Ready or not, here comes e-invoicing!
The problem with e-invoicing is a lot of businesses haven’t heard of it, and those that have, often misunderstand it.
It’s one of the reasons the Australian Tax Office is launching the first e-invoicing week from August 15-21 to raise awareness among business owners about how it can save them time and thousands of dollars.
The first task, though, is to dispel a popular misconception that e-invoicing is just sending invoices via email or PDF. Instead, it involves exchanging invoices directly between a buyer’s and supplier’s accounting system via an international standard network called Peppol.
Once connected to Peppol (usually through accounting software) businesses can send and receive invoices from any other business on the network, no matter the size.
It streamlines invoicing because:
- Suppliers don’t need to create paper or PDF invoices to post or email.
- Buyers don’t need to scan or manually enter invoice details.
Electronic invoicing also reduces the potential for error and fraud because invoices are generated by accounting software and securely exchanged on Peppol using both parties’ ABNs as identifiers.
Businesses still need to perform normal checks before paying invoices, but the system can dramatically reduce the time it takes to manually process accounts. It also improves payment times. From July, all Commonwealth agencies adopted e-invoicing and committed to paying suppliers who use the system within five days.
Save time and money
Along with cutting paying times, there are significant cost-savings, with the ATO’s new director of e-invoicing Mark Stockwell saying studies indicate paper invoices cost about $30 to process, compared with $9-10 for an e-invoice.
“So, you’re getting an immediate dividend of about $20 an invoice back,” he says. And with an average SME in Australia sending an estimated 168 invoices each month, that can potentially add up to savings of around $40,000 for some businesses.
It’s estimated an average SME would also save about 11 days’ worth of administration work each year, Mr Stockwell says.
Despite this, uptake of the new system has been slow, with only about 10,000 of an estimated 2.4 million businesses in Australia currently registered for e-invoicing.
This is a major roadblock for the system because it requires a critical mass to take off. Businesses can only use e-invoicing if their trading partners are also set up to use the system. So it’s a little like having an email account when no one else is connected to the internet.
And while it may be worth making the switch for businesses that generate substantial invoices, those that don’t may not see a significant return on investment. To reduce costs for these smaller businesses, the ATO maintains a database of low or no cost e-invoicing solutions called the e-invoicing ready product register.
Boosting users
In an effort to speed uptake, Treasury has floated the idea of introducing a staggered business e-invoicing right (BER). Under a BER, businesses would be legally obliged to adopt and send e-invoices if one is requested by an e-invoice enabled trading partner. It could effectively mandate the system for business-to-business transactions. A consultation paper released in December 2021 sought input from the business community about various options to introduce a BER that would initially only apply to large businesses, with small businesses brought onboard over time.
Efficiency not compliance
Overseas, e-invoicing has been used to cross-check the value added tax (VAT) component of invoices for compliance purposes. The ATO has assured businesses that is not the aim of promoting the uptake of e-invoicing in Australia.
Although the office has spearheaded the development and adoption of e-invoicing, the aim is simply to boost business productivity, Mr Stockwell told an Intuit QuickBooks webinar late last year.
“A lot of people are sceptical that the ATO is involved for other reasons, other than efficiency reasons,” he says. “I can assure all members here today that we have no compliance or no visibility of the data.”
“For more information about e-invoicing, listen to a special episode of the ATO’s podcast Tax inVoice. Or access ATO fact sheets here.