Customer Stories & Use Cases
eInvoicing: "It's not a magical unicorn"
EU Regulations for electronic invoicing, ZUGFeRD 2.0, XRechnung, etc. — new requirements and formats demonstrate the increasing importance of the topic of eInvoicing. Why is it worthwhile for companies to introduce digital invoices and invoice processes? Which obstacles do they have to look out for? In a SER webinar special, the ECM Event Evangelist Stephan Kizina and the auditing expert Holger Klindtworth discussed the opportunities and challenges of eInvoicing. We've put together the most interesting excerpts of their conversation.
Kizina: Paper invoices eat up time and money. Companies spend on average 13 to 18 euros to process one paper invoice. The situation only gets worse due to complex and protracted release processes. EInvoicing solves precisely these problems. But how well accepted is it really?
Klindtworth: Right now I'm seeing a clear jump in demand for eInvoicing and the introduction of workflow solutions. Companies are feeling pressure from the market, which is of course also due to the new eInvoicing regulation. By April 2019 at the latest, all major public contractors will only accept eInvoices. Companies that want to do business with them will have to be able to send eInvoices. Once they introduce eInvoices, they will want to use them in every company area. At the end of the day, no one wants to use paper anymore and go through all that manual effort.
Kizina: Definitely. What impact will the implementation of this eInvoicing regulation have on companies? What do they need to do?
Klindtworth: Let's start by looking at the positive effects: electronic invoices facilitate the standardization of inbound invoice channels. EInvoices, scanned paper invoices, the EDI process flow: You can put this all together in one process and downsize processes dramatically. It's important to remember that you shouldn't create a process for each inbound invoice channel, but for all of them combined. There is a lot of optimization potential in this for companies. Just think of all those stray paper invoices out there: Someone has to approve of an invoice that's lying on someone's desk somewhere in the company.... It's a real challenge to maintain an overview and to ensure that the invoice is processed correctly and quickly. Digitization and a supporting invoice workflow can only improve the situation. Of course, this also means that the IT team has to have a grip on the internal control system and set up system monitoring. There's nothing new or magical about this topic. It's the latest technology. But nowadays it involves a lot of effort from companies.
Kizina: EInvoicing also gives me the opportunity to practice electronic invoice processing. What are the advantages of this?
Klindtworth: That's easy: a high degree of automation and standardization. It's very simple: You as a company send an invoice, e.g. in the XRechnung format, which is then received by another company and automatically read there. There's basically no manual effort involved in this. You can set up fully automated processes. To ensure that no errors are integrated into the automation, you need an internal control system, an ICS, which automatically checks for errors. Naturally, this increases conformity with the law.
Kizina: I interpreted the German Federal Ministry of Finance's letter to mean that there would be no denying the input tax reduction if deficiencies were detected in the control procedure. So there's no documentation obligation and I can forego the ICS. How do you see this?
Klindtworth: It's true that correctness of accounting will not be rejected if the internal control system is not documented. But, say an invoice is lost because you didn't have a solid ICS in place to ensure the storage of the invoice. If the invoice is gone, you cannot apply for an input tax reduction for an inbound invoice. There will also be tax-related consequences for the fact that there are irregularities in invoice processing. At least on an individual case basis. So it's safe to assume that you have to prove that you have an internal control system in place. And you should also assume that the risk of taxable amounts being estimated will increase significantly if the services rendered have not been properly validated with the received invoice. There is no getting around the topic of documentation.
Kizina: Still, many companies today have no documentation of their ICS. They don't even have a procedural documentation.
Klindtworth: A procedural documentation is no nice-to-have. If a tax auditor comes to visit you, the first thing this person will do is look at your accounting procedures. This is why you definitely need a procedural documentation on a level that the auditor understands. Otherwise you'll pay fines for delays. So save yourself the money and stress.
What's more, since 2011 in Germany, the VAT tax audit has been the preferred method. This means that the auditor can show up unannounced and wants to see your data. You cannot tell the auditor to come back in three weeks because you need to prepare or even write the procedural documentation. If the data is not presentable, then the correctness of your accounting practices will be put into question. So be prepared.
Kizina: I don't understand why so many companies are still so overwhelmed by the work involved in creating a documentation. With an ECM system such as Doxis4, I not only can digitize my invoice processing, but also create a procedural documentation and automatically transfer the ICS documentation into it. Everything is neatly documented and archived in the ECM system.
Klindtworth: I don't think this is a new demand or anything a company cannot handle. I do think it is increasingly important that I can automatically assign and validate a vendor to an invoice with digital processes. I've caught wind of several cases in which invoices were sent and intercepted. The bank account information was modified in the PDF invoice and forwarded to the end customers. If they wouldn't have compared the bank numbers with the vendor master record and asked about the deviation, this would not have been caught. The ICS is very important to make sure procedures run correctly.
Kizina: Okay, ICS and procedural documentations ensure and demonstrate a correct process. But how can I make sure that my invoices are formally correct?
Klindtworth: In Germany, we have paragraph 14 of the value-added tax, which stipulates that 14 fields of data have to be included in an invoice. In light of the input tax deduction, I urgently advise every company to make sure that they have an organized way of receiving invoices with all the necessary data. Auditors have a tendency to very quickly revoke the input tax deduction if the invoice is not correct. This could be very costly. The same applies to outbound invoices: Your customers are also not happy if they receive an invoice from you that cannot be used for tax deductions.
Kizina: Standardized formats establish how an invoice should look. For example, ZUGFeRD, ZUGFeRD 2.0 and XRechnung. What's your experience here?
Klindtworth: ZUGFeRD is a standardized data format that is only found in Germany. If you would have asked me two years ago what I thought of it, I would have told you that it doesn't have much future importance due to its lack of international relevance. If you get invoices from outside of Germany, you have to work with other formats. EDI, in contrast, is an international and standardized format. I would have said this has more future importance. Since then, however, we have seen the introduction of EU guidelines for invoices in XML format, i.e. XRechnung. With ZUGFeRD 2.0, which can also process the XRechnung format, we now have achieved a level of standardization that works. You can't forget that public administrations will soon only accept XRechnung. Which means we have a clear group of customers and suppliers that work with XRechnung. So I think this format will prevail.
Kizina: The proper retention of tax-relevant documents is one of the legal requirements. What do companies need to be careful about when archiving electronic invoices?
Klindtworth: It's important to avoid media disruptions. If you receive an electronic invoice, you are not allowed to print and file the invoice in paper form. Instead, you have to maintain in digital form the current status of the electronic invoice. In other words, paper is a thing of the past. But with the EU GDPR, we of course have very specific deletion obligations once a retention period ends. My clear recommendation is actually to have a professional document management solution. Vendors such as SER offer a software solution that makes encryption, immutability, integrity and authentication all possible. This is now the preferred method of electronic invoicing.
Kizina: Do I need to keep emails that include an electronic invoice?
Klindtworth: If the invoice is only in the attachment, then the email functions as an envelope. And you wouldn't keep the envelope of a paper invoice. If, however, there is a cash discount rule in the email, then you must store it. So convince your suppliers that they shouldn't put this kind of information in emails. And clearly define where the T&C should be located.
Kizina: What measures do you recommend companies take?
Klindtworth: First: Have a procedural documentation. Second: Make sure that you don't have five different processes for EDI, paper, PDF, etc., but rather one that ties them all together and follows an ICS, an invoice verification systematic. This makes processes leaner. Ultimately, eInvoicing is no magical unicorn. It's simply a technology and process that is now totally state-of-the-art.