1.1.1 Digitisation in general
Public and private sector organisations across the globe are actively seeking to improve performance, reduce operating costs and promote economic growth through digitisation. Over the last few years several Australia wide initiatives have made significant inroads to catalyse change and introduce digital building blocks to help reduce business burden and increase productivity and efficiency. More recently, momentum around digital transformation has increased substantially and there is now an opportunity to help the entire Australian business community (including both private and public sectors) to further embrace digital solutions and enhance performance in common business practices such as business to business interactions, for example procurement of the ‘procure to pay’ processes/ ‘order to cash’ processes.
Invoicing is currently a significant cost to the Australian economy. It involves a variety of paper based and electronic forms dealing with the production, distribution, data capture, matching, reconciliation, dispute management and subsequent archiving of documents, errors, manual intervention and processing delays.
The Atradius Payment Practices Barometer (2015) survey found that, of those surveyed, one in five stated that the invoices were often sent to the wrong recipients and one in three stated that there was either incorrect information on the invoice, non-correspondence of the goods delivered or services provided were not as agreed in the sales contract.
Electronic invoicing (eInvoicing) is a broadly used term that covers the automated exchange and processing of invoice related documents between a supplier and a buyer in a structured electronic format. Although eInvoicing is not a new concept in Australia, a vibrant market for appropriate platforms and technology solutions has been hindered by a bottom-up technology approach, based around existing proprietary or closed standards.
Many large businesses in Australia have been eInvoicing for decades using electronic data interchange (EDI) technologies. These communities operate in what is called a ‘hub and spoke’ model. The large organisation can be thought of as the wheel hub and their trading partners connect like spokes on the wheel. The benefits of the ‘hub and spoke’ system are asymmetric, and accrue mainly to the large company controlling the system and eInvoicing becomes a cost of doing business to their suppliers. This effect is even more notable when those trading partners, many of whom are small to medium enterprises (SMEs) need to participate in multiple hubs, which often have different technology requirements.
For example, a small business specialising in high performance glazing and glassware may trade with different automotive, healthcare and retail hubs, each with their own software, service and cost requirements.
Recognising the opportunity for efficiency gains in 2015 the Australian Business Register, under Ministerial guidance, engaged Billentis (an international consulting firm) to provide recommendations in relation to an implementation model for a whole of economy approach to eInvoicing, where the sending, receipt and storage of invoices could be performed electronically.
1.1.3 Establishment of the Council
One of the key Billentis recommendations was to establish a Multi Stakeholder Forum to align public and private sector requirements. This has evolved into the establishment of the industry driven Digital Business Council (Council).
The Council is an initiative of business groups, peak industry bodies, technology providers and government agencies, with Federal Government providing secretariat support. The Chief Executive Officers of the Australian Chamber of Commerce and Industry and the Council of Small Businesses Australia are joint chairs.
To help businesses make best use of technology to become more efficient, the Council has made its first priority to remove the need for paper invoices in business transactions by putting the right framework in place to drive the take-up of eInvoicing in Australia.
The Council’s initial objective of agreeing to an eInvoicing Interoperability Framework (Framework) that will pave the way for a whole of economy approach to eInvoicing, for all market segments for all industry sectors, is covered by this document.
The Council’s other objectives (covered by separate streams of work and documents – highlighted in the later forward plan section) include:
- aligning public and private sector requirements to ensure interoperability in the market and other related processes (procurement, payment, etc.);
- creating governance systems to support the Framework;
- promoting, advocating and championing the widespread adoption of eInvoicing to improve automation and end to end electronic transactions between buyers and suppliers of goods and services;
- ensuring all business sectors (especially small and medium enterprises and software developers) are engaged and included in the process of advocating the broad-scale adoption of eInvoicing and its related standards;
- identifying and assessing barriers, gaps and opportunities at Australian and international levels to enable migration towards common standards;
- monitoring the use and uptake of eInvoicing and its related standards; and
- establishing and monitoring working groups to focus on particular areas of interoperability standards including, but not limited to, Semantic and Technical Interoperability.
1.2 Current Situation
While there are a range of disparate solutions currently in use these do not resolve the need of a whole of economy and open approach to eInvoicing. Billentis (2015), said that Australia is lagging the world in whole of economy based eInvoicing. Reports also indicate Australia is lagging behind leading markets in its response to digital disruption and adoption of new digital services (NICTA, 2015).
The Australian SME sector has also progressed into a variety of solutions to assist with the generation and receipt of invoices, for example:
- Business software can generate invoices in PDF form and send via email to buyers. This approach is also more popularly known as eBilling as it does little to automate the accounts payable process on the buyers side;
- Buyers using Optical Character Recognition (OCR) to convert PDF or paper into digital data. This approach is more successful in the case where the receiver has provided template forms (i.e. tax returns etc.) and not very successful in the case of invoicing where the formats are controlled by the suppliers, which can result in high maintenance costs and limited data integration; and
- A number of service providers to this sector have been providing commercial solutions for transfer of data using proprietary or closed standards.
Large organisations and technically advanced businesses have recognised the benefits of eInvoicing and invested in a variety of disparate trading networks to enable them to conduct business electronically.
These trading networks have, over time, come to represent technological ‘islands’ of digital trade. As a result:
- buyers and suppliers have to create and maintain different connections to multiple eInvoicing networks;
- SMEs have expressed concerns about issues and challenges surrounding the incompatibility and interoperability between different networks;
- sector dominant large scale businesses are able to pressure smaller players to adopt their preferred standards and technologies;
- SMEs shoulder a disproportionate cost of doing business electronically, due to the need to conform to multiple standards for connecting with multiple networks;
- software developers are reluctant to invest in developing solutions and systems without a clear and consistent eInvoicing framework; and
- the cost of entry to these networks has been a disincentive to on-boarding smaller businesses. The resulting fragmentation has impacted the efficiency and productivity within the eInvoicing landscape by increasing the level of effort and cost incurred by businesses (Billentis, 2015).
These factors present significant barriers to entry for some SMEs that wish to participate in eInvoicing. Although there are internationally recognised standards for exchanging business data, international studies and practical experiences have demonstrated that the most effective approach is to establish a standardised framework to bridge the ‘islands’ of digital trade and reduce these barriers. Within this framework, buyers and suppliers are not required to use the same standards (which may be desirable, but is unlikely), rather to standardise the means of bridging between the various ‘islands’. This is similar to the approach used for mobile phone services (GSM) and other federated services.
Software industry representatives indicated, during the Billentis engagement, that they are seeking the leadership and consistency to define an eInvoicing framework of standards for exchanging data electronically between systems. This research indicates that whole of economy benefits would accrue by establishing an eInvoicing framework that can be easily implemented, thus allowing mass adoption.
Government across all levels represents the largest buyer in any economy and as such has significant commercial and strategic influence on the adoption of eInvoicing. International studies and practical experiences also support the view that the uptake of eInvoicing has accelerated in countries where government procurement agencies have adopted eInvoicing (Billentis, 2015). For example the European Union has set a goal of eInvoicing being the predominant form of public sector invoicing by 2020 and introduced a European law to enforce this. Supporting this strategy has been the development and implementation of the European Framework known as PEPPOL to ensure universal access to eInvoicing solutions.