Electronic Invoicing in Mexico

Last month (May 2009), Mexico's tax authorities began requiring a new complex set of rules and requirements for electronic invoicing. The purpose of these rules are to provide better visibility into the sales and revenue streams of businesses in Mexico.

Crossgate provides global e-Invoicing to many fortune 1000 companies already, but the Mexico requirements are different and unique. We have now completed these requirements and are in production. Here are some of the high level requirements for you to understand:

• You must be registered with SAT (Mexico Tax Authorities) to exchange electronic invoices
• You must register and download a list of folio numbers (similar to invoice numbers but provided by SAT)
• A folio number must be assigned to every invoice. You will likely have your own invoice number with an associated SAT issued folio number
• On a monthly basis, companies must provide SAT with a list of folios that were used during the month
• Companies must archive a special XML file for each folio used during the month and it must be stored on premise

Email me if you would like the rest of the detailed requirements and information on Crossgate's automated e-Invoicing solution for Mexico.

Notice - Mexican e-Invoicing Requirements and EDI Requirements

In May 2009 the Mexican government will change the way companies can send paper invoices to customers. Current regulations allow paper invoicing using government-issued invoices or customer-generated invoices. But with the new regulations, instead of being able to print their own invoices, companies using paper invoicing will now be required to obtain pre-printed invoice forms certified by the Servicio de Administracion Tributaria (SAT) or adopt a solution to send digitally signed invoices electronically to domestic and international customers.

SAP and Crossgate press release on Mexican e-Invoicing requirements.

Changing Top Priorities for Companies in Today's Economic Climate

The ambitious business plans that many companies hoped to be executing in 2009 have in most cases been set aside and a new list of priorities advanced. This article called Top Priorities for Companies Today and the Growing Need for EDI and B2B E-Commerce discusses an emerging set of priorities that are being seen in Q1 2009. Note priorities 7, 8 and 9 all have to do with e-Invoicing and accounts payable optimization.

Companies today are looking for ways to accomplish more with less. They are seeking ways to automate people intensive processes with business automation, and replace paper with electronic data exchanges. They are seeking to consolidate systems and processes into Shared Services Centers and to simplify labor intensive IT environments with more third party managed services providers.

Supply Chain Financing and EDI / B2B

This week I have been involved in a lot of discussions around Supply Chain Financing. This is a world I barely knew existed a few months back. Corporate Treasures are of course focusing on Working Capital and its components. One component DPO (days payables outstanding) is an indicator of how long a company is taking to pay its suppliers. Manufacturers and other companies are looking to find ways of extracting more cash from their supply chain, as the credit markets are clearly constrained. Companies may be looking to take longer to pay suppliers, helping suppliers remain financially stable, and at the same time negotiate early payment discounts. Some times, there may be a bank willing to provide a short term loan to the paying company so they can pay suppliers early and get an early payment discount, or to loan money to the supplier so the manufacturer can take longer to pay their bill. All great stuff, but how is EDI and B2B E-Commerce involved?

Let's discuss the processes involved in the financial supply chain. First let's look at it from the perspective of the manufacturer:

1. Send Purchase Order
2. Receive products
3. Receive an invoice
4. Perhaps dispute an invoice
5. Issue payment (and thus impact working capital)
   
6. Archive Invoice and Payment information

Let's now look at the supplier side:

1. Receive order
2. Deliver product
3. Submit invoice
4. Resolve invoice dispute
5. Receive payment (and after posting, impact working capital)
   
6. Clear receivables
   

Every time you see the words; receive, submit, send or issue there is a place for EDI and B2B e-commerce (for more on EDI and B2B issues) - the electronic exchange of business documents and data. If fact, there is a whole industry dedicated to helping large companies optimize their accounts payable processes.

In the world of Financial Supply Chain there is a lot of business information that is being exchanged in a short amount of time. The ability of a manufacturer to receive an invoice, process it and negotiate an early payment discount and make the payment all needs to take place in a few short days. The whole discussion around early and dynamic payment discounting is mute if processing the invoice takes longer than the early payment discount term allows.

To take advantage of the various Supply Chain Financing opportunities available from banks and other parties, manufacturers must have the capability to support a high level of business process automation and have advanced EDI and B2B capabilities. The manufacturer can either support the EDI/B2B requirements internally, or find a managed services provider that can support these processes and provide a tight integration with the manufacturer's ERP and accounting system.

Crossgate and BancTec are 2 of many companies that are active in this solution area. For a more comprehensive list see this directory.

Implementing e-Invoicing

In these times of economic uncertainty, there are many reasons a company may want to implement e-Invoicing (Electronic Billing, EBPP, EIPP, Paperless Billing) processes with both their suppliers and their customers. Let's start out discussing why a company may want to consider implementing e-Invoices with their customers.

• Reduced paper costs
• Reduced printing costs
• Reduced handling costs
• Reduced postal costs
• Reduced (DSO - days sales outstanding)
• More environmentally friendly (Go Green)
• Compliance with local tax authorities
• Reduced payment processing costs
• Reduced data entry costs (entering payment information from paper)
• Reduced data entry errors
• Reduced billing disputes
• Reduced paper storage

There are also many reasons a company would want to accept electronic invoices from their suppliers which we will discuss later in this article.

