By Tarmo van der Goot, VP EMEA, Chargebee and Sacha Wilson, Senior Director EMEA, Avalara
E-invoicing – the process of electronically generating, transmitting and receiving invoices – is gaining momentum as tax authorities worldwide seek to reduce the shortfall of revenue often referred to as the ‘VAT gap.’ Expressed as the difference between the amount of VAT that should have been collected and what was actually taken, this gap is estimated to stand at a staggering €93 billion (approximately £80 billion) in the EU alone. Italy, France and Poland are among the frontrunners in the race to switch to e-invoicing but, in total, as many as 16 countries in the EU will soon require businesses to use e-invoicing software when filing their accounts, making it imperative for organisations to accelerate their digital transformation plans.
Beyond compliance, a move to e-invoicing offers numerous benefits, such as more accurate invoicing, improved data quality and better visibility into late or failed payments – all of which are business-critical to subscription-based organisations.
Why e-invoicing is gaining traction
The global e-invoicing market reached $11.2 billion in 2022 and is expected to reach $35.9 billion by 2028, according to IMARC Group, growing at a compound annual rate of over 20 percent. The increasing adoption of e-invoicing is driven by several key factors – chief among them, tax authorities’ aim to ensure a fair and transparent tax collection process.
E-invoicing systems enable governments to monitor transactions more effectively, minimising the chances of underreporting or falsifying invoices. A streamlined reconciliation process means businesses can match invoices with corresponding payments in real-time, improving financial accuracy and ultimately, helping to close the VAT gap. The financial benefits don’t stop here.
Automation and e-invoicing go hand-in-hand
Modern finance departments need automation to keep up with the pace of business. Automated e-invoicing is a goldmine for efficiency gains, as it can result in cost savings of around 60-80 percent compared to conventional paper-based invoice processing, per a report by Billentis. It’s not just the price of materials, printing and delivery – businesses also save on indirect costs such as time and labour sunk into manual processing.
Automation has advantages not just for the business as a whole, but the employees, too – transforming the roles of Accounts Payable and Accounts Receivable staff from data entry clerks into business analysts. By eliminating a tedious manual process, financial teams can work on more rewarding, value-added tasks.
Automated e-invoicing also relieves staff from the pressure of chasing up unpaid bills. This is particularly important for businesses that bill customers at regular recurring intervals.
A golden opportunity for subscription businesses
Subscription-based businesses are uniquely positioned to benefit from embracing financial automation and compliance. The business model has enjoyed rising popularity in recent years, offering a more predictable revenue stream, improved customer loyalty and scalability. The caveat is that businesses must keep revenues recurring.
Customer loyalty is hard-earned and even more challenging to keep. With subscriptions, businesses must win the same customer over every billing cycle. Cancellations, late payments and payment failures can all hinder subscription revenue generation. These issues are so prevalent that experts have dubbed the current phase of subscription economy evolution its ‘Retention Era.’
Invoicing introduces another layer of complexity. Since VAT is levied on every invoice – even the payments that are never fulfilled – businesses risk paying a high price for delays. This is where automation can be a game-changer – enabling subscription businesses to effectively manage late or missed payments.
A success story from Europe’s trailblazer, Italy
Italy was the first European country to mandate e-invoicing for both business-to-government (B2G) and business-to-business (B2B) transactions. Late payments are a prevalent issue in the country’s financial system, with as many as 56 percent of the total value of B2B invoices issued by businesses reported overdue in 2021, Atradius data shows.
Voxloud, an Italian provider of cloud-based business phone systems, set out to change this. The company saw an opportunity to go beyond e-invoicing compliance and integrated smart dunning management capabilities into its subscription billing system. This would allow the company to automatically retry payments when it’s most likely to lead to successful revenue recovery and customise the communication sequence for a pleasant customer experience. Automation helped Voxloud to follow up on late payments, reduce cancellations and ultimately bolster revenue growth.
A recipe for sustainable growth and compliance
Mandatory or not, e-invoicing compliance presents an excellent opportunity for subscription businesses to modernise their financial operations. By digitising and automating previously labour-intensive processes, subscription businesses can make better data-driven decisions, identify revenue trends and keep up with changing regulations – whether that’s home or abroad. Indeed, companies considering international expansion should take extra care.
Compliance is never uniform. Failing to abide by a new target market’s tax regulations, deadlines and platforms could result in damning audits. A robust e-invoicing system can help businesses meet local compliance requirements and continuously adapt to changing regulations. With real-time data synchronisation and automated invoice tracking, subscription businesses can ensure seamless cross-border transactions, uphold compliance and scale confidently.