Daily Archives: September 19, 2013

The next evolutionary phase of e-invoicing

Today’s guest post, which originally aired on Purchasing Insight, is courtesy of Pete Loughlin, Managing Editor at Purchasing Insight and a global expert on purchase-to-pay who can be found on Twitter at @peteloughlin.

When it comes to electronic trading, the Latin Americans, most notably Brazil, Mexico, Argentina and Chile, put the so-called developed countries to shame in terms of their ambition. While the Europeans continue to support business processes hardly changed since they were developed by the spice merchants of Venice during the Renaissance, South American governments are building business and tax collection infrastructures that many of us would never have dreamt possible.

It’s absolutely true. Many of the business conventions that are employed in the west today are based on the methods of trade developed by Italian bankers in the 16th century. The way we trade including systems of banking and credit were all fine-tuned to meet the needs of merchants trading in the far east. And while many aspect have been modernized some of the core principles remain the same. Old habits die hard and today, despite our delusion that we are part of a digital economy, about 80% of the B2B invoices in Europe are pieces of paper.

For over 20 years, the lawmakers in Europe have grappled with the growth of e-business and it’s is only recently that the European Union has developed something which comes close to a common understanding of what an electronic invoice is. You could sympathize. It’s not possible to simple throw away centuries of convention and legislation. Starting from scratch and reinventing trading rules from 1st principles to take into account modern technology is no easy task – impossible perhaps. But that’s what the Brazilians and the Mexicans have managed to achieve. The have reinvented the business of invoicing and tax collection.

Today in Brazil, the tax authorities know about every business transaction before it happens. They know about every delivery of goods and services and the tax due. Law enforcement agencies including customs officers and police have the power and the tools to check on goods in transit to make sure that all the documentation is in order and that tax is being collected properly. Whereas in Europe and North America, electronic invoicing is about efficiency, in Latin America it’s about maximizing tax revenue.

All a bit heavy handed some might think. A level of government interference in business that is going a step too far maybe. But to those – especially those in Europe – who think that there’s no need to further police tax collection, let me say one thing. Greece.

Whereas the taxman in Latin America is proactively monitoring trade in real-time, ensuring it is calculated correctly and ensuring it’s paid, the taxman in the UK is looking retrospectively at the accounts of the likes of Google and Starbucks, scratching his head and asking “Why don’t you pay tax?”

All respect to Latin America. This is the way we’d do it if we were starting with a blank sheet of paper. But let’s take a look into the future and to some of the fastest growing economies in the world. Because that’s exactly what they have got – a clean sheet. They have virtually no physical infrastructure and even less business infrastructure. No embedded rules or conventions to hold them back. Could they build something even more sophisticated and ambitious? They can and they will.

When it comes to looking for the next evolutionary phase in e-invoicing, don’t look to the United States or Europe. Don’t even look to Brazil or Mexico. Look to Africa.

Thanks for letting SI reprint this awesome post, Pete!