How does a company implement e-Invoicing with their customers? Let's lay-out a plan:

1. The company must notify their customers that they want to implement an electronic invoice process with them and get their agreement. This is typically done via a letter and/or email sent to the accounts payable department of your customer.
2. The notice should request that the customer read and agree to the terms of the online agreement form, and then register to participate.
3. Once the online form is completed and the customer agrees to accept invoices electronically, the agreement should be automatically emailed to the customer for printing and safe keeping.
4. The online form should also include a survey of the customer's electronic data exchange (B2B)capabilities. Can your customer exchange EDI or other B2B data formats, or do they want to exchange invoice information only via email or a web portal?
5. Once your customer is ready an email should be sent to them with a link to a secure website where they can login and view current and past invoices. This reduces the customer support and accounts payable workload. This portal should allow the company to see when their customer's read and/or download the invoices. Unread invoices should be flagged and the company alerted that more customer training may be necessary.
6. e-Invoices that must contain a digital signature that is compliant with tax authority regulations must be archived. The length of time that electronic invoices must be archived differs widely depending on local regulations. It is often from 5-10 years.
7. If your customer is a high volume customer and can support EDI or other B2B data exchanges then the portal may be useful to check on the status of invoices, but a fully automated B2B process may be more efficient.
8. The portal should also enable both you and your customers the ability to verify the integrity of the digital signature. The portal should have integrated functionality to send a verification request to the digital signature authority and receive a response. This ensures that the invoice on record and in the archive is valid.

Now on to the topic of implementing the exchange of electronic invoices with your suppliers. This linked blog article highlights some of the costs and benefits, but let's address some of the issues here.

• Large companies often receive tens of thousands of paper invoices monthly. These must be received in a mail room, opened, organized and moved to the appropriate processing centers where the invoices are manually read and the data entered into the accounting system. Many large companies receive invoices in dozens of different locations where this process is repeated. The manual processing of invoices can be a huge expense.
• Unprocessed paper invoices prevent management visibility into the true state of liabilities.
• The longer it takes to process an invoice, the more customer service and accounts payable issues arise.
• Unprocessed or slow processing of supplier invoices prevent companies from realizing early payment discounts that may be offered by suppliers.

It is important to note that not all problems with supplier invoices can be solved through EDI, B2B or other forms of electronic invoicing. This article details business process challenges that often need to be corrected before the full value of electronic invoices and accounts payable optimization measures can be realized.

There are several key areas that I would suggest looking at first when considering how to optimize the accounts payable processes in a large company.

• Consider the consolidation of disparate software systems into one ERP
• Define and implement formal invoice approval work flows
• Consolidate management of invoice receipt into shared service centers
• Outsource the scanning/OCR solution to lift data from paper invoices
  
• Implement an automated invoice approval work flow engine
• Convert paper invoices to electronic invoices by implementing EDI, Supplier Web Portals or other B2B strategies.
• Implement an electronic payment system
• Consider how a consultant might help you manage through this sort of process change
  

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***************************************
Paul Diegelman
http://www.linkedin.com/in/pauldiegelman
***************************************
Kevin Benedict
http://www.linkedin.com/in/kevinbenedict
http://b2b-bpo.blogspot.com/
***************************************

EDI, B2B and Electronic Invoices are Not Always the Answer for Accounts Payable Optimization

Converting paper invoices to electronic invoices is not always the best first step to optimizing a high volume accounts payable department as this article on a blog site that covers EDI and B2B issues explains.

Electronic Billing and Invoice Processing ROI

I am working on an interesting ROI study and business case for an electronic billing project. The client is in South Africa and due to the troubled state of their postal service, the client has been forced to send their invoices to their customers via courier service. This service is expensive. The client came to us to learn how we could help them automate their invoice processing. They wanted a system that would permit them to do invoice processing electronically and compliant with the e-Invoicing laws of their local tax authorities.

Implementing e-Invoicing and electronic billing are common requests, but reducing courier service fees as part of the ROI is a first.


Typically the savings would come from the following:

• Reduced Days Sales Outstanding (DSOs)
• Reduce Cash Conversion Cycles
• Best In Class – 5x Faster at converting Sales into Cash
• Faster Dispute Resolution
• Compliant with tax authorities
• 60% Print & Postage Reduction –from $5 to $2 (Gartner)
• Lower Call Center Volumes
  –Up to 60% of calls relate to invoice disputes

Some of the requirements for being e-Invoicing compliant in South Africa are:

• Authenticity and integrity can be guaranteed by Advanced e-Signature
• The customer needs to agree to receive electronic tax invoices (explicit, in writing)
• Outsourcing the issuing (e-Signing) to a third party is possible
• No specific invoices format requirements – and presenting an invoice in .pdf format on a website is considered as electronic invoicing in South Africa
• Archiving (sender and receiver) must be in electronic format (for 5 years) and can be abroad (prior notification to tax authority is recommended)
• Statutory Background (http://www.sars.gov.za):
  •VAT Tax act 89 of 1991, section 16,20, 21, 55 and 57
  •VAT Practice Note 2 of 25.9.91 (self-invoicing)
  •VAT 404 VCAT guide for Vendors (2004 ed.) pager 56 (EDI)
  •VATNEWS 20 – Sept 2002
  

Paul Diegelman
http://www.linkedin.com/in/pauldiegelman
****************************************
Kevin Benedict
http://www.linkedin.com/in/kevinbenedict
http://b2b-bpo.blogspot.com/

Why Convert Paper Invoices to Electronic Invoices in Uncertain Economic Times?

