Manufacturers operating around the world, especially in Latin America have found themselves requiring a new level of compliance. They will soon be required to comply with strict electronic invoicing requirements as a way of improving the way these governments collect taxes owed to them by businesses.
What that means for these businesses is adhering to a strict electronic accounting process that provides better visibility than their paper or in-house systems of the past. Fortunately, the speed, convenience, and security benefits of this technology can be seen having a positive impact on the businesses that have begun using it.
This article will introduce electronic invoicing, what it is, and how it can be a very important benefit for businesses that are ready to take the next step into the future of accounting when operating abroad. For businesses that are operating in countries that require e-invoicing to be implemented, this article should be essential reading to understand the technology and avoid potential compliance issues and/or fines.
What Exactly is E-Invoicing?
E-invoicing, simply put, is the modern way to manage invoicing or tax remittance for organizations and governments. This is a form of automation that is designed to take the eliminate fraud and to ensure the government is getting their correct VAT taxes.
With e-invoicing, the software is able to pull orders as they are created, generate an invoice instantly, and send out the invoice right away. In addition, taxes can be correctly applied and remitted to the government accurately and immediately.
For businesses that operate in countries where e-invoicing is a requirement, the technology is absolutely necessary to remain compliant and avoid fines. Of course, it offers exceptional benefits beyond simply remaining compliant. For example, if taxes vary based on products being sold, the e-invoicing software can correctly apply the applicable tax rate to avoid costly errors that can lead to improper collection of taxes from customers as well as improper remittance to the government.
In addition, both businesses and customers can be confident that the correct tax rate has been applied and remitted to the government. As a result, businesses can avoid substantial fines while also improving customer experience.
How Does E-Invoicing Work for Government and Business?
It’s important to understand how governments and businesses are already using this technology to receive payment faster, improve operations, and deliver a better experience for their customers or citizens.
Mexico is one country that has embraced e-invoicing for collecting VAT from businesses. There was an identified need for a better, more efficient way to collect taxes, reduce tax errors, and reduce fraud. The solution was electronic invoicing.
In just the first quarter of implementation, Mexico saw staggering results. There was a 34% increase in VAT collection. This is obviously a huge boost for the government as they fund new projects and deliver services to citizens. It’s clear that the simplicity and visibility provided by e-invoicing made tax collection easier and more efficient for both businesses and the government. What’s more is that after seeing Mexico experience such a huge increase in VAT collection, other countries are sure to follow suit.
This major change also greatly reduced fraud by businesses that attempt to avoid paying VAT. Since e-invoicing requires government validation of invoices, it was much harder to defraud collecting agencies and governments were more able to identify potential issues before they became large problems.
Finally, there was also a reduction in errors when remitting taxes. Since businesses had their invoices validated, they could ensure they were collecting the correct amount of tax from customers and remitting the correct tax back to the government. This means less time spent by the government to investigate errors and less time required by companies to find and correct errors. Ultimately, Mexico saw faster payment, reduced fraud, and reduced spending on tax-related collection issues. The results speak for themselves.
Cost of Non-Compliance
For businesses that must remit sales taxes, especially those that operate in multiple countries, e-invoicing can simplify things and greatly reduce the chances that the business may run afoul of tax authorities. The automatic generation of invoices ensures that the correct tax has been applied and remitted. This is a huge benefit for businesses as they would otherwise be on the hook for the missing taxes.
The risk for companies that end up not being compliant with tax law in countries they are doing business can be significant. Some countries may charge a penalty of 100% of the original amount owed. This effectively doubles the taxes owed and could cripple some businesses. Electronic invoicing can greatly reduce the chances this would ever happen and save companies huge sums.
Of course, a company that is shown to be non-compliant with tax law opens their business up to future headaches. Even if the company becomes compliant in future years, they may be a target for regular government audits or inspection by other applicable agencies like the SEC. All of these outcomes are unwelcome and can be avoided with the help of e-invoicing.
