E-invoicing: how your business can benefit

Intro:
Hello, and welcome to the CPA Australia Podcast. Your weekly source for accounting education and career and leadership discussion.

Jana Schmitz:
Welcome to the CPA Australia Podcast on electronic invoicing also called e-invoicing. I am Jana Schmitz technical advisor assurance and emerging technologies at CPA Australia. And I am joined today by Ray Wang, founder and CEO of LUCA Plus and e-invoicing platform. Ray, has been a professional accountant for more than 10 years and has experience in both commercial and public accounting industries, including working in top 500 companies, such as Nike for many years. And a wide range of experience in many business and taxation accounting firms. Welcome Ray, and thank you very much for sharing your expertise with us today.

JRay Wang:
Thank you very Jana. Thank you for inviting me to this podcast and it's a pleasure to be here to also talk about e-invoicing, and also introduce this concept to all the CPA members.

Jana Schmitz:
Thank you Ray. Now, Ray in simple terms, electronic invoicing or e-invoicing as I will call it from now on is the automated digital exchange of invoice information directly between a buyers and a suppliers accounting systems, but how exactly does he e-invoicing work?

JRay Wang:
Basically, you're correct. You're right. Jana you explain it very well. So people normally get confused about what e-invoicing is really about. Most of them actually felt e-invoicing is like a digitalized invoice into a format like a PDF, Excel sheet, CSV data, and then transfer and then sent between each other but it's actually not. So as you explained before so e-invoicing is actually a direct transfer or exchange of invoice data across different accounting platforms or ERP systems between suppliers and customers. So for example, if you were company A using an accounting software like Xero, and your customer is using another accounting platforms like MYOB or QuickBooks, once you created an invoice in your Xero and then click on the email button to send it out, your customer will actually receive that invoice as a bill to pay straight away into their MYOB or QuickBooks system. So in that case, you don't have to manually process anything at all. And that's basically what it is and how it works.

Jana Schmitz:
Thanks Ray, I just have a quick followup question I believe. You mentioned different accounting software, such as Xero and MYOB, or MYOB and I'm just wondering about the interoperability. So my understanding of e-invoicing is that you can only use it between the Xero and MYOB software, if Xero an MYOB use the same e-invoicing network. So they, for example, need to support let's say LUCA Plus in order to make e-invoicing work. Is that correct?

JRay Wang:
Yes or no. Maybe let me explain a little bit about the whole e-invoicing service model. So basically how e-invoicings' networks is actually what we call it, PEPPOL network, which is actually coming from Europe. So a lot of the European businesses have been adopting e-invoicing for almost I've heard 20 years already. So how the PEPPOL invoicing network works is we have what we call a 4-corners model. So company A, in that example we mentioned before company A using Xero will engage with an e-invoicing service provider, for example, LUCA Plus like us as a corner two. And then we get information from you guys, company A and then transfer the information into PEPPOL network.

JRay Wang:
So the receiver also has engaged with another e-invoicing service provider to act as a corner three, and then they will actually capture that information and then send it to the end invoice receiver. So that's how it works with the 4-corners model. And so you're right about the invoice sending through from one platform to the other one, but it doesn't really necessarily means that it has Xero or MYOB. Depending on your e-invoicing service provider whether it's they have integrated with any of the accounting platforms.

Jana Schmitz:
Yeah. That makes sense. Thank you for elaborating on that Ray. You mentioned a PEPPOL network. I hope I pronounced that correctly PEPPOL, right. I want to talk about that and the role of the government later, a little bit more, I think it's important though to cover, first of all, why e-invoicing will become more important in the future? Can you elaborate on that a little bit?

JRay Wang:
Yeah, sure, absolutely. So I would like to also mention one thing, which is to make people realise. So we talk about e-invoicing system, e-invoicing platform, but really invoicing is actually a business network system. So when you run a business, I think the network is actually quite important because you have your suppliers, you have your customers all join into the networks and then connect with each other. And also, secondly e-invoicing as we know is actually part of the digital transformation. And digital transformation it definitely is the trend in our society and business ecosystem. As we all know that in the last 12 years, we can see that pretty much the whole society has been benefit from adopting digital solutions. So that's why we have more than, I think approximately 2 million businesses that using cloud-based accounting system.