Paper invoices have been at the core of financial transactions for as long as sellers and buyers have existed. Manually preparing an invoice and mailing it to a customer is second nature to most companies and the business world has been moving along for centuries using paper invoices and account ledgers. But in the last few decades as business operations have spread out to cross geographical borders and time zones, companies have begun to realize that manual operations – particularly in regard to financial transactions – are slowing down success and growth. Here are some of the problems with using paper invoices:

1. Slow paper processing may prevent receiving early payment discounts
2. Postage costs
3. Mail room sorting and handling costs
4. Data entry of paper invoices into accounting systems costs
5. Data entry from paper invoices introduces errors that cause invoice disputes
6. Invoice disputes cause supply chain friction
7. Lack of visibility into real time accounts payable liabilities
8. Paper storage costs
9. More...

In these challenging economic times more and more companies are making the conversion of paper invoices to electronic invoices a higher priority.

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Paul Diegelman
http://www.linkedin.com/in/pauldiegelman
****************************************
Kevin Benedict
http://www.linkedin.com/in/kevinbenedict
http://b2b-bpo.blogspot.com/

Accounts Payable Visibility and AP Optimization Challenges

One of the areas where Corporate management sees value in AP process optimization centers around what’s called “visibility”. Visibility is a term that describes the finance department’s ability to know, with a high degree of confidence and accuracy, the nature and dollar value of invoices and liabilities that a company has incurred at any given point in time. Visibility helps management in many ways, including the following two examples:

1. It is far easier to calculate period-end accruals when AP knows the nature and dollar amount of all invoices received on a given date. Accrual accounting becomes “more calculation, less assumption/estimation”. Visibility reduces the cost of calculating period-end accruals and also improves balance sheet accuracy.
   
2. Finance departments always seek to forecast cash inflows (collected revenues) and cash outflows (payables, payroll, debt payments, etc) into the future. Better visibility provides improved cash management, and the opportunity to borrow at lower costs or invest excess cash at higher returns.

AP process optimization often attacks the root cause of “lost visibility” – paper invoices received in different geograhical areas, departments and divisions around the company but not yet accounted for in AP. Process optimization vendors, through central receipt, front-end image and data recognition, as well as conversion to e-Invoicing, can often assist AP management achieve dramatically improved visibility in an environment that also reduces payables unit costs .

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Accounts Payable Optimization

There is a lot of interest these days in AP optimization. Why? Companies are looking under every desk and business process for inefficiencies and cost reductions. AP optimization is a good place to look. Many companies that I have spoken with over the past few weeks are very interested in reducing paper processing and data entry costs associated with handling and managing inbound paper invoices. In addition to cost reduction, CFOs are also seeking ways to speed up the processing of inbound invoices so they can take advantage of early payment discounts with their key vendors.

It is worth noting that many companies cannot take advantage of early payment discounts because the process of managing the paper invoices takes too much time. Paper does not easily give up it's information. Somehow the information on the paper invoice must be extracted and entered into the AP software application, approved or rejected and payments made. Sometimes this takes 45 days just to process.I have worked on a number of projects over the past few weeks where CFOs were seeking to out-source the entire process of handling inbound paper vendor invoices. They want the following:

• Reduce the current costs of processing the paper (labor, IT, facilities, etc.)
• Scan/OCR the data on the inbound paper vendor invoices to quickly digitize it
• Have a human review the scanned data and fill-in any missing or unreadable data from the original paper copy
• Submit the digitized invoice into a work flow for approval or rejection
• Convert as many paper invoices to electronic EDI or B2B file transfers as possible to achieve real-time integration with SAP

I was surprised to learn this year how many CFOs were interested in out-sourcing this entire process. It seems there is little perceived value of keeping the following functions in-house:

• paper processing
• scanning/OCR
• data review and correction
• converting paper invoices to electronic invoices (expanding the use of EDI and B2B data exchanges)

The CFO's office wants the benefit of all-of-the-above, but not necessarily the internal costs of doing it. There are a number of companies now that have developed a managed services offering that combines state-of-the-art scanning technologies, low-cost labor, AP work flow, best practices and managed EDI/B2B services for AP optimization. I have read several analysts reports recently that suggest this is a rapidly growing trend. Typically the costs for these managed services are considerbly less than processing in-house.

Once the AP process is optimized, the CFO will have the flexibility to capture negotiated early payment discounts, and to start looking at things like dynamic discounting. Dynamic discounting is when the CFO or his/her team can negotiate in real-time with key large suppliers to pay earlier than agreed in exchange for additional discounts. On large invoices these numbers can be meaningful.