How E-Invoicing Affects Other Areas of Business
Businesses around the world have been implementing form of electronic invoicing for decades simply because of the increase in efficiency and the potential cost reduction in their accounting departments. That’s to say that whether or not e-invoicing is a regulation for doing business in a particular country, your business will still realize multiple benefits by automating this process.
For businesses that must keep their budget top-of-mind, this automation can greatly reduce the need for further investment in the accounting department while also providing a faster, seamless purchase experience to clients.
There is also a huge potential for e-invoicing to help a business cut back on costs. Everything from a reduction of paper usage, reduced time required for approvals, elimination of human error, as well as other benefits can be associated with e-invoicing. The benefits can extend far beyond just compliance.
E-Invoicing Can Be Customized
E-invoicing can be customized to meet the unique needs of businesses. Specific regulatory requirements, electronic signatures, certification, and more can all be implemented to ensure that every invoice is 100% correct and compliant. Regardless of the unique requirements that a business must adhere to, e-invoicing can meet or exceed expectations to deliver true automation and peace of mind.
Businesses can specify their needs and the e-invoicing platform can be customized quickly to seamlessly work with the existing processes and software they are already using. Electronic invoicing is meant to be an effective way to improve operations for all businesses.
Additional Benefits of E-Invoicing
Compliance is the main reason behind the adoption of e-invoicing, however, there are several benefits that organizations implementing this technology will reap in the process. Of course, it is nice to get invoices to clients quicker than ever before, but It is exceptionally important for a business to be able to trust that invoices have been generated correctly.
Obviously, from a client standpoint, this is an important area of customer service. However, businesses must also be able to trust that the correct taxes have been applied and remitted. If not, the fines could be substantial, and businesses may be left on the hook to make up the difference.
For businesses that operate in multiple countries or jurisdictions, the requirements may vary from area to area. This could include tax rates to invoice formatting. Businesses need to ensure that they are delivering the correct invoice based on the rules of the government they are dealing with. An error could result in delays, fines, and other penalties.
With better creation and tracking of invoices, businesses are also more prepared for internal or external audits, if needed. The system automatically creates and stores the invoices so that they are easy to find and consult in the future. This is obviously much more preferable when compared with frantically searching through an error-prone invoice cabinet that has been organized by a human and contains varying file names, locations, and sorting methods. Consistency is key in accounting and e-invoicing can deliver that consistency that businesses need.
Finally, with consistency still top of mind, it’s important to understand that e-invoicing also makes monitoring workflow and client relationships easier. With clear invoices generated immediately and updated automatically when paid, there is no question about where the sales process is at. Anyone within the business should be able to quickly find out what the last invoice is, see the details of the invoice, and see if it has been paid.
Who is Using E-Invoicing and Where is the Technology Headed?
When considering a new technology, it is often important for businesses to understand who has already implemented the technology and what the future holds for the technology. E-invoicing is gaining popularity quickly as businesses realize the benefits of implementing this incredible automation software in their own operation.
Right now, there is a worldwide interest in e-invoicing with the technology becoming mandatory in South American countries like Brazil, Argentina, Peru, Columbia, Uruguay, Paraguay, and Ecuador. These countries may use a similar basic method of government tax remittance, but their rules differ slightly from country to country.
Why does it matter to businesses when or why e-invoicing takes off? Once the technology becomes a common part of doing business, more and more countries will continue to adopt this type of processing.
For some businesses, e-invoicing may currently be a necessary part of doing business. For others, e-invoicing may be something that is just around the corner.
In addition, many countries that are embracing electronic invoicing are emerging or growing economies. These countries may be business powerhouses in the future and the technology that is commonly used in these countries will inevitably spread to other parts of the world where companies are interacting with other international companies.
Automation, Compliance, and Convenience
E-invoicing is an essential tool for ensuring compliance with local tax law around the world and avoiding substantial fines or penalties that could arise due to non-compliance. DocLib can be seamlessly implemented with existing systems to automate invoice verification and tax remittance. Our team is happy to answer any questions you may have about how to best go about adopting e-invoicing in order to remain compliant in the specific countries in which you operate.
To learn more about e-invoicing and how it can work within your business, contact DocLib today at 609-702-3900.