Here’s how e-invoicing and Open Banking are a magnificent fit
E-invoicing is quickly becoming the next big, read mandatory, thing for businesses operating in Europe. And in typical European fashion, the landscape is fragmented. Individual member states adhere to different implementation timelines and seem to impose e-invoicing with different requirements.
Take Italy and Spain for example. Their electronic invoices and processing systems are not compatible. That means that today, it is not possible to directly send an e-invoice from Spain to an accounting software in Italy. But this may change.
As of 2022, e-invoicing has been added to the “Digital Europe Programme.” The European Commission’s Digital E-Invoicing technical advisory group has also been re-established to work on “technical issues relating to the evolution and use of the European standard for electronic invoicing”.
E-invoicing is back on the radar, and together with the other building blocks from the Digital Europe Programme in e-Identity and e-signatures, we now have a solid foundation to change the way we do business.
The impact of mandatory e-invoicing: France and Spain
Even though e-invoicing is not always mandatory, many businesses are choosing to adopt it voluntarily as it can provide significant benefits:
- reduced errors and discrepancies;
- improved cash flow, and;
- enhanced transparency and compliance.
The new e-invoicing system in France will going into effect as of July 1, 2024. It covers invoices for all transactions between entities subject to VAT issued in electronic form and ensures that the data they contain is transmitted to the tax authority in real-time. The reform builds upon the requirement for e-invoicing for all business relations with the public sector. The new requirements ultimately should lead to less fraud and simplified VAT reporting.
In Spain, the Law for the Creation and Growth of Companies was published in the State Official Gazette on September 29, 2022. The law includes the mandatory use of electronic invoicing for transactions between companies and sole contractors. This is a significant extension of the compulsory electronic invoicing to all relationships between companies and professionals, and even in certain cases with consumers. This B2C aspect is interesting, as e-invoicing typically is not mandatory in this context. Spain made an exception for utility services because they provide services of special economic significance, such as electronic and financial services or water, gas and electricity. This obligation applies when the individuals have agreed to receive electronic invoices or have explicitly requested them.
Seeing the developments in France and Spain, it’s important to note that while e-invoicing may not be mandatory in some countries, it might very well become so in the future as digitalization of financial and business transactions are becoming more prevalent.
Is this related to Open Banking?
Yes. These two domains are more intertwined than you may think. Here is what we mean with Open Banking in the PSD2 context: Open Banking allows customers to share bank data and initiate payments via a third party, e.g. a (finance) application like Odoo. This Trusted Third Party (TTP) connects to the customer’s bank account through APIs. The customer gets real-time bank data in this third party application and is able to directly prompt payments from it, e.g. to pay an invoice.
3 use cases of linking your Open Banking project with your e-invoices
Although invoicing and payment processing normally take place in distinct domains, there are several advantages to connect the two:
1. Faster and more secure payments
Open Banking can be used to facilitate the payment of your invoices. For example, the accounting software of your company could use PSD2 Open Banking APIs to access a customer’s bank account information, and then automatically pay invoices on the customer’s behalf using funds from that account. This eliminates the need for manually tracking and tracing of invoice payments, copying or entering data, and can also help to ensure that invoices are paid on time.
Open Banking also allows suppliers to include a secure ‘account-to-account’ payment link in the invoice, allowing the customer to make the payment quickly and efficiently. The entire payment process then takes place through the two banks’ own security systems, providing end-to-end safety for the customer.
2. Efficient reconciliation
Open Banking can automate the reconciliation of payments, leaving less room for human error and saving time. And there is more. It can also automate the verification of supplier information, track the status of invoices, or generate reports on invoicing and the related payment activity.
3. Invoice issuance
Open Banking can also provide the necessary data for invoice issuance and streamline the approval process for invoices by providing access to the necessary bank and transaction information. This can help businesses to save time and resources, and improve their cash flow by reducing the time taken by payers to process and pay invoices.
Overall, Open Banking helps to reduce the administrative burden of invoicing and makes the process (even) more streamlined.