This blog was last updated on October 18, 2019
Most professionals in the e-invoicing world naturally strive towards a paper-less community, where financial transactions are exchanged as electronic messages in formats such as EDIFACT and XML. This is a vision that is worth pursuing and is a near reality in Latin American countries, such as Mexico and Peru where progressive government initiatives and requirements are advancing rapidly in many countries.
The rest of the world, however, is falling behind. Most invoices outside of Latin America are still issued and received on paper. Within Europe roughly 80-90% of invoices are paper-based. Taking Germany, the biggest European economy, as an example, large enterprises within the country issued 88% of their invoices on paper and received 93% on paper in 2017. In Russia and Turkey, where several new e-invoicing operators are being accredited every year, the number of e-invoices sent and received in the past year was estimated to be 2-3 billion per country respectively. But, despite this promising trend, the vast majority of the invoices in Russia and Turkey are still issued on paper. Another interesting example is India, where the GST rules from 2017 in conjunction with the Information Technology Act allow for e-invoicing, but the electronic processes are still heavily influenced by the legacy of paper.
What, then, can be concluded from these country examples? Well, even if there are several exciting initiatives towards an electronic invoicing future, the reality on the ground – especially for SMEs – is still largely paper-based. For decades, scanning and OCR-interpretation of incoming paper invoices have been the solution for large and medium-sized companies to receive and process paper invoices electronically. In North America, 40% of all large enterprises use combined scanning and OCR-based solutions to process the incoming paper flows – and the trend is increasing. In fact, improved scanning/OCR and imaging solutions are ranked higher than pure e-invoicing solutions by the accounts payable departments in the US. The existing scanning and OCR solutions can automate the processing of a large portion of the incoming paper invoices, and roughly 80% of the scanned invoices can be processed by the ERP-systems in the back-end. The remaining 20% are manually checked in shared service centers.
One precondition for these paper-to-electronic conversion methods to be cost-effective is that the buyer organization can discard the paper after the data have been booked in its accounting system. In the US and other countries without VAT this is a no-brainer, but in VAT countries this remains an area of significant regulatory fragmentation and uncertainty. In recent years, however, there are a number of technical and legal initiatives in the EU that will simplify this picture.
Simplified rules for scanning and discarding paper invoices in the EU
Scanning and subsequently discarding the paper invoice is currently allowed without major restrictions in 17 countries (Austria, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Norway, Poland, Romania, Spain, Switzerland, The Netherlands, and the United Kingdom); in Belgium, Portugal, and Sweden it is allowed to discard the paper invoices after a certain amount of time has elapsed since the scanning procedure took place. The EU Member States that require locally certified service providers are Belgium, Luxembourg, and Slovakia. The only countries in the EU who do not allow for the discarding of scanned papers under any condition are the smaller economies Cyprus, Malta, and Monaco. Finally, it is worth emphasizing that the Spanish detailed requirements for ‘digitisation’, e.g. software certification, were withdrawn as mandatory from Spanish legislation as of January 2015.
Authenticity and integrity of invoices in Europe
The majority of European countries explicitly require that the authenticity and integrity of invoices are ensured during and after conversion; in many countries, this is the only condition for converting a paper invoice to electronic form. Using qualified electronic signatures is, therefore, a viable option to ensure the authenticity and integrity of the scanned invoices, equivalent to how pure e-invoices can be signed electronically. In Switzerland, electronic storage on changeable media (such as hard drives) is permitted only if additional means, such as electronic signatures, are used to ensure the authenticity and integrity. Other European countries with similar requirements on electronic signatures are Belgium, where an advanced electronic signature or a secure algorithm is the method that may be used; and France where electronic signatures (minimum RGS*) and timestamps are required.
The looming enforcement of the General Data Protection (GDPR)
One more regulation in the EU that could increase scanning of paper invoices is the looming enforcement of the General Data Protection Regulation (GDPR) that will come into force in May 2018. The official EU website with the GDPR rules states:
“The GDPR strengthens existing rights, provides for new rights and gives citizens more control over their personal data. These include:
- Easier access to their data — including providing more information on how that data is processed and ensuring that that information is available in a clear and understandable way;
- A new right to data portability — making it easier to transmit personal data between service providers;
- A clearer right to erasure (‘right to be forgotten’) — when an individual no longer wants their data processed and there is no legitimate reason to keep it, the data will be deleted;
- The right to know when their personal data has been hacked — companies and organizations will have to inform individuals promptly of serious data breaches. They will also have to notify the relevant data protection supervisory authority.”
Archiving service providers that do not comply with the GDPR requirements face the risk of receiving severe penalties of up to €20,000,000 or 4% of the total worldwide annual turnover. Now, it should be pointed out that the GDPR applies to paper documents as well as electronic documents. Complying with the demanding GDPR requirements on paper invoices in a dusty basement can easily turn out to be a nightmare. How can tons of paper invoices be moved from one archiving service provider to another? How can personal information on the paper documents easily be found upon request? If the administrator cannot find the personal information in the paper documents, then how can the company comply with the GDPR? How long would it take to find personal information stored in paper archives? What process will be used to discard the paper invoices that are subject to destruction? Many service providers are therefore considering to scan the legacy paper invoices, store them in a modern electronic archive, and make the scanned invoices easily searchable through an electronic indexing system.
Technical innovations see advancements in scanning solutions
Furthermore, there are several technical innovations that are improving the scanning systems and OCR procedures. Advanced scanning solutions have the capabilities to generate PDFs that include images and structured XML invoice data such as UBL. The PDF from such process can be electronically signed and archived as the original and legible e-invoice, while the machine-readable XML invoice is sent to the ERP-system for accounting and downstream processing. Such scanning systems can also generate PDFs that contain both images and the machine-readable data, for example, according to the German ZUGFeRD standard, which results in PDFs that becomes interpretable by both humans and computers.
In addition to this, machine learning and artificial intelligence systems have the capability to interpret massive data flows and “learn” to detect normal patterns and anomalies. Such systems have the potential to optimize scanning/OCR processes by reducing human intervention, detecting fraud, forecasting revenue, and adjusting prices in real time to dynamic levels. Such intelligent systems offer the capability to increase the quality of the scanned invoices, which in turn will reduce the number of scanned documents that must be inspected manually.
Cooperation between scanning providers and P2P companies
Advanced scanning procedures will also contribute to faster supplier onboarding by P2P (Procure To Pay) companies and similar vendors. Such P2P systems can take the XML document output from the scanning services, and use that information for feeding the algorithms for discounting, payments, PO-flips, three-way matching, etc. As a result of these possibilities to more quickly onboard the ‘long tail’ of smaller suppliers, vendors in the procurement and supply chain management space could acquire or establish strategic partnerships with scanning companies.
As counter-intuitive as it may sound in these days of e-invoicing mandates and digital transformation, scanning may well be resurrected from the pile of ‘old’ technologies and instead grow in importance in the coming decade.
