Connecting Europe - eInvoicing and eIDAS

by Gaurav Sharma (guest) on 05. April 2018

The EU has launched a number of initiatives to realize the aim of creating a unified Digital Single Market. The Connecting Europe Facility (CEF) is a funding instrument that provides the primary thrust for this initiative. The CEF uses certain underlying building blocks (known as Digital Service Infrastructures) to achieve this objective of providing an interconnected and unified marketplace.

These building blocks are essentially specifications, standards and software that cover things like electronic identification and authentication, communication, payment etc. Here, we are looking specifically at one particular building block - eInvoices.

What's wrong with the current system?

Although consumers are used to a standardized invoicing and payment system when they shop online, the experience is a bit different for B2B (Business-to-Business) and offline transactions. Each month, the accounting departments of companies large and small process thousands of invoices that need to be paid out to vendors and suppliers. The issue with these invoices is that they are not standardized and therefore it is not always possible to upload them into a AP (Accounts Payable) management software. Sometimes, machine reading software is used to scan and capture some information but it still requires a lot of manual intervention.

Furthermore, this process is time consuming and costly. In addition to the manual labour required, the system is prone to errors. A wrong payment, even if it is reversed eventually, can mess up the working capital of the company and cause delays in further shipments and other problems. This is especially true for a diverse marketplace like the EU where various companies use a multitude of different legacy systems in different languages.

The solution to all of this is the eInvoicing system.

eInvoicing - Bringing Business to the 21st Century

The technical standards for electronic invoices are defined in CEN/TC 434. The guidelines provide a conceptual framework as well as technical specifications for implementing electronic invoicing that can  be standardized across the EU. This means that any invoice generated by any company in the EU would be automatically readable by Accounts Payable and other accounting software anywhere else.

In addition to drastically reducing the manual effort to process invoices, this would reduce errors as well as the risk of fraud and electronic theft. Some surveys estimate a cost saving of as much as 60% in account payable processing. This translates to billion of Euros saved across the EU every year.

The benefits do not end there. A robust and automated eInvoicing system can significantly reduce working capital costs for businesses and thus boost the health of the entire economy. Often times funds sit idle in bank accounts as invoices are transmitted or couriered, inputted into a system, checked, verified and then payment made. This increases the working capital cycle for a business and can cause financial strain. A standardized eInvoicing system can potentially eliminate this waste.

Fighting Fraud through Qualified Electronic Signatures

Electronically delivered invoices are increasingly subject to fraud. There are many examples of such fraud like sending wrong invoices with tampered identities, or as increasingly seen a simple change of the bank account indicated on the invoice through a man-in-the-middle attack.

The combination of an eInvoice with a qualified electronic signature allows to guarantee the invoice’s authenticity of origin and integrity of the data. Compliance with European eIDAS-Regulation provides the legal frame-set and backing (non-repudiation of origin and of emission).

The eInvocing system is just another example of how a seemingly small improvement can bring significant benefit to stakeholders.

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References and Further Reading

Image: Crane & Co Ltd, Firework Manufacturers, Warmley BS30, courtesy of Paul Townsend, Flickr (CC BY-SA 2.0)

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