*connectedthinking CFO Seminar 2 March 2005, Roularta Conference Center The “what, how and why” of electronic invoicing Ine Lejeune – Leader Global

*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


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


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


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


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


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)


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


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


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


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


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



CustomerCustomerCustomerCustomer

EBPPEBPPSupplier

Customer

VolumeVolumeVolumeVolume


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


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


• 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


VAT rules European VAT Directive


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


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


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)


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


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




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




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



* Time stamping is required as well


(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


(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


(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


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


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


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


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

•…

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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

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Thank you

Documents

*connectedthinking CFO Seminar 2 March 2005, Roularta Conference Center The “what, how and why” of electronic invoicing Ine Lejeune – Leader Global