How Can E-Invoicing Adoption Accelerate in the U.S.?

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1 How Can E-Invoicing Adoption Accelerate in the U.S.? Todd M. Albers Senior Payments Consultant Payments, Standards, & Outreach Group Federal Reserve Bank of Minneapolis Minnesota AFP May 2, 2017

2 Disclaimer The opinions expressed are those of the individual presenters & not those of the Federal Reserve System or any Federal Reserve Bank 2

advancing the FRS mission in payments by supporting work in standards, research, education, and other

Payments SEG ISO 20022 Trade SEG W3C Web Payments Interest Group OASIS UBL TC & Co-Chair of the Adoption

3 Todd M. Albers Senior Payments Consultant Federal Reserve Bank of Minneapolis Federal Reserve Banks Tasked with advancing the FRS mission in payments by supporting work in standards, research, education, and other initiatives that increase the efficiency of business-tobusiness (B2B) transactions Standards Work ISO Payments SEG ISO Trade SEG W3C Web Payments Interest Group OASIS UBL TC & Co-Chair of the Adoption Sub-Committee Provide financial services to depository institutions & U.S. government Supervise & regulate financial institutions Establish & execute U.S. monetary policy Maintain a stable financial system & contain systemic risk 3

4 Discussion Topics Barriers to Electronic Invoicing & Payments Global & U.S. Invoicing Review Business, Economic, & Societal Benefits Addressing the Barriers through the Business Payments Coalition 4

5 Barriers to Electronic Invoicing & Payments 5

Straight-through-Processing (STP) Invoice Payment Remittance Seller sends

payable system. Invoices without discrepancies (i.e. 3-Way/2-Way Matched) are readied for payment execution.

Payment remittance detail is electronic & automatically applied against the

Discrepancies between payments, remittance, & invoice are assigned to

6 Straight-through-Processing (STP) Invoice Payment Remittance Seller sends electronic invoice, invoice is automatically entered into the accounts payable system. Invoices without discrepancies (i.e. 3-Way/2-Way Matched) are readied for payment execution. Payments clearing & settlement performed by Banks. Payment remittance detail is electronic & automatically applied against the invoice(s) in the accounts receivable system. Discrepancies between payments, remittance, & invoice are assigned to dispute resolution process Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 6

Barriers to Electronic Payment Adoption Electronic payments are more complex than check payments

have support of their FIs Difficult to discover trading partners electronic payment capabilities

7 Barriers to Electronic Payment Adoption Electronic payments are more complex than check payments Electronic payments capabilities are not ubiquitous Small & Mid-Sized businesses do not always have support of their FIs Difficult to discover trading partners electronic payment capabilities Difficultly in exchanging payment related data (i.e. invoices & remittance information) Paper Checks Large Business still send 50% of their payments via check For Small & Micro Businesses its even higher at 70% to 90% using paper checks Source: Strategies for Improving the U.S. Payment System, page 50 7

8 Barriers to Broader E-Invoicing in the U.S. Interoperability Service providers close their networks to only those who participate, creating an island effect Businesses have created their own community, with standards that meet their needs, increasing the difficulty for trading partners to connect / integrate Too Many Integration Points No common definition of what an e-invoice is Many different invoice syntaxes, semantic models, and formats Increases integrate expense with their trading partners Inertia What s in place works. Business case needs to be compelling for the investment No industry led coordination, collaboration, or leadership 8

9 Upload The Evolution of the Electronic Invoice Login / View Download Supplier Portal EDI A/R A/P Print Scanner 9

Invoice Presentment Models Seller Direct: Seller

the Buyer EIPP system Network: Many-to-Many

participants E-Invoicing: Point to Point connection

10 Invoice Presentment Models Seller Direct: Seller request Buyer to view invoices on the Seller EIPP system. Buyer Direct: Buyer requests Seller to Post invoices to the Buyer EIPP system Network: Many-to-Many relationships, collects invoices from all network participants E-Invoicing: Point to Point connection between trading partners A/R System Seller Electronic Invoices Seller Direct Buyer Direct Network / Consolidator A/P System Buyer 10

11 Global & U.S. Market Review 11

Europe Europe is in various stages of e-invoice adoption Nordic countries were first and have the highest adoption rate compared to the rest of the region Estimated 24% of invoices were

