Thanks to some of the world's strictest e-invoicing regulations, in Brazil, trucks don’t roll until the government gives the go-ahead. That was the scary reality facing Jael Vargas early this year as system manager
“Until last year we didn’t need to -- all of the process was paper-based,” Vargas said. But under Nota Fiscal Eletronica (NF-e) regulations, electronic bills of lading (shipping receipts) must be transmitted to the Brazilian Ministry of Finance and approved before goods can move.
An increasing number of countries in Europe and Latin America have similar e-invoicing regulations that can result in shipping delays, fines and higher taxes for manufacturers that fail to comply. Analysts and vendors say the manufacturing invoice regulations are placing new burdens on IT departments charged with managing ERP systems and their integration with cloud-based e-invoicing.
“This is a phenomenon that’s been slowly evolving in Brazil in the last three years,” said Glenn Johnson, senior vice president at Laguna Hills, Calif.-based Magic Software Enterprises.
Magic Software's iBOLT integration suite and Platform as a Service (PaaS), uniPaaS, provide multi-vendor ERP integrations with the NF-e system for 100 companies in Brazil, Europe and North America.
The document flow is elaborate. Upon approving the initial submission, the government returns an official NF-e file to the manufacturer, and the recipient of the goods gets an email copy. The file is also converted to a human-readable, printed document that must accompany the shipment. At any point along the route, police or custom officials can ask to scan the barcode.
“The government authorities use mobile devices to access the Web services,” Johnson said. “It is literally possible for a truck to be stopped on the highway. It’s hard to get around the regulations, because the government can automatically verify compliance.”
Vargas says around 20 Rola Moca employees use the new application, finding it easy to use. Labor savings have been substantial. Two people in Rola Moca’s shipping department now handle the invoicing process, compared with six under the paper-based system, Vargas said.
How e-invoicing differs around the world
Analysts and vendors say multinational corporations in particular confront a patchwork of e-invoicing regulations. To solve the IT issues, they’re turning to single-country ERP integration tools like Magic Software’s, or cloud-based business-to-business commerce and procurement services that process e-invoices in multiple countries. Cloud providers that claim to handle NF-e and similar regulations include Ariba, Basware, Crossgate, GXS, IBM’s Sterling Commerce unit, OB10 and a newcomer, Tradeshift.
The challenges are most common in countries in Latin America and Europe that assess a value-added tax (VAT). Properly accounting for VAT can mean shipping delays and fines for noncompliance, but additionally, without proof of payment, companies miss out on VAT rebates, effectively adding costs at points along the supply chain.
“One of the ways the value-added tax works is the companies are sort of duty-bound to calculate the tax and pay the right amount,” said Chris Hayes, Sterling’s senior product marketing manager. “But the government doesn’t always trust them. The invoice -- that’s the key the VAT authority uses to audit.”
Beyond causing compliance headaches, the tax laws might be slowing the spread of e-invoicing, which according to its advocates can provide the usual automation benefits that come from eliminating paper while enabling services such as supply chain finance.
“In many countries around the world, you couldn’t replace a paper-based invoice with an electronic one and have that be the basis for compliance with the tax system,” said Steve Keifer, vice president of product and industry marketing at GXS. The situation began to change in 2001 when the European Union (EU) passed its first “dematerialization” regulations allowing e-invoicing, Keifer said.
Adoption has been mixed. “There are a number of companies that jumped on this right away,” he said, but overall, “half the companies doing business in Europe have done it, and the other half have not.”
Unlike the mandates in some Latin American countries, the EU approach is essentially optional, and consists of directives for ensuring the authenticity and integrity of invoices through a European format of electronic data interchange (EDI), digital signatures or anything else a country deems acceptable, according to Hayes. Since each country is left to figure how to implement the directives, the result is another crazy quilt of niche, single-country ERP integration and cloud providers, and multinational services like GXS and Sterling that claim to keep them sorted out on a single platform.
Lately, the impetus for adoption is coming from a new direction, according to Keifer. EU member states have begun to require e-invoices from manufacturers that sell to them, which is pushing the mandates down to suppliers. Some U.S. government agencies, including the Departments of Defense and Treasury, have similar mandates, he said.
Back in Latin America, Mexico is rivaling Brazil with strict new mandates, and Argentina is coming on strong, according to Jason Jones, Crossgate’s vice president of consulting. Argentina’s system directs companies to multiple websites that can be quirky or fail, so Crossgate’s logic defaults to contingency rules to avoid such critical errors as incomplete transactions, Jones claimed. Unlike Brazil, Argentina doesn’t issue invoice numbers but checks if the numbers are in sequence, he said.
Mexico presents different problems. Applicants are required to get a “folio” number from the government and file a monthly report, according to Keifer, though this year the government made compliance easier by allowing digital signatures and real-time processing of tax stamps to attach to shipments.
Countries vary on where -- and how long -- e-invoices have to be archived. Many require servers to be local, but some allow for less expensive workarounds such as backups, Keifer said.
As if this weren’t enough, the quality of the cloud services’ ERP integration varies, just as it does for general e-invoicing -- by the vendors’ own admission. Crossgate, recently under agreement to become wholly owned by SAP, has direct integration to SAP’s ERP platform but requires users of other systems to take indirect routes via the Web, according to Jones.
GSX pulls invoice data out of SAP’s iDoc EDI format and keeps it in EDI or converts it to XML -- the two standards for transmitting e-invoices and related documents -- according to Keifer.
“We would like it if there was a standard way to interface with SAP and Oracle,” and each platform is different, though most ERP systems, including lower- or middle-tier products, have direct integration to cloud services or middleware for developing it, he said. “They all have some way of allowing you to extract information in a structured file and convert it to EDI or XML. When you go down-market, it’s likely to be one option instead of three or four.”
Electronic invoicing recommendations
Keifer says international e-invoicing requires first consulting the lawyers and accountants in a company’s tax group. That expertise might reside at one of the Big Four accounting firms, which maintain specialties in e-invoicing regulations and software. “They consider it their IP [intellectual property],” he said.
For Duncan Jones, principle analyst at Cambridge, Mass.-based Forrester Research Inc. , service providers are the way to go.
“Don’t under any circumstance attempt to custom develop solutions,” Jones said. “There are plenty of e-invoicing, e-signature and other providers who can solve the problem for you without you having to investigate the detailed rules. Scale is important, so go to a large global provider -- e.g., Ariba, IBM-Sterling Commerce, Basware, OB10 -- or, if you are locally focused, providers in each of the countries where you operate.”