e-invoice Exchange Framework: Standardization of Business Payments

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Invoicing is one of the most critical aspects of doing business – how you get paid for the products or services you have provided. Paper invoices are becoming increasingly inefficient and outdated. And they are “preventable friction” in this digital age. It is a bygone conclusion that Electronic Invoicing (E-invoicing) is more accurate and efficient and clearly the way of the future.

 

Despite the clarity and conviction, the adoption rate of e-invoicing in the United States has remained static for years. Even among those adoptions, less than 25% of invoices qualify as genuine electronic documents. So the adoption of true e-invoicing is still at a nascent stage. When we parsed the payments landscape, we found out these were the key limiting factors of adoption:

  1. IT and other technical resources are usually needed to implement a fully automated e-invoicing system. Such resources are scarce in businesses and governments, and companies tend to prioritize their use for revenue-generating rather than cost-reducing initiatives.
  2. Businesses that decide to implement e-invoicing may need to customize their implementation by a trading partner, which adds complexity and cost.
  3. Given the effort and costs involved, the individual case for adopting e-invoicing may be weak, especially among small to mid-size businesses, if the volume of their invoices is relatively small.

But the biggest obstacle has been the lack of interoperability between different systems. This increases the complexity of sending and receiving e-invoices and raises operating costs. However, other markets with similar challenges have solved this puzzle by standardizing e-invoice exchange frameworks. Therefore, establishing a standardized mechanism to send e-invoices is a vital element in transforming B2B payments in the United States.

 

The Missing Standardization

BTW, what is standardization?

We use standards every day in all aspects of our lives. We have standards with Paper  dimensions like A4, B5; with File formats like mp4, PDF and with WiFi standards. For example, A4 gets understood in the same way across the world!

Standard can be defined as “….established by consensus and approved by a recognized body, that provides, for common and repeated use, rules, guidelines or characteristics for activities or their results, aimed at the achievement of the optimum degree of order in a given context”.  In plain English, it means to have a shared common language between producers and users that helps both to gain in myriad ways. Standards simply streamline industries for efficiencies by interoperability, predictability, reliability, and compliance.

As per industry research, over 2502 e-invoice service providers operate in the U.S. market today. They create, send, and receive more than 15 different e-invoice formats and 40+ different subsets, creating a complex and diverse environment for electronic invoicing in the U.S. It clearly proves that e-invoicing doesn’t have standards to facilitate more widespread adoption in the U.S.

Hence it is instrumental to have e-invoicing standards i.e, e-invoice exchange frameworks. With the real desire to make that much-needed transformation happen, the Federal Reserve has established the Business Payments Coalition (BPC).

Business Payments Coalition (BPC)

Business Payments Coalition (BPC) is a not-for-profit organization with over 600 members committed to improving the efficiency and effectiveness of B2B payments in the US. For the first time in the US, industries have come together to solve a mutual problem in the most cost-effective way to gain maximum efficiency.

e-invoice Exchange Framework

The coalition is working to promote interoperability between different e-invoicing systems, hence streamlining the procure-to-pay process by establishing an open e-invoice delivery framework.

An e-Invoicing framework refers to a set of standards that address four essential layers of compatibility- Legal, Technical, Business, and Semantic. The framework uses standards that enable document delivery among an open network of service providers, B2B networks, and platforms.

Just like Peppol in Europe that enables trading partners to exchange standards-based electronic documents over its secure network, BPC enables easy integration and minimal disruption to existing processes and promotes wider adoption of e-Invoicing in the US.

e-invoice Exchange Market Pilot

e-invoice Exchange Market Pilot is the first output of BPC’s industry initiative that will change how companies send and receives invoices forever. Along with the Federal Reserve and the BPC, 77 organizations have joined the E-invoice Exchange Market Pilot program. The pilot program aims to improve the US e-invoice exchange framework’s development, testing, and deployment by putting these standards in the real world. The market pilot operates until the end of 2022, intending to establish a functional B2B invoice exchange framework in 2023.

 

Conclusion

e-Invoicing is a critical component of the overall goal of making the entire procure-to-pay and order-to-cash process more efficient and effective. E-invoice Exchange Frameworks from BPC is first of its kind in the US and indeed a step change in the standardization of business payments. At Zycus, as a premier e-invoicing solution provider, we are excited at these developments in furthering the widespread adoption.

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