What’s the back story of the e-invoicing mandate in the U.S.?

The e-invoicing memorandum was issued by the Office of Management and Budget (OMB) in September 2015. The initial wording sounded very promising. By the end of fiscal year for 2018, all government agencies were to transition to electronic invoicing for all federal procurements. E-invoicing providers were to integrate to the Integrated Award Environment (IAE) systems (to include the System for Award Management (SAM). And most importantly, within 180 days of the issuance of the memo, the OMB would release data standards for invoicing. Needless to say, as of today none of this has happened. But why?

There were 3 primary shortcomings in the e-invoicing directive that was issued in 2015:
  1. There was no definition of what an e-invoice is. This may sound simple, but it is not. EDI, VAN, e-invoicing, FTP, and e-mail are all forms of electronic invoice transmission – each carrying with them their own benefits, challenges and implications. The idea was to eliminate paper from the government AP process, but the mandate did not specify what type of e-invoice should take the place of paper invoices.
  2. There was no invoice format mandated. As the Business Payment Coalition documented in their 2017 whitepaper, Catalog of Electronic Invoice Technical Standards in the U.S., there are over 30 different “standard” e-invoicing formats being used in the U.S. today (not to mention customer specific formats). One of the reasons that markets such as Latin America succeeded in gaining adoption was that everyone was sending the information the same way. This eliminated the need to do costly conversions and mapping exercises to ensure the necessary fields are entered into the system every time.
  3. The Mandate does not have any repercussions. Therefore, there is no motivation, or compelling reason for government agencies to adopt e-invoicing, much less by this year.
So, while the mandate was a great way to build a conversation, it will not drive the market as in other regions. Frankly, I would be shocked if there was any further talk of mandates or regulating the invoice transmission process in the next 5-10 years, if ever.

What does this mean for e-invoicing in the U.S.?

If we want to modernize our invoice ingestion processes, change needs to be driven by the market. That sounds like an impossible task, and yet Australia is doing just that. And, what is important to understand is that as in the U.S., there is no government mandate for e-invoicing in Australia. A group of organizations who understand the benefits of e-invoicing have joined together with a common goal to create interoperability within their market.

How can the market drive the e-invoicing mandate in the U.S.?

We can learn from The Australian Digital Business Council. The council's main objective is to develop and deploy digital standards across the business landscape, and they have started with the invoice process. The Council is comprised of various industry groups (such as the Chartered Institute of Procurement and Supply Chain and the Institute of Certified Bookkeepers), Government agencies (Australian Digital Health Agency, the Dept. of Finance, and others), and Software providers (Basware, Xero, MYOB, etc).

The