JRay Wang:
So for example, people who have being using Xero, MYOB, QuickBooks Online they receive a lot of benefits by doing that. So same as e-invoicing is part of the digital transformation. And I believe it improves two things. So one will be the transparencies and efficiencies. And once these two things get improved it actually help your business to grow faster. So for example, the more transparent you are as a business, it will make everything easier when we do things like fundraising, because you obviously you have to go through the due diligence process. So the more transparent you are and then the more efficient you are, the quicker you can provide all the information available to the investor, and then the quicker you can make the whole process and get the money.

JRay Wang:
And the same thing apply to all the finances services, for example, like business loan or invoice financing, the quicker you can provide all your information, same thing, the quicker that you can actually get the monies from banks or brokers to increase your working capital. And then so you can make a better quicker decision to help your business grow faster. So I think that's why I think e-invoicing is actually quite important to the businesses in Australia. And also, I think I also believe one thing, the more transparent you are as SMEs potentially in the end the tax rate could be lower because I believe that once the governments collected that money and then they will find a way to give it back to the society.

JRay Wang:
Because I think for me, the government's role is always trying to help us rather than making us suffer as SMEs. Typical example, like what happening right now with the COVID, there's a JobKeepers, cash flow boost, business support brands, et cetera. I think once we can be more transparent and then I believe they will look after us by reducing it could be let's say GST rate or tax rate for SMEs.

Jana Schmitz:
Yeah. I found that. I find that very interesting Ray that you mention digital transformation and these key words in the context of this digital transformation development. For example, transparency and efficiency and so on. And I believe that small and medium sized enterprises, so SMEs are definitely aware of this digital transformation trend. But unfortunately they do often not always, but often lack behind the larger firms or the larger organisations. So with e-invoicing being a part of this digital transformation, advancement or development, how can SMEs benefit from the utilisation of e-invoicing?

JRay Wang:
Yeah. They can benefit from a lot of different ways. I think first I would like to talk about one of the thing it's actually quite important for businesses is they can actually get paid faster. Because when you are adopting e-invoicing system, your supplier... Sorry, your customers will actually receive that invoice into their system straight away. So in that case, there's a less error will occur. So that actually guarantee that that invoice and that transaction will 100% goes into the right account in your system, and also it will definitely go to well, get alert by the right person. Because according to the research there's two major reasons that why business get paid late because there's a 21.4% of chance that the invoice will contain incorrect information. And also there's the 21.9% of chance that the invoice actually gets sent to the wrong person.

JRay Wang:
And that was actually some research down by ATO. So I think that's why we believe by adopting e-invoicing solutions I can make you get paid much faster. And not to mention about the government is actually trying to promise that all the business that adopting e-invoicing with government agencies will guaranteed get paid within five days. So that's another typical example, of saying that, "That businesses will get the pay faster." And also at the same time from the cost saving side. Well, I think it's very straightforward because traditionally you had to hire an internal accountant, or bookkeeper to sit there for hours manually process invoice into your accounting system. But if all your suppliers are on the e-invoicing, all you need to do is to get a financial controller or they say, accounts payable manager, and just sit there and the monitor how the invoices bills directly got into your system.

JRay Wang:
Obviously after you approve it and then just do a high-level check, make sure, "Okay, this is coming from the right people, the mail is correct based on whatever the purchase officer told me. And that the tax rate is correct." And just approve it and give it to the financial controller to process the payment. And then it saves a lot of time and money and will basically eliminate all the human error. Because also from our own experience as well. I think for me because as you mentioned at the beginning, I am actually an accountant for more than 10 years already. I started as a bookkeeper when I first graduated from uni. So I think up to know it takes me every averagely, it takes me probably about three minutes to process one invoice, but obviously depending on how complicated it is.

JRay Wang:
So sometimes it can get up to five minutes if there's so many transactions, so many lines, but it could be like just 30 seconds. But from what I experienced with our e-invoicing solutions, it takes only up to 10 seconds, of course, depending on the internet speed, et cetera. So that's why you can see that the benefits straight away, basically the time to process the invoice get reduced from a few minutes to five to 10 seconds. Yeah. And they're more I can talk about it, but before that have you gotten any questions?

Jana Schmitz:
Yeah, actually Ray. I would like to follow up on a couple of things that you just mentioned. I find this really, really interesting especially from the perspective of a SME. And I think that if I was a CEO or a CFO of a SME company, I'd be very interested in how much e-invoicing would cost me. Because I believe there is that there must be a fee involved somehow. Can you shine some light onto that?

JRay Wang:
Yeah. Are you talking about the fees that you pay to the service provider, right.

Jana Schmitz:
Yeah. Perhaps.

