The UAE government has long promised a paperless society, and next year, in July, it will take a further important step towards this vision. By then, eInvoicing will be mandatory for B2B and business-to-government (B2G) transactions. The move will be a major stone in the foundations of an envisioned sustainable economy, where the government pursues its paper-usage goals while aligning with global tax regulations.
Invoices are a pivotal part of every conceivable business interaction. The speed and accuracy of their issuance have a sizeable impact on the seller’s cash flow, and their efficient payment has a similar effect on a buyer’s relationships with its suppliers and subsequent ability to negotiate better terms and pricing. In the GCC, where VAT has become a part of everyday business, the invoice is now a central pillar of tax audits. For these reasons and more, it is not surprising that invoicing is a top priority for digitalisation among businesses in the Middle East.
Electronic invoicing offers an opportunity to target operational efficiencies, cash flow management, and risk reduction. First, the manual effort associated with accounts payable processes is drastically reduced. No paper receipts, no scanning, no clerical matching of the invoice to a purchase order or contract. Also eliminated is the strain of dotting every regulatory ‘i’ and crossing every compliance ‘t’.
Strains and gains
The advantages of eInvoicing systems to scalability are staggering. Many studies have estimated the escalation in accounts payable productivity in an eInvoicing environment. One from Ernst and Young calculates that a single full-time employee can process around 6,000 invoices each year, but with automation, the output becomes more than 90,000. This is a 1,400% increase, making eInvoicing a no-brainer for decision-makers. But beyond this dramatic upscaling achievement is the fact that finance staff are relieved of a tedious chore. Therefore, their days can be spent focusing on higher-value activities that are more fulfilling for them and help grow the business.
This new efficiency in invoice payment has a knock-on effect on suppliers. A study by the Aberdeen Group showed the average invoice cycle time to be as high as 41 days. Late payments bring penalties. Even in legal jurisdictions where payment terms are challenging to enforce, supplier relationships will be damaged by failure to meet the terms of payment. However, paying early can secure real bottom-line discounts — typically around 2% of the value of the invoice. eInvoicing automatically manages these issues. It also helps greatly with regulatory compliance. UAE VAT legislation, like other jurisdictions, includes rules on everything from eligibility limits to the retention periods for the storage of invoices and other documents. Failure to comply can mean being subject to penalties under UAE Federal Law No. 7 of 2017 on Tax Procedures. The eInvoicing system is a significant step towards preventing such legal jeopardy.
The benefits of eInvoicing form a long list. The cost of invoice processing is reduced, as are the processing cycle time and the labour hours required for the accounts payable team. The digitalisation of invoicing boosts the percentage of on-time payments, giving way to more on-time earning discounts and more positive supplier relationships. Furthermore, eInvoicing opens the door to a range of sustainability boons. For the shrewd business leader, eInvoicing will be a prime target for their digital transformation program.
Going global
But one caveat remains. If a business engages in cross-border trade, it must account for the invoicing rules of other jurisdictions. Processing, regulating, and auditing eInvoices can take different shapes from country to country, bringing many challenges to finance teams when addressing global eInvoicing compliance. This is where it will become necessary for organisations to have a plan to align with international markets. Finance leaders should build a matrix of the countries where invoiced transactions are taking place. The matrix will cover every possible two-country combination for those transactions so that each compliance requirement can be analysed and understood. For each country of origin, the enterprise must define the required data content for an invoice, and for each country of receipt, it must accurately define the workflow for signature, validation, and archiving.
According to each country’s regulations, it will be critical to establish a process where invoices can be digitally signed at the proper point in the workflow. Be aware that it may be necessary for dual signing and certificates from both countries involved in the transaction. eInvoicing will help with all of this because it is capable of modelling but also updating regulations in cross-border transactions. Digital processes ensure accurate tax calculations in any given cross-border combination and can also manage the archiving of invoices to satisfy each country’s laws. The creation, transfer, and storage of information in the digital invoicing system means organisations safeguard the end-to-end process for auditing. This ensures the business maintains healthy relationships with regulators in every jurisdiction in which it operates.
All of this becomes possible only with the right technology platform. Converting tedious, manual, paper-driven processes into a single digital workflow reduces time and errors, increases capacity and job satisfaction, and lays a solid foundation for the enterprise’s sustainability program. Meanwhile, suppliers are more amenable; late-payment penalties are avoided, and the business can qualify more often for early-payment discounts.
The paperless society
The UAE government has its eye firmly on a paperless future. By implementing eInvoicing sooner rather than later, businesses will align themselves with upcoming regulations and become part of a great societal push for convenience, efficiency, innovation, and prosperity.