12 Europe Europe is in various stages of e-invoice adoption Nordic countries were first and have the highest adoption rate compared to the rest of the region Estimated 24% of invoices were electronically sent in 2015, up from 6% in 2004 By 2024, expected to have 95% converted to electronic invoices Key drivers in the market include legislative, a defined set of standards and framework, service provider alignment, and programs in place Source: Electronic Invoicing in the U.S.: Challenges and Opportunities 12

invoicing Tax compliance is the key to driving adoption in the market Standardization (format & semantics) enables

13 Latin America A number of countries have implemented Clearance Systems & Models to improve tax compliance 58% of the all invoices were electronic in 2014, compared 1% in 2004 Brazil, Mexico, and Chile are world leaders with over 90% electronic invoicing Tax compliance is the key to driving adoption in the market Standardization (format & semantics) enables transactions to flow between trading partners and taxing authorities Source: Electronic Invoicing in the U.S.: Challenges and Opportunities 13

Australia The Digital Business Council, a private-public partnership developed and formally adopted the e-invoice interoperability framework in 2016 Estimated savings annual savings to the Australia

14 Australia The Digital Business Council, a private-public partnership developed and formally adopted the e-invoice interoperability framework in 2016 Estimated savings annual savings to the Australia economy is AUD$9 10 Billion Projected 38% of invoices to be sent electronically by 2019, up from 14% in 2014 Key drivers in the market include a defined set of standards for electronic invoices, along with an adoption program promoting & supporting businesses and service providers to enroll into the framework Source: Electronic Invoicing in the U.S.: Challenges and Opportunities 14

United States Complex market, requirements differ by industry segment & size Over 150 different service providers offering & supporting customers with automation e-invoicing initiatives Estimated 24%

15 United States Complex market, requirements differ by industry segment & size Over 150 different service providers offering & supporting customers with automation e-invoicing initiatives Estimated 24% of invoices were electronically sent in 2015, up from 15% in 2004 By 2024 expected to have 38% converted to electronic invoices Key drivers in the market are businesses focused on automation and meeting requirements of their trading partner. OMB mandate may drive an increase in adoption for B2G invoicing. Source: Electronic Invoicing in the U.S.: Challenges and Opportunities 15

16 OMB Mandate for the U.S. Federal Government Directs CFO Act agencies, to transition to electronic invoicing for appropriate Federal procurements by the end of FY 2018 to one of the following means: Migration to a designated Federal Shared Service Provider (FSSP) and adoption of the FSSP electronic invoicing solution; Use of an OMB-approved electronic invoicing solution that aligns with agency mission and support requirements; or Cessation of any investments in new electronic invoicing solutions. Choice of offerings from DoD, DOE, Treasury (IPP), VA, and possibly others Includes other requirements including linking to SAM (System for Awards Management) and data standards. 16

17 Business, Economic, and Societal Benefits of Broader Electronic Invoicing 17

18 Business Benefits AP Reduced Operating Expense Optimize Cash Management Minimize Payment Risk & Fraud Reduction of Data Entry Errors, Rekeying, etc. AR Reduce DSO Fixed Cost Reduction Increased Cash Flow Complete Remittance Information Savings 50% to 80% per Invoice $4 to $8 per invoice Source: Electronic Invoicing in the U.S.: Challenges and Opportunities 18

19 Economic & Societal Benefits Economic Positive correlation between less burdensome business overhead & economic growth Viewed as a competitive advantage in the global economy Societal Reduction of cumulative energy demand & greenhouse gas emissions Reduction in waste & waste biproducts in the production, transportation, printing, mailing, storage, and destruction of paper Source: Electronic Invoicing in the U.S.: Challenges and Opportunities 19

20 Business Payments Coalition 20

Business Payments Coalition Mission: Work together to solve problems related to processing information associated with B2B payments in order to promote use of electronic payments & straight through

21 Business Payments Coalition Mission: Work together to solve problems related to processing information associated with B2B payments in order to promote use of electronic payments & straight through processing (STP). Participation: National group of associations, small & large businesses, financial institutions, technology & software vendors, standards development organizations & others. Formed in members & growing 21