JRay Wang:
Yeah. Yeah. So it's actually different because obviously there's I think at the moment there's about 20 e-invoicing service provider market, including us LUCA Plus, and we all have a different pricing models. Some of them charge based on the transaction volumes and some of them actually charge, no matter how many e-invoices you receive and send it will charge you by a monthly basis. But to be honest, considering the cost comparing against the benefits that you receive is actually nothing. Again, that's as per ATO's research, the cost on savings can get up to even, let's say, I think about 70% cheaper when adopting e-invoicing as a business solution. On the ATO's website you can see those information straight away.

JRay Wang:
So in average, they believe it cost about $20 to process one invoice in the traditional way. That's in two different formats whether it's you receive a paper invoice or receive a PDF copy, and then you manually process that into your accounting system. And then that will cost averagely $20, but it only costs $10 to process an e-invoice. Because as we mentioned before, the other times you save and then also of the human error, it will get eliminated. That's how much actually, how much money and time you can save. Because think about it, you probably have to hire out a junior IP person to process everything, but how much does it cost on a yearly basis at least like 50K a year?

Jana Schmitz:
Yeah. Yeah. No, that's a very good point. And Ray you just mentioned the ATO website, I believe. So I just want to make sure that our audience finds the correct link. So we'll definitely link that in the show notes, that was really, really informative and very detailed. What you just explained to us regarding the cost. I also wanted to touch on the human error that you mentioned, and I just want to make sure that we all are on the same page. So I guess that many people, many employees, especially perhaps in the SME sector whenever they hear that technology can eliminate the human error, they associate that they might lose their jobs because there is a lot of automation going on. And there was this stigma out there that certain professions are being threatened by this ongoing automation. So I just want to add that while SMEs or organisations in general, definitely benefit from this whole automation advancement or technology in general. They still need to apply their internal assurance processes before, for example, paying invoices.

Jana Schmitz:
However, we should also mention that a lot of time can be saved, for example, in administration. And so those people who perform these jobs for those e-invoicing, for example, will provide opportunities to focus on more value adding tasks, such as growing the business. So in other words, I would emphasise here that e-invoicing allows businesses to free up more time perhaps to perform more high value or value adding tasks. I guess that's very important to mention here and that e-invoicing does not necessarily make certain jobs obsolete, but rather supports them in a way. And in terms of the reduced payment times I think that is actually one of the key advantages. Because during COVID, we've seen many businesses suffering from either not being paid or the payment cycle having been extended to unreasonable extent. So e-invoicing can certainly add some value to SMEs in that regard.

JRay Wang:
Correct. Yeah, I think, no, that's great. I think we can talk about the more value added services because you are right, because I have the same experience as well. When I do the different education sessions with the accountants group, a lot of them actually did ask me the questions, "Okay. Does that mean a lot of the junior position people will lose their job?" But it's actually not because when you think about as a human being, how we get to where we are now. Through different industry revolution stages. So I think every single, every single period, there's always something new whether it's a technology or some stuff new coming out. Of course, there will be people probably won't benefit from it. But I think majority of us actually benefits in the end because for example, you mentioned that about the more value added services.

JRay Wang:
Because according to the research, again, a lot of these... I remember there was a survey done by one of the major banks, a lot of these business clients prefer accountants to provide more value added services to help them making better decisions. Rather than receiving bills saying, "I've spent the last how many hours manually processing everything." I think at the same it kind of force us accounting professionals to learn more about how we can really help our clients to make better decision and to grow their business. Rather than just to spend a lot of time on those low value added tasks. You're right.

Jana Schmitz:
Exactly, exactly. And Ray, another observation that I just made, or another thought that I just had while you were explaining the benefits of invoicing to SMEs, is that my understanding based on what you explained to us is that the different systems. So for example, let's go back to the Xero and MYOB example. They are basically talking to each other and using e-invoicing. So the invoice is being transferred from one system to the other. And I believe that that also might mitigate the risk of receiving fake or compromised invoices.

JRay Wang:
Absolutely.

Jana Schmitz:
And I think that is a huge benefit of e-invoicing actually in the current environment we are in COVID-19 where there has been a lot of scams out there. And I reckon that lots of organisations have lost significant amounts of money because of these scams and even cyber risks and so on. So perhaps e-invoicing addresses those risks as well.

JRay Wang:
Yeah, you're absolutely right Jana because I've done the research about how much Australian businesses actually lost due to the invoice scam. Have a guess about the number in 2019, how much money the whole Australian business actually lost last year?

