We talk to Andrus Kaarelson, CEO of Unifiedpost Estonia, and discuss the role of electronic invoices within the private sector.
Last year, entrepreneurs asked us: why do I need an e-invoice? They are asking the same question today because, as a recent study by Ernst & Young shows, awareness of the benefits of e-invoicing remains low, and the pressure to send e-invoices comes only from the state. But let us follow the example of Estonian state, become greener and more efficient in the private sector, and switch to e-invoicing by 2025?
In a period of rapid inflation, companies must increase efficiency and transfer some of the activities of employees to information systems. Marek Ilves, Head of the Business Software Development Department of the State Shared Service Center, provides a telling figure: The requirement imposed on businesses in 2019 to send only e-invoices for goods and services to state agencies has led to their share almost 100% today. We save time, money, and the environment, and we commend our digital nation for this innovative step.
We can see no impressive percentages in terms of settlements between Estonian companies. A survey conducted by Ernst & Young Baltic shows that in the Estonian economy, almost 75 million invoices are sent and received every year, of which about 45% are e-invoices. The lion's share of invoices is e-invoice standing orders sent to banks, which is a victory for the private sector.
About half of our companies have sent e-invoices, but only 10,800 legal entities have registered as e-business recipients and selected an e-invoice operator, which makes about 8% of economically active companies. That is not a lot. Small and medium-sized enterprises have not yet discovered e-invoicing, and the survey reveals the reasons for this: low awareness, low motivation, and fear of the complexity of their implementation.
So what to do with the private sector?
The state had already taken a long step when it started to allow only e-invoicing, but there is still a long way to go. For our part, we see that, in addition to the low awareness and fears of small businesses, the obstacle has been the lack of solutions in the market - the lack of solutions that would allow them to enter the 21st century by digitalising their accounting management. We have been encouraging the sending of e-invoices for years - our arved.ee service has almost 20,000 users. However, there are few invoicing solutions with more options, especially those that do not require IT knowledge or a large wallet. We plan to fill this gap soon with a new pan-European service, Banqup, which is specifically targeted for small and medium-sized enterprises, but more measures are needed.
In order to boost the spread of e-invoices, it has been proposed that the buyer should start requiring e-invoices from the seller. Coercion is not considered reasonable, but as an alternative, some market participants favour the Finnish practice where companies with an annual turnover of at least EUR 10,000 have the right to request an e-invoice from their counterparts.
Our experience is that all business leaders are interested in receiving their money on time, and in this respect, e-invoices are much better than paper and pdf invoices. E-invoicing is in one specific channel, and in the age of hybrid work, the process is under control, invoices do not disappear. If the invoice moves from one system to another, the money will be received by the seller faster, on time. In addition, a payment button can be added to sales invoices, which speeds up the receipt of money even more. All this will lead to a significant reduction in debt and debt management burdens. In addition, companies definitely like security: when you send an e-invoice, it comes from a registered user who is identifiable at all times. Whereas a pdf received via email is not always secure. I myself have come across a fraudulent invoice that was very similar to the original and was left unpaid only due to the attentiveness of the invoice handlers.
The cost savings summarised briefly and succinctly are of great interest to managers of businesses. The figures can be bigger and smaller, but here's an example: The study by Ernst & Young deals with a graduation thesis defended at Tallinn University of Technology, according to which processing of a PDF invoice costs 1.37 euros and processing of an e-invoice 0.74 euros, the difference being 0.63 euros per invoice. For example, if an industrious small business handles 1000 invoices a year, the savings are 630 euros. The profits of larger companies are significantly higher.
Going back to the idea that private sector companies could switch to e-invoicing in three years, it would make our fast-operating private sector even faster and more efficient. If a major supplier says that they only accept e-invoices, it should be talked over with your accountant or accounting firm. One fine day, your accountant will no longer put invoices on a computer but will actually contribute to the company's development by performing financial analysis. After all, there are solutions for e-invoicing on the market, which in turn are interfaced with accounting software.
We do not want to force anyone to do e-invoicing. We call on companies to innovate and the efficiency that comes with it, which will save them time and money. He who is stuck in the old will not go fast, but three years is just the right time for the transition.
The article was published in Äripäev on March 21, 2022.