e-invoicing was introduced in 2020 by the government of India. e-invoicing might be new to Indian Business, but it has already been adopted by many countries in the past and a lot of countries are already planning to implement it. Businesses in Chile were the first to introduce voluntary e-invoicing, way before it was mandated by the government of the country. After other Latin American nations adopted these practices, countries from Europe followed the same.
e-invoicing under GST
e-invoicing does not necessarily mean that the invoice has been generated online. Rather, the invoices shall continue to be generated as usual but need to be reported to the Invoice Registration Portal for generating a unique reference number called IRN (Invoice Reference Number) and a QR code and digital signature attached to the invoice.
Why e-invoicing? Reason for e-invoicing Trend
e-invoicing has benefited both businesses as well as government authorities. It has been a revolution in the way business processes and reporting are carried out and has provided government authorities with a wide platform to keep watch or have information about business transactions.
Factors that increased the trend of e-invoicing in business
- Reduced cost and time in the business process
e-invoicing has streamlined the business process. It helps in the auto-sharing of information to the GST portal and E-way Bill portal after the validation of information and generation of IRN which eliminates the need for manual punching of transactions thereby saving the time and cost related to errors that occur due to manual entry of transactions or cost occurred due to dispute or litigation related to the wrong filing of information and accelerating the speed of filing returns or generating any documents.
- Faster Payments and efficient cash flow
The invoice uploaded on the e-invoicing portal is authenticated, which minimizes the chances of any error or fraud in the invoice, thereby improving and fastening the processing of the invoice and payment process and helping in improving working capital management and efficient cash flow of the business. Besides it also increases relations with the stakeholders.
- Faster Access to formal credit routes
e-invoice authenticated by the government is more reliable and correct. It helps in access to formal credit routes such as financial institutions for invoice financing or invoice discounting. Lenders can access the creditworthiness of borrowers based on authenticated invoices and other statistics related to GST Tax compliance.
- Uniformity and interoperability in shared invoice information
The e-invoice is generated in a standard format known as the e-invoice schema. This provides uniformity in the invoices and eases the availability of the required invoice information.
Further, the invoice file is interoperable and can be shared and accessed by any ERP software, which helps in easy accessibility of documents by any business department say finance or accounts, etc.
Furthermore, it can be shared with stakeholders which can help in easy communication and efficient business processes thereby enhancing the relationship between stakeholders.
- Easy Tax Compliance
The e-invoices are invoices authenticated by a government portal that can be considered accurate and eliminate fraudulent invoices. Further, the information on the GST portal is auto-transferred which helps in the auto-population of required data in monthly returns i.e., Form GSTR-1 thereby reducing the reconciliation gaps and ensuring correct and accurate availing of ITC and payment of tax to the government and helps in proper tax compliance.
Moreover, as the data is shared on a real-time basis, it automatically leads to speedy compliance with all the rules and regulations to be followed, preventing any risks of consequences such as paying fines, encountering penalties, or dealing with a blocked chain.
Factors that increased the trend of e-invoicing in the Government
Reduced Tax Evasion
e-invoicing has been introduced to provide transparency in invoicing as there are a lot of emerging cases of people attempting tax evasion, passing of input tax credits without actual supply, or issuance of fake invoices to inflate the turnover.
e-invoicing provides real-time or near real-time access to the tax compliance and tax payment status of the businesses. Any fraudulent invoice or misleading data, availing of excess or bogus ITC, or non/short payment of tax can be easily identified by the government leading to higher tax collection.
- Streamlined Audit process.
Tax authorities can have access to invoice data, return status, and tax compliance on a real-time basis without any need to ask businesses to provide required data or to visit the business’s premises and conduct audits more efficiently and effectively by accessing digital invoice data, reducing their burden and that of businesses as well.
- Cost Savings
Government authorities can reduce the cost of tax administration and enforcement by leveraging the digital compliance process. This would also help in reducing the use of paper, which is environmentally friendly and aligns with sustainability goals.
Further, it encourages businesses to adopt digital technologies and modernize their operations, contributing to the growth of the digital economy.
- Data Analytics and Policy Formation
e-invoicing generates vast amounts of transaction data, which can be analyzed to identify economic trends, tax, gaps, and opportunities for policy formation and improvement. Further, it can adapt tax policies more quickly and easily in response to changing economic conditions or emerging challenges.
What the future looks like
It can be said that e-invoicing has been implemented in India as a part of digitization. It is believed that soon, possibly by 2025-28, e-invoicing will be used globally for the exchange of invoice data, and for ensuring integrity and authenticity of the data.
With the emergence of digitization, there have been numerous changes in the economy which have strengthened businesses for the better.
- Cloud Storage
Any person will be able to access, read, understand, and process any data from any software or mobile application, making the data more accessible. Additionally, with an increase in the use of digital or online solutions, there will be a speedy rise in the need for cloud storage.
From businesses to governments, everyone will rely on cloud computing or mobile computing for the storage and access of data. With cloud storage, information will be easily available at just one click which can bring benefits to governments and businesses around the globe.
- Implementation of technologies
The use of various technologies like artificial intelligence (AI), predictive analytics tools, integration with the Internet of Things (IoT) and supply chain automation, Machine Learning, Blockchain and smart contracts, and cloud-based solutions will offer lucrative growth opportunities to different industries.
Further, a business will be able to analyze the enormous e-invoice data to get insights into business operations, customer preferences, and market trends. This data will help in making strategic decisions and lead to better business outcomes.
- Market demand and supply predictions
All the GST data will be made available for analysis and market requirements in automated solutions. Then fintech solutions will use such data along with various technologies to get predictions on future demand and supply. It will also trigger raw material purchases based on the demand for the final product, which helps businesses to efficiently manage working capital and stock cycle without any unnecessary blockage of funds.
- Integration with stakeholders’ system
With the use of various technologies, the system of various stakeholders will be integrated, and relevant information shall be shared through the prescribed channel on a real-time basis. For example, vendors can share invoices on the given portal and can have access to the status of invoice processing and payment cycle.
Further, businesses will also have real-time updates on the actions taken by government authorities after the verification of documents or returns, etc.
Challenges to be faced
With the increasing use of digitization in the world, businesses will be required to change their operating systems which can be expensive and error-prone. The initial cost maintenance cost, training cost, etc. will affect the working capital of the businesses.
Further, a check is required to be put by businesses that the system or software is regularly updated with the changes in their rules and regulations.
Furthermore, with digitization comes cybercrime and online fraud. Having enhanced security solutions is a must for businesses to prevent important information from being leaked out into the market, which may affect businesses’ profit and reputation.
Overall Growth in the Economy
e-invoicing provides ease to businesses when it comes to invoice management, invoice processing, and reducing any audit risks.
With greater transparency in invoicing and tax payments, there can be better opportunities in the economy to reduce tax evasion, increase government revenue, and improve investors’ trust and confidence, market reputation, and creditworthiness of the business.
In this emerging, tech-involved, highly competitive market, e-invoicing drastically assists companies with saving money, resources, and efforts.
With e-invoicing, businesses go paperless and have cost savings along with fulfilling CSR responsibilities by positive environmental impact.
e-invoicing provides a seamless flow of data across various systems, thereby making every process more accurate, reliable, and faster.
In conclusion, despite some of its highs and lows, the future of e-invoicing looks quite optimistic. With several countries already implementing this process into their systems, it can be trusted that e-invoicing will be used around the globe for quite some time now.