General Article – E-invoicing, not electronic invoicing – there is a difference

Money flows out under digital process such as Single Touch Payroll (STP) – what if money could flow in through a digital process? E-Invoicing (a step beyond electronic invoicing) is coming.

Readers will be aware that for many businesses, money has been flowing out through a fully digitised process under the STP regime for some time. It might seem reasonable that the process for inflow of money should also be digitised.

Electronic invoicing, the process of creating invoices in the form of emails and email pdf attachments, has been available for over a decade. However, it is fairly crude and entails double handling of data. E-invoicing has been operable in Europe and North America for some years. It has also been in use by large Australian organisations through proprietary software.

The Australian Taxation Office (ATO) is promoting the use of e-invoicing and is overseeing the development of access to e-invoicing by all Australian and NZ businesses in a joint project with NZ. While participation in e-invoicing is currently contemplated as voluntary, government take-up is expected to be substantial. Given the extent of the not-for-profit sector’s reliance on government funding and other financial inter-action with government, ‘a heads up’ note seems timely. E-invoicing is expected to be a commercial reality later this year.

The concept of e-invoicing

E-Invoicing (digital invoicing) is an ‘automated direct exchange of invoices between supplier’s and buyer’s software systems’ even though the supplier and recipient use different financial record systems. Rather than transmitting invoices, invoice data is transmitted from suppliers to customers in machine readable form.

The ATO observes:

‘E-invoicing standards will ensure that all businesses in all sectors can access and benefit from e-invoicing, regardless of their size and the systems they currently use.’

It avoids the need to generate paper-based invoices or to create and transmit pdf invoices with, in both cases, an associated need for manual data entry into the recipient’s payment system. The aim is to reduce turn-around times between invoice receipt and payment and, through reducing the need for data entry, reduce invoice processing errors and cost. In addition to cash flow improvement, the ATO also foresees improvement in record keeping and meeting reporting obligations.

How e-invoicing works

The basic framework for e-Invoicing is summarised in the diagram below (extracted from the ATO webinar broadcast in November 2018):

Invoice data will flow from the supplier’s billing system to an Access Point that is owned by an access service provider (the supplier’s service provider). The Digital Capability Publisher (DCP) that is linked to the Access Point of the supplier’s service provider will hold data downloaded from a centralised record of entities participating in e-Invoicing and their current digital addresses – the Digital Capability Locator (DCL) which is operated by the ATO. Using the digital address information, the supplier’s service provider will route the invoice data to the Access Point used by the invoice recipient and thence to the invoice recipient. The scheme relies on the supplier’s ABN (or the NZ equivalent) as the supplier’s identifier within the system and forms the basis of the security measures adopted by the system.

The above information flow and the scope of the ATO accreditation of Access Points and their associated DCP’s (for security purposes) are illustrated in the further diagram below (also taken from this ATO webinar referenced above):

Currently required action

If your organisation intends to participate in e-invoicing, it should ascertain from its financial system software provider:

  • whether they will be providing updated software that enables communication with Access Points; and
  • the timetable for issuing the updated software.

You should also begin to consider the required changes to your organisation’s processes and procedures to accommodate e-invoicing.

We will continue to monitor and report on this development and particularly with a view to any impact on tax compliance obligations.