UK businesses are working closer than ever with Europe, but Steve Carter asks how many companies are aware of different attitudes to payment processes across the continent?
COUNTRIES ACROSS THE EU have until 2013 to comply with new cross-border VAT and internet based invoicing directives. However, there are clear signs these directives are open to interpretation, with countries opting for subtle variations in regulations that will impact business practice.
With seven of the top eight markets for UK business coming from the EU, according to HMRC’s 2011 figures, it is essential accountancy firms keep clients up to date with changes in both legislative demands and cultural requirements. The cross-border VAT and electronic invoicing (e-invoicing) directives will require strong processes to ensure the integrity of inbound and outbound invoices, in paper and electronic format, to guarantee document protection and remove any ambiguity.
The new rules aim to promote and simplify invoicing legislation by removing existing burdens and barriers. It establishes equal treatment between paper and electronic invoices without increasing the administrative burden and aims to promote e-invoicing by allowing freedom of choice between the two forms.
It addresses the four principal areas of invoicing – the requirement to issue an invoice; the content of an invoice; electronic invoicing; and the storage of invoices. It also has a view to mapping existing legislation in member states, analysing burdens on business and control needs of member states, and providing recommendations for a more harmonised and modern set of VAT invoicing rules.
To take an example, in Southern Europe the emphasis is on invoice design and reliance upon PDF format. In Northern Europe, by contrast, the emphasis is on content; organisations want files formatted to be readable by people and IT systems. This enables the invoice to be included directly into finance systems. Failure to understand and recognise the different demands of buyer organisations could result in payment delays, or even rejected invoices.
While most companies have solid paper based processes, the adoption of emailed invoices has resulted in ad hoc electronic processes, with invoice PDFs emailed around the business to gain approval. The result is duplicate documents, poor integrity and no clear audit trail.
Compliance with EU directives requires a demonstrable system to prove that an invoice has not been tampered with; the invoice is from a genuine supplier, for the correct amount; the goods have been received; and the invoice has not been adjusted in any way or resubmitted for a different amount. If information is re-keyed into the finance system, it must be provably accurate; companies must also ensure invoice information is stored according to legal requirements of the relevant country.
The implications of failing to adopt these practices are significant. If HMRC is not satisfied an invoice generated in the EU is genuine, the organisation may not be able to reclaim the VAT – a significant financial blow to any business. Furthermore, such a problem is likely to provoke a more in depth investigation and review of financial processes. In addition, under the EU directives, tax authorities from other EU countries will have the right to demand access to invoices to ensure integrity.
This is not an issue that can be ignored. Not only is the EU 2013 deadline fast approaching but with the adoption of e-invoicing significantly further advanced in many European countries, most notably the Nordics and Benelux, UK businesses could soon start to experience backlash if they are unable to deliver e-invoicing in the format required.
Companies in these countries are also gaining a competitive advantage from a proactive use of e-invoicing to exploit new supply chain finance models that are driving down costs and facilitating business expansion. For accounting firms, the challenge now is to work with clients to not only impose strong e-invoicing processes and meet the diverse requirements of different European counties, but also explore the role e-invoicing can play in financing to ensure UK businesses are well placed to exploit emerging international opportunities.
Steve Carter, is E-Solutions Strategist at Bottomline Technologies.