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E-Invoicing Mandate – Where does the US market stand?

By Meenakshi Nilakantan
In E-Invoicing
Mar 5th, 2018
0 Comments
2022 Views

E-invoicing Mandate Explained

Well, e-invoicing Mandate happened in 2015. An e-invoicing memorandum issued by the Office of Management and Budget (OMB) – the largest office within the US President’s Executive Office overlooking policy, budget, management and regulatory objectives – has mandated all government agencies in the US to move to paperless invoice processing systems by the end of FY 2018. As alarming as it may sound, currently only a mere 40% of the approximately 19 million invoices processed by the federal government agencies in the US is being handled electronically. That is a huge number and talks about the scope for efficiency improvements with US government agencies and the success execution of the 2015 e-invoicing mandate up till now.

Going paperless could bring with it a lot of benefits like accuracy, transparency, efficiency and savings (which could range anywhere between $150 million and $260 million per annum as per the estimates provided by Dave Mader, the controller and acting deputy director for management at OMB). It would also mean better tracking and savings management since companies can manage their operations better. Additionally, it would help make the lives of stakeholders a lot easier since there will be lesser follow ups and increased visibility of payment status, holistic data & risk management. OMB is planning to release data standards for e-invoicing very soon.

Also, the 2015 e-invoicing mandate requires agencies to use a shared service provider model to avoid duplicates and facilitate tighter adoption of standards and interfaces. Through this system, companies can also usher in digitalization and get compliance and operational benefits.

e-invoicing mandate

E-Invoicing mandate in the US

The Loopholes in the E-invoicing Mandate

Though this plan looks good on the outside, there are still issues looming large within. A few of them are:

  • Ambiguity in the definition of an e-invoice: Since the core aim of the mandate is to eliminate paper, this point gains prominence. Without a proper definition of an e-invoice, companies can continue with not-so-efficient processes like emails or FTPs and still claim to be paperless. So companies can get away by saying they have become paperless even though they might not be doing so in an ideal way.
  • Lack of a proper invoice format definition: Companies deal with different formats of e-invoices and this is where the second problem arises wherein the mandate doesn’t mention any specific invoice format. With formats ranging from email, mobile and image to pdf, excel, EDI among many others, a lot of efforts and costs will go into converting all these formats into a standard structure. This would undermine the benefits of standardization which could lead to optimum results across companies.
  • Absence of consequences on failure of implementation: Though the savings and efficiency factors prove to be good motivators for companies to move towards paperless invoice processing, the mandate doesn’t mention any consequences that companies might have to face if they do not move to automated systems before the specified deadline. Many companies usually either feel that revamping their technology would take up a lot of their time or defer digital projections as budget allocation is sometimes adjourned. Then there are those who feel that there might a threat to their jobs not realizing that automation will, in fact, help them concentrate on value added tasks. Migration issues, integration complexities, lack of standardization and budget constraints are also some of the top concerns. So though this mandate comes with a good intention, it sounds more like a suggestion than a propelling force than will change the e-invoicing landscape.

The Way Forward

Though this e-invoicing mandate is for government agencies currently, it is likely to trickle down to private organizations too if government sets precedence. Also as we speak, there are many companies in US and groups which are taking it upon themselves to work towards encouraging people to go paperless in the true sense of the word. The Business Payments Coalition is one such volunteer group containing organizations and individuals who are working tirelessly towards promoting greater adoption of electronic business-to-business (B2B) payments and remittance data through the creation of technologies and rules to make the process a lot smoother. The aim is to standardize the e-invoicing models which would help companies reap the benefits of the technology in the most optimized fashion.

Since e-invoicing standards usually see a lot of variation, organizations like ISO have defined certain models like ISO 20022 which can be easily adopted by companies planning to go paperless. E-invoicing standards adopted by the government could go a long way in ensuring smoother, hassle-free adoption in a larger market. Considering the fact that 60% of the 19 million invoices processed every year by the Federal Government are processed manually and need to be converted into an electronic format, the mandate sounds too optimistic in nature. Since we are talking about multiple agencies making up the Federal Government, a shared service model suggested by them can complicate matters further since multiple ERPs and varied workflows will have to be managed by them. This is where a holistic e-invoicing solution will come in handy, with cost savings going up to $4 to $8 per paper invoice (as per a Paystream Global e-Invoicing 2014 report). Only time will tell how successful the implementation of the mandate within the government will be, if there will be able to adopt it by end of 2018 and whether its success will propels private sector to follow suit.

A market wide formal e-invoicing mandate will be a big step towards digitalization of invoice management in US market and is what US needs. The industry wide penetration of the same will, however, depend on government’s capabilities to define stringent terms and timelines, companies’ eagerness to comply, collaboration between stakeholders and the strength of e-invoicing standards & protocols.

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