Jana Schmitz:
Well, look I'd better, not guess. But give me the number.

JRay Wang:
Yeah. That's all right. Well, so it's about $132 million got lost due to the invoice scam. So you're right it's a question of whether you want to save that $132 million. Most of us probably, can't afford you anything like that. So I think that you're right about the e-invoicing solutions can definitely eliminate this scam. Because obviously by adopting these solutions you don't have to rely on the information that you receive from let's say emails or message because all the information will or the data will be directly transferred into your accounting system.

JRay Wang:
It actually happened to one of our users before, so that user just gave me a call one day said, "Look, I received an email from one of my suppliers and asked me to pay for this invoice. But then I thought I had already paid for it what's going on." And she was about just to make us say the same amount of payment, but then she realised in the end the bank account information is different. That account information is absolutely not her suppliers, so that's how e-invoicing can sort of stop this inward scam. Yeah,

Jana Schmitz:
Definitely. A risk mitigating measure. I totally agree. Now I could talk about the benefits of e-invoicing for hours but we should perhaps should move on. We leave that for another podcast. We go on a short break now, but once we are back I will ask Ray about what role the government plays and what SMEs should consider when using e-invoicing.

Announcer:
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Jana Schmitz:
Welcome back, Ray. Let's talk about the role of the government in e-invoicing. What exactly is the role of the government in e-invoicing and why is the government accelerating the e-invoicing economy?

JRay Wang:
Thanks, Jana. As we all now that we heard from the news a few weeks ago, the prime minister, actually in the outset they're going to invest $3.6 million to push to make the Australian businesses and the government agencies to start adopting e-invoicing solutions. And I think the role they trying to play is because a lot of people, when they hear governments taxation offices they feel, "Okay does that mean that everything will get monitored." It's actually not the case. So obviously first the treasurer will allocate that budget to ATO. But what the ATO is really going to do is they will actually help to promote this concept. Helps the businesses to understand more about e-invoicing.

JRay Wang:
And do things like public events, like a webinar, which we have done one with ATO before or speaking session, or share any information or give me even a thumb up on my LinkedIn post. They do all these things to help promoting this concept. And also at the same time, they help to standardise and make a regulation about the e-invoicing standard. And also at the same time manage the framework and the governance for e-invoicing. So that's basically what ATO does.

Jana Schmitz:
Yeah. And so bottom line is that they are actively pushing for the implementation of e-invoicing.

JRay Wang:
Correct. Yeah. But they won't be really pushy to other businesses. So firstly, they will certainly start with government agencies. So their goal is to... They want to make sure that a majority of the government agencies have adopted e-invoicing was your solutions.

Jana Schmitz:
Thanks for clarifying that because I made the assumption that this also applies to businesses, but it's good that you clarified that this applies to agencies like to the government [inaudible 00:28:29].

JRay Wang:
I think also the benefits to the SMEs will be from the government side will be, they actually trying to promise that all the SMEs, if SMEs adopt e-invoicing solutions with government agencies, they will be paid within five days after the issued e-invoice to the government agencies. And then that's actually another example that SMEs can get paid faster.

Jana Schmitz:
Yeah. That's very important to mention. Thanks for that.

JRay Wang:
That's okay.

Jana Schmitz:
Now the final question for today, and I guess this is one of the key questions or if not the key question is how do businesses or particularly SMEs get started with e-invoicing? And what do they need to take into consideration when they are considering to start e-invoicing?

JRay Wang:
Yeah, sure. I think to be honest from me, I think every business will benefit from adopting e-invoicing solutions, but obviously we always start with the pain point first. So the more transactions you process, and then the more benefits you actually receive. So maybe the question can start with this, ask yourself how many invoices, how many bills you process and send monthly or a weekly basis. And also the value of the invoices and also the relationship between your suppliers and customers. Because obviously if you get phone calls from your suppliers all the time to ask you how come they get paid with the wrong amount, then you got to ask your questions, "Okay. Maybe my bookkeeper or my accountant's always making mistakes."

JRay Wang:
And then that's the time that, "Okay, maybe we should adopt these e-invoicing solutions to reduce the error, and save my time to explain many things to my suppliers." And same with the customers. If you always get paid late. Maybe this e-invoicing solution can help you to get paid faster because it always gets to the right person and with the right amount. And because if you are more transparent. There's a more other stuff you can get from adopting the e-invoicing solutions like financing or loans, things like that or fundraising. And also I think the next step is once you identify, "Okay, well, I really need e-invoicing solution right now." And then the next step will be to find an e-invoicing service provider, for example, like us LUCA Plus.

