E-invoicing Regulatory Update for Canada, the U.S. and Mexico
Published on 25 April 2023
While the concept of electronic invoicing has been around for many years, extensive implementation of e-invoicing is relatively new. Over the last decade or more, many countries within Europe and Asia began to adopt policies requiring e-invoicing. In North America, the governments of Canada, the U.S. and Mexico have been slower to announce their intentions for mandating e-invoicing.
It’s clear that digitized invoices are emerging as the new standard for B2B and government transactions worldwide. Government mandates for the digitization of invoices are made for a host of reasons but efficiencies such as accuracy of data, cost reductions as well as tax reporting compliance are key drivers.
Businesses that fail to comply with e-invoicing requirements may face sanctions, penalties, lost customers and canceled contracts. But implementing e-invoicing and payment systems are a complex undertaking, often requiring capital investment and extensive coordination among stakeholders across an organization’s operations, administrative, finance, tax and technology areas.
The cost of current methods
Paper-based methods and manual processes associated with B2B, business-to-government and intra-government invoices have a direct effect on productivity, cash flow, profit margins and regulatory compliance, among other performance areas.
There are many downsides to paper and manual invoice processing. For example, within the accounts payable (AP) department, financial and accounting staff is often burdened by manual and paper-based methods such as redundant error-prone data entry into an invoice management system and chasing down approvals on invoices from business teams which add to labor/FTE costs, increases risk of fraud and slows down business cycles.
With current methods, one estimate by Adobe found that for business, the average cost of processing an invoice is between $15 and $50 per invoice. The U.S. Office of Management and Budget (OMB) estimates that its requirement for federal agencies to manage invoices for federal procurement electronically saves the government about $450 million annually, representing savings of 25 percent to 45 percent per invoice over paper-based systems.
Lacking more fully digitized invoice and AP automation systems, manual methods involving income tax reporting and collecting supplier tax information increase administrative burdens and risk. Of course non-compliance by businesses to tax rules and regulations increases their risk of tax audits and financial penalties.
Country-by-country moves to require e-invoicing
For governments, requiring e-invoicing within their own agencies and external vendors results in greater accuracy of invoices and its related data, processing efficiencies, and increased transparency to how agencies spend their money. Many countries start with requiring e-invoicing among their own government agencies and authorities and then may institute e-invoicing requirements for the private sector involving B2B transactions.
Here is a look at invoicing and payment modernization practices across North America from the regulatory perspective:
Canada is forming plans for mandatory e-invoicing
In Canada, e-invoicing is currently not mandatory for B2B transactions. For government transactions, however, all federal suppliers were required to accept e-invoices by the end of 2018 as mandated by the Minister of Public Works and Government Services Canada. The Canadian government has also established a task force to look at the feasibility of e-invoicing and its implementation across the government sector. (Source)
Mexico requires businesses to use e-invoicing
Mexico has staged its requirement for mandatory e-invoicing and live reporting to tax authorities by businesses under its CFDI (Comprobante Fiscal Digital por Internet) program based on the size of the company. In 2011, the country’s policy for e-invoicing became mandatory for large business and by 2014, all businesses were required to follow or otherwise face sanctions and penalties. (Source 1 & Source 2)
United States is testing e-invoicing, developing framework
The U.S. does not currently require businesses to use e-invoicing but at the government level, since late 2018, the OMB has required that all federal agencies issue electronic invoices for goods and services. To comply, all U.S. government departments and agencies must use an electronic invoicing system to generate, send, receive and archive invoices. (Source)
A new exchange for transmitting invoices among businesses and organizations is also in development. The U.S.-based Business Payments Coalition (BPC) was formed in 2011 as a volunteer group in conjunction with the Federal Reserve in order to modernize B2B payments and facilitate domestic and international trade. With a mission to drive end-to-end payment processing efficiency, including invoice, payment, remittance information and reconciliation, the BPC currently has about 650 stakeholder participants which include businesses, industry groups, financial institutions and software providers.
The BPC is creating a digital invoicing document exchange framework which is similar to the four-corner PEPPOL system that is widely used in Europe. Now in the pilot stage, the system-agnostic BPC exchange requires no changes to corporate payment systems. A long-range plan of the BPC is to expand the e-delivery network to exchange broader supply chain documents among parties.
As this e-invoicing update for North America illustrates, e-invoicing is becoming more widespread globally for good reasons.
Generix Invoice Services and AP Automation solutions are proven to increase productivity, reduce errors, mitigate risk and meet regulatory requirements while improving customer and supplier relations.
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