SIPS Focus on B2B Efficiency Strategies for Improving the U.S.

calls to explore the possibility of developing & implementing a

platform Exploration resulted in a whitepaper reporting on the

22 SIPS Focus on B2B Efficiency Strategies for Improving the U.S. Payment System (SIPS) paper identified efficiency improvements in the U.S. payment system as one of the five desired outcomes Specifically calls to explore the possibility of developing & implementing a standard, ubiquitous B2B electronic invoice & processing platform Exploration resulted in a whitepaper reporting on the current global activities with e-invoices, potential benefits, & the barriers to greater adoption in the U.S. market 22

23 E-Invoicing Work Group Mission: Identify ways to accelerate the adoption of B2B e-invoicing by all types and sizes of U.S. Businesses Objectives: Develop a catalog of electronic invoice syntax, formats, and subsets used in the U.S., publish through ASC X9 as a Technical Report Define what a electronic invoice is for the U.S. market Develop a position paper on how the U.S. market should adopt an e-invoice interoperability framework Develop an interoperability framework Develop an implementation guide 23

Proposed milestones for the E-Invoice Work Group SIPS Calls to investigate development of a EIPP solution for the U.S. market Whitepaper Outlines the challenges and opportunities the U.S. market faces against a global backdrop Catalog Technical standards in use by U.

24 Proposed milestones for the E-Invoice Work Group SIPS Calls to investigate development of a EIPP solution for the U.S. market Whitepaper Outlines the challenges and opportunities the U.S. market faces against a global backdrop Catalog Technical standards in use by U.S. businesses Outline current processes Define what an e- invoice is Framework Development Technical specifications defining a semantic model, business identifiers & locator guides Research Secondary research convene expert advisory group Establish Work Group Document e-invoice syntax, formats, and subsets along with current environment for transmissions Position Paper Present the benefits of an interoperability framework for the U.S. market Implementation Guide Requirements on how operate within the framework 24

25 Questions 25

26 Thank You! Contact me with additional questions or interest in joining the Business Payments Coalition at 26

27 Resources 27

28 E-Invoicing Resources Standards: OASIS Universal Business Language: OASIS Business Document Exchange: UN/CEFACT: The United Nations rules for Electronic Data Interchange for Administration, Commerce and Transportation: ISO Europe: European E-Invoicing Service Provider Association (EESPA): Pan European Procurement Online Portal (PEPPOL): Australia: Digital Business Council: Interoperability Framework: 28

29 E-Invoicing Resources E-Invoicing Platform: Billentis: PayStream Advisors: Exchange Summit: 29

30 Invoice Standards Syntax 6 Defined Syntax Languages PDF, CSV, ANSI X12, ISO 9753 (EDIFACT), W3C XML, JSON Formats 14 Defined Formats UN/EDIFACT, UN/XML, OASIS UBL (ISO 19845), XBRL, ISO20022, OAGIS, HL7, cxml, xcbl, CIDEX, PIDEX, GS1/XML, RosettaNet, Proprietary Subsets 40+ Defined Subsets, including 15+ Industry Specific Variants for EDI& 10+ Country Specific Variants for UBL 30

2017 High Priority Objectives Business Payments Coalition B2B Directory: Assist the BPDA with developing

& current processes Small Business Toolkit: Release v3.

Forum: Identify issues & topics to focus on in 2017 related to B2B payments efficiency & strengthen the

31 2017 High Priority Objectives Business Payments Coalition B2B Directory: Assist the BPDA with developing requirements & governance models E-Invoicing Work Group: Document & publish e-invoice technical standards & current processes Small Business Toolkit: Release v3.0, enhancements include information on Same Day ACH, Payment Fraud, and Self Assessment Quiz Vendor Forum: Identify issues & topics to focus on in 2017 related to B2B payments efficiency & strengthen the membership ISO Education & Promotion Work Group: Develop a whitepaper that reports on a survey, case studies, benefits & challenges reported by U.S. adaptors 31

Moving Forward with an E-Invoice Standard in the U.S.

Moving Forward with an E-Invoice Standard in the U.S. Todd M. Albers Payments, Standards, and Outreach Group Federal Reserve Bank of Minneapolis 2018 Exchange Summit - Berlin Disclaimer The opinions expressed