with varying amounts)
Decrease customer transaction costs Example: allow integration with ERP systems for faster processing, approval and payment (especially valid for complex invoices)
Price This is more difficult Customers seem unwilling to pay for the convenience of electronic invoicing and/or payment
Idem – on the other hand some companies are starting to charge a fee to corporate clients for paper invoices
Cost Invoice production and delivery• Cost of paper invoice: € 1• Cost of electronic: € 0.4Prevent/automate dispute handling• On average 4% of bills are disputed
Invoice production and delivery• Cost of paper invoice: € 5• Cost of electronic: € 2Prevent/automate dispute handling• On average 13% of invoices are disputedImproved cash management• Get paid quicker
Source: PwC analysis
Page 10© 2005 PricewaterhouseCoopers
The business caseROI model – an example
• The first step is to determine the economic viability of e-invoicing and get a feel for the boundaries of this viability. This can for example be achieved using classical break-even analysis
• The business case for e-invoicing requires a minimum number of invoices. This number is inversely proportionate to the potential cost savings and directly proportionate to the cost of the e-invoicing solution
E-invoicing Break Even Analysis (sample)
0
50.000
100.000
150.000
200.000
250.000
300.000
350.000
0 20.000 40.000 60.000 80.000 100.000
Number of invoices
Euro
Benefits
+
Costs
-
E-invoicing Break Even Analysis (sample)
0
50.000
100.000
150.000
200.000
250.000
300.000
350.000
0 20.000 40.000 60.000 80.000 100.000
Number of invoices
Euro
Benefits
+
Costs
-
• Benefits of e-invoicing- B = R * NI
• B = Benefits• R = Reduction in cost per invoices• NI = Number of invoices/time period
- Reduction in cost per invoice• Refers to internal processing cost
• Cost of e-invoicing- C = F + V * NI
• C = Cost• F = Fixed cost element• V = Variable cost element
• Costs outweigh benefits when- NI > F / (R – V)
• Benefits of e-invoicing- B = R * NI
• B = Benefits• R = Reduction in cost per invoices• NI = Number of invoices/time period
- Reduction in cost per invoice• Refers to internal processing cost
• Cost of e-invoicing- C = F + V * NI
• C = Cost• F = Fixed cost element• V = Variable cost element
• Costs outweigh benefits when- NI > F / (R – V)
Page 11© 2005 PricewaterhouseCoopers
The business case Economic appraisal
- General• Positive ROI’s can be achieved with 12-15% customer adoption
rates• Speed of adoption is the main driver of payback• Minimum number of e-invoices is required to break even.
Alternatives are to team up with the group or the sector
- Business to Consumer• Biggest cost is likely to be communication and promotion to
induce customers to switch to e-invoicing
- Business to Business• Biggest cost is likely to be software implementation and
integrationSource: PwC analysis – various sources
Page 12© 2005 PricewaterhouseCoopers
The business caseDo companies believe in e-invoicing?
- Broad acknowledgement of benefits but narrow focus in implementation
• Domestically• Limited number of trusted parties
- Fewer than 30% of European Global 2000 companies are running broadly focussed EIPP programs
- By 2006 this is expected to increase to 75%• Proven by large attendance at seminars / info sessions /
workshops
Source: PwC analysis – various sources
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ConsiderationsProcesses & solutions
Page 14© 2005 PricewaterhouseCoopers
ProcessesE-invoicing in B2B context
Sales ProcessSales ProcessSales ProcessSales Process
Market and Sell
Market and Sell
ManageCustomer
Orders
ManageCustomer
Orders
TransportAnd
Deliver
TransportAnd
DeliverBill the
Customer
Bill theCustomer
ManageCustomer
Complaints
ManageCustomer
Complaints
Collect & ProcessPayment
Collect & ProcessPayment
Purchasing ProcessPurchasing ProcessPurchasing ProcessPurchasing ProcessDetermineSourcingStrategy
DetermineSourcingStrategy
OrderGoods &Services
OrderGoods &Services
ReceiveGoods &Services
ReceiveGoods &Services
ProcessVendorInvoice
ProcessVendorInvoice
ManageComplaints
ManageComplaints
Perform & ProcessPayment
Perform & ProcessPayment
EIPPEIPPSupplier
Customer
ComplexityComplexityComplexityComplexity
Page 15© 2005 PricewaterhouseCoopers
ProcessesE-invoicing in B2C context
Sales ProcessSales ProcessSales ProcessSales Process
Market and Sell
Market and Sell
ManageCustomer
Orders
ManageCustomer
Orders
TransportAnd
Deliver
TransportAnd
DeliverBill the
Customer
Bill theCustomer
ManageCustomer
Complaints
ManageCustomer
Complaints
Collect & ProcessPayment
Collect & ProcessPayment
CustomerCustomerCustomerCustomer
EBPPEBPPSupplier
Customer
VolumeVolumeVolumeVolume
Page 16© 2005 PricewaterhouseCoopers
Bu
yer Direct
Bu
yer Direct
Co
nso
lidato
rC
on
solid
ator
Buyers
Seller
EIP
P
Buyers
Enrollment
Notification
Login, Review, Dispute, and Authorize Payment
Invoice
Dispute Management
Solutions E-invoicing models
BuyerSellers
EIP
PEnrollment
Invoice
Login, Review, Dispute, and Authorize Payment
Notification
Dispute Management
1. Registration
2. Invoice
4,5,6&7 Login, Review, Dispute, and Authorize Payment
1. Registration
6. Dispute ManagementConsolidator
3. NotificationSellers
Seller D
irectS
eller Direct
Source: CEBP
Page 17© 2005 PricewaterhouseCoopers
Solutions Characteristics of different models
• Established model in manufacturing, utilities, health care and financial services
• When a trade relationship already exists
• Seller issues high volume of invoices
• Seller is dominant party
• Seller incurs most of the costs but gains most of the benefits (e.g. marketing)
• Buyer has low cost – but faces integration with different models
Buyer DirectBuyer Direct
• Emerging model
• When a trade relationship already exists
• Large buyers whose purchases result in high volume of invoices
• Buyer is dominant party - seller can use the model to strengthen relationship
• Buyer incurs most of the costs but gains most of the benefits
• Seller has low cost – but faces integration with different models
ConsolidatorConsolidator
• Emerging model in response to complexity with other two models (multiplicity of systems with varying requirements)
• Not limited to a specific buyer or seller profile
• Reduces complexity
• Has potentially less benefits for sellers (e.g. marketing) and buyers (e.g. tailor made functionality)
Source: CEBP
Seller DirectSeller DirectSeller DirectSeller Direct
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ConsiderationsVAT rules
Page 19© 2005 PricewaterhouseCoopers
• Avoid risks with respect to VAT: penalties, late payment interests, non-deductible VAT related to:
- Non-issuing of invoices - Issuing non-compliant invoices- Receiving non-compliant invoices- Non-compliant archiving
• Seek for opportunities to roll-out your preferred solution internationally
VAT rulesDo not jeopardise your business case
Page 20© 2005 PricewaterhouseCoopers
VAT rules European VAT Directive
Page 21© 2005 PricewaterhouseCoopers
VAT rules European VAT Directive
Symplifying, modernising and harmonising
- Invoicing process• For which transactions• Made available by supplier, customer (self-billing) and
outsourcing
- Content of an invoice
- Electronic Invoicing
- (Electronic) Archiving
- 19 different options for Member States
Impact in 25 countries
Disharmonised Harmonisation
Impact in 25 countries
Disharmonised Harmonisation
Page 22© 2005 PricewaterhouseCoopers
Mandatory invoice details in accordance with the Directive’s list• Date of issue of the invoice (25)
• A sequential number, based on one or more
series, which uniquely identifies the invoice (25)
• VAT identification number of supplier (25)
• VAT identification number of customer:
• in case he is liable to pay the VAT due (25)
• in other cases (8)
• Full name and address of supplier (25)
• Full name and address of customer (25)
• Quantity and nature of the goods supplied or the
extent and nature of the services rendered (25)
• Date of supply of goods or rendering of services or
date on which payment of account was made if
different from invoice date (25)
• Price per unit (23)
• Any discounts or rebates not included in the
unit price (23)
• Taxable amount per rate or exemption (25)
• VAT rate applied (25)
• VAT amount payable in the national currency (25)
• Where an exemption is involved or where the
customer is liable to pay VAT, reference to
• the provision of the 6th Directive (18)
• national legislation (25)
• any other indication (18)
• Where the person liable to pay the tax is a tax
representative; the identification number for
VAT purposes, together with full name and
address (13)
Between brackets is indicated the number of EU Member States requiring this invoice detail
Page 23© 2005 PricewaterhouseCoopers
Electronic invoicing Is there a compliant model for VAT?
Acceptance by the customer
• No licenses/authorisations required
Authenticity of origin and integrity of content through
• Use of EDI
• Advanced electronic signature
• Other electronic means
Applicable for issuing the e-invoices by supplier, customer (SBI) or third party (outsourcing)
Applicable for issuing the e-invoices by supplier, customer (SBI) or third party (outsourcing)
Page 24© 2005 PricewaterhouseCoopers
VAT possibility I EDI
• Recommendation of the Commission 19 October 1994:• Electronic transfer • from computer to computer• using an agreed standard to structure the message• in a computer readable format • that can be processed automatically unambiquously
• Agreement relating to the exchange provides for the use of procedures guaranteeing authenticity of the origin and integrity of the data
• Option: creation of summary statement on paper
“VAT” EDI has its own broadly applicable definition “VAT” EDI has its own broadly applicable definition
Use of EDI
Advanced electronic signatures
Other electronic means
Page 25© 2005 PricewaterhouseCoopers
VAT possibility II – Advanced electronic signatures
• Art. 2 (2) of the Directive on electronic signatures • Connected to the signer in a unique way• Possibility to identify the signer• Realisation under exclusive control of the signer• Possibility to trace every change afterwards
• Options:
• Qualified certificate (Art. 2(6))
• Secure-signature creation device (Art. 2(10))
Electronicsignature
Advanced electronic signature
Qualifiedsignature
Use of EDI
Advanced electronic signatures
Other electronic means
Page 26© 2005 PricewaterhouseCoopers
VAT possibility III – Other electronic means
ERPSystem
ERPSystem
Sell Side
TranslationEngine
TranslationEngine
ElectronicBill
PresentmentServer
ElectronicBill
PresentmentServer
Buy Side
CollectionServer
CollectionServer
Invoice
Risk of invoicing twice: paper & electronic !
Use of EDI
Advanced electronic signatures
Other electronic means
Page 27© 2005 PricewaterhouseCoopers
Summary e-invoicing possibilities
AT
BE
CY
CZ
DK
EE
FI FR
DE
EL
HU
IE
I T
LV
LT
LU
MT
PL
PT
SK
SL
ES
SE
NL
UK
1
2
3 * N/A
4
1. Acceptance of EDI to send e-invoices
2. Obligation to issue paper summary document
3. Obligation to use a qualified certificate and a secure signature-creation device
4. Acceptance of ‘other electronic means’ to send e-invoices
Status 15 February 2005 – www.globalvatonline.com
Use of EDI
Advanced electronic signatures
Other electronic means
* Time stamping is required as well
Page 28© 2005 PricewaterhouseCoopers
(Electronic) archiving
• Principle: at any place and on any medium:• Integrity• Authenticity• Readability
• Member States can impose conditions regarding:• Place of storage• Format of storage
• Duration of storage: not harmonised
Centralised storage : check local legislations
Page 29© 2005 PricewaterhouseCoopers
(Electronic) archivingOptions
Member Stateof establishment
Member State of place of supply
Format of storage
Obligation to store in original format
Purchase invoice
Sales invoice
Obligation to store additional data
Purchase invoice
Sales invoice
Period of storage
Defining duration Purchase invoice
Sales invoice
Page 30© 2005 PricewaterhouseCoopers
(Electronic) archivingOptions
Member Stateof establishment
Member Stateof place of supply
Place of storage
Obligation to notify if stored in other MS
Purchase invoice
Sales invoice
Prohibited to store abroad if no full on-line access
Purchase invoice
Sales invoice
Limitations or prohibited to store in 3rd countries
Purchase invoice
Sales invoice
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Conclusions & our proven approach
Page 32© 2005 PricewaterhouseCoopers
How to go about it?Conclusion - Organisation
- Two elements should drive the approach to e-invoicing• Nature of customer base
Business to Business versus Business to Consumer• Geographical market
National – European - Global
- Consider the economic viability of e-invoicing for your company making a business case. When you are too small join forces
- Stimulate adoption• Move new customers or suppliers automatically to electronic
invoicing• Consider charging for paper invoices or provide incentives
Page 33© 2005 PricewaterhouseCoopers
How to go about it?Conclusion - Processes
- Align internal processes end-to-end to reap benefits. Anticipate downstream bottlenecks (e.g. invoice approval) which might pop-up as a result of automating invoice flows
- Be mindful of the impact on your control environment
- Comply with the VAT and legal framework avoiding risks
- In case of outsourcing, be careful with contracts and SLAs
- Consider alternatives, such as self-billing
Page 34© 2005 PricewaterhouseCoopers
How to go about it?Conclusion - Systems
- Although the consolidator model seems preferable from the customer point of view – fees may prohibit adoption. Low or slow adoption will impact return on investment
- Familiarise yourself with the technology. If you have an ERP, look at what your vendor is doing
- Ask your biggest customers/suppliers what they are doing and make sure your e-invoicing solution will address both your needs as well as theirs’
- Consider alternatives, such as invoice scanning
Page 35© 2005 PricewaterhouseCoopers
Our proven approach
Inform Pre-studyDetailed
studyProject Roll-out
•Info sessions
•Seminars
•Joint events
•Meetings
•Training
•Workshop
•VAT Rules
•Market analysis
•Solutions
•Standards
•Business case
•Strategic choices
•Trading Partners
•Private/consolidated
•In-house/outsourced
•EIPP/EBPP
•Inbound/outbound
•National/international
•Self-billing
•Technology
•EDI/signature
•Integrated/interactive
•Select solution/make or buy
•Write & evaluate RFI/RFP
•Alternatives
•Scanning
•Pre-audit
•ERP ready?
•TP ready?
•Technical study
•Interfacing
•Security aspects
•Tax and legal requirements
•Controls
•Archiving
•Long term guarantees
•Process improvement
•Contractual aspects
•Pilot
•Project Management
•Quality assurance
•Documentation
•Training
•Validation of Tax and legal requirements
•After-audit
•Compliant with business requirements?
•Operational aspects
•SLA
•Terms and conditions
•Supplier adoption program
•Next steps
•Payment
•Workflow
•Analysis
•…
*connectedthinking© 2004 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers.
For further information, please contact
Ine Lejeune Marc Joostens Pieter [email protected] [email protected] [email protected] +32 (0)9 268 83 00 +32 (0)9 268 83 24 +32 (0)9 268 82 55
*connectedthinking
Thank you