E-invoicing shrugs off a slow start to gain steady traction

This article was current at the time of publication.

Based on the 280 million business-to-business invoices exchanged in New Zealand each year, the adoption of electronic invoicing (e-invoicing) could save NZ$4.4 billion economy-wide over 10 years, according to estimates by the Ministry of Business, Innovation and Employment (MBIE).

However, as of September last year only 3000 Xero subscribers – less than 1 per cent of its total subscription base – had registered. MYOB also reports slow registrations. 

According to MBIE, this month “well over 4000 businesses” are capable of receiving and processing e-invoices.

Research by MYOB published in April 2021, found 37 per cent of New Zealand small-to-medium businesses (SMBs) hadn’t heard of e-invoicing and 35 per cent admitted they weren’t confident about how it works. 

In February this year, MBIE began an advertising and communications campaign across traditional media, social and digital channels aimed at boosting awareness of e-invoicing’s potential.

MBIE research shows two-thirds of New Zealand SMBs are now aware of e-invoicing’s benefits. 

How e-invoicing works

E-invoicing is the direct, digital exchange and processing of invoices between suppliers’ and buyers’ financial systems, irrespective of their invoicing software. This is possible by a common standardised format readable by people and computers. E-invoicing removes the need for manually entering or scanning invoice data into the system.

To be viable, e-invoicing data needs to be shared in a standardised format. The Australian Government and New Zealand Government have adopted the Pan-European Public Procurement On-Line (PEPPOL) interoperability framework.  

PEPPOL is the set of specifications developed by European Union countries to standardise cross-border, electronically supported procurement. It is maintained by the non-profit OpenPEPPOL organisation, which designates a PEPPOL authority for each participating country.

In New Zealand, this is MBIE, while in Australia the Australian Taxation Office is the PEPPOL authority. Currently, there are OpenPeppol members in 40 countries with PEPPOL authorities designated in 17. 

Suppliers using e-invoicing generate an invoice for the buyer using a compliant accounting system.

The e-invoicing network checks and confirms the information, such as GST number, NZ Business Number and bank account number.

These are then passed to the buyer’s accounting system where they are reconciled against purchase details and the invoice becomes ready to be paid.

What are the benefits?

MBIE research shows a paper invoice, faxed or sent by mail, costs an average NZ$26 to process. An emailed PDF invoice costs NS$23 while an e-invoice costs NZ$10. 

In New Zealand, it also takes an average of 25.1 days for a small business to be paid.

“By reducing manual processing – and potential for errors and delays – e-invoicing can speed up payment and improve cash flow,” MBIE states.

Other potential benefits include reduced administration, improved security and universal connection with other businesses and entities on the global PEPPOL network.

According to MBIE, costs range from NZ$3000 to NZ$20,000, depending on a company’s IT infrastructure and excluding the cost of internal input. 

Trans-Tasman approach

The Australian Government and New Zealand Government agreed in 2018 to take a common approach to e-invoicing, but some important differences have evolved.

In Australia, Commonwealth government agencies have until 1 July 2022 to be e-invoicing capable.

However, to stimulate uptake, the Australian Government further committed agencies to a five-day payment period for small business. Those that do not comply will be required to pay interest to the supplier.

In New Zealand, central government agencies have been set a target of paying 95 per cent of invoices within 10 days. However, there is no requirement to pay interest if the term is not met.

Should e-invoicing be mandatory?

The Australian Treasury has consulted on options for mandatory e-invoicing by businesses. It canvasses three options:

• a government mandate that all businesses adopt e-invoicing, starting with large firms
• a mandate only for large businesses
• no mandate for businesses

In its submission, CPA Australia supports a non-mandatory approach to e-Invoicing, arguing that the technology should stand on its unique benefits, without government intervention. 

CPA Australia’s Senior Manager Business Policy Gavan Ord says that based on feedback from members and businesses, while e-invoicing offers strong benefits for businesses with a large volume of invoices, the benefits aren’t compelling for businesses that generate low volumes of invoices.

Other factors commonly cited as barriers to adoption include the necessity to train or retrain staff and frustration amid Covid pandemic measures at “government dictating what we have to do”, Ord says.

Members of the E-invoicing Adoption Leaders Group, a government-industry taskforce, reported last September that “people and process change” was proving to be the hardest part of the implementation.

“Front-end controls are an ongoing issue which e-invoicing will not resolve – for example, delegation and approval processes,” the report noted.

Xero New Zealand Head of Communications Natalie Weber-Benning says e-invoicing is still in its early days in New Zealand. She notes, however, that in other regions registrations also started slowly and picked up once more parties joined the network, particularly large senders such as telcos and utility companies.

Others point out that e-invoicing is subject to a “network effect” – the benefits to a user increase as the number of e-invoicing entities with which they do business rises. This will apply from April to New Zealand firms that conduct significant business with government agencies.

Deloitte Access Economics suggests businesses with global operations should check whether they operate in any jurisdictions in which e-invoicing is mandatory (as it is in India, for example), or where mandating it is in the process of being implemented.