JRay Wang:
I think at the moment there's about 20 e-invoicing service provider to make sure that e-invoicing service provider actually have found the integration with your current accounting system like Xero and MYOB. And some of them actually focused on a much larger ERP system like SAP or Oracle, NetSuite that kind of accounting system. So each of them actually have different focus. So I think that's something that needs to be considered as well because I don't think any of them actually integrate with all of them. So it was almost either focused on those SMEs softwares or focused on those a large systems.

Jana Schmitz:
Ray, quick question, quick follow-up question. You mentioned that there is roundabout 20 e-invoicing providers. Do you mean in Australia?

JRay Wang:
Correct? Yeah. In Australia. Yeah.

Jana Schmitz:
And where could SMEs look up those providers? Are they listed somewhere?

JRay Wang:
Yes. If you go to ATO's website or maybe on Google, you can just type in ATO e-invoice service provider. There's actually a whole list of accredited providers on the ATO's website. And every single one has been assessed and accredited by ATO. And we have all gone through a very solid and thorough process application to make sure that we have their, for example, their securities, make sure we can protect the data of the customers. You can certainly start from there.

Jana Schmitz:
So perhaps we should say that for SMEs, it's the safest way to go on the ATO website and to look up the accredited e-invoicing.

JRay Wang:
Correct.

Jana Schmitz:
And LUCA Plus is one of them [inaudible 00:33:40] you just mentioned. We will provide the link to that source in the show notes to this podcast as well. And maybe I should ask my follow-up questions. I believe that for SMEs, there is a general concern about tech savviness sometimes. So how tech savvy do your employees need to be in order to be able to use e-invoicing?

JRay Wang:
No, you don't at all actually because the adopting e-invoicing solutions is about making your life simpler and easier. So you we don't try to change your behaviour as a user. You still raise your invoice on your existing accounting platforms and we receive it. But the only difference is just to at the beginning make a connection with one of the service provider. Because most of us actually how our platform or system works is like an add-on. We connect with your current accounting system. So once at the beginning you make the connection, LUCA Plus is only three steps connection. And then once you've done it once and you just sit there and enjoy e-invoicing solutions. There's nothing else you need to do, and but obviously there's maybe some presetting you need to do at the beginning as well. For example, you can pre allocate, which transactions that... Sorry, which account you will like that transaction goes to from that supplier. So once you've done that, then you can achieve 100% automation and everything, all the information will get flowed into your system.

Jana Schmitz:
Yeah. No, thank you so much for responding to that question. I think that's very important to address, especially from an SME perspective, whether your systems need to undergo significant changes, or whether you can basically just download the e-invoicing software and then use it as an add-on to your already implemented system.

JRay Wang:
Yeah. I'd like to... Sorry. I'd like to correct one thing. So I think with e-invoicing add-on you don't need to download anything. I think I've downloaded the research as well. So I believe all of us is actually a cloud-based system, so there's not need to jump into any website and download anything. So basically just connect your let's say your Xero, MYOB with an e-invoicing service provider and then that's it.

Jana Schmitz:
Okay. And Ray because you just mentioned cloud. So my understanding based on what you just explained is that the data, so the invoices or the client data or the supplier data and so on it is saved on the cloud. Is that correct?

JRay Wang:
Correct. Yeah. And also for us all the information we get is actually information from your existing platform. So correct, it will get stored on the cloud or some other... Yeah, some cloud system like AWS and that's what we use.

Jana Schmitz:
Yeah. And what's probably worthwhile mentioning is that there is legitimate and sufficient data security around the cloud services so that no data can get stolen or misused. I think that's also a very important fact. And that's why it's important to look up the accredited e-invoicing providers on the ATO website.

JRay Wang:
Correct. Yeah, absolutely.

Jana Schmitz:
Ray, thank you very much for sharing your e-invoicing expertise with us today. I'm certain that many SME owners or employees now have a better understanding of what e-invoicing is and how it works.

JRay Wang:
No, thank you very much Jana. Again, it's a pleasure to be here and talking about my favourite topic and hopefully we can do more later on.

Jana Schmitz:
For sure Ray. Be sure to visit our show notes on the CPA Australia podcast webpage for links and more information on this week's episode. Thanks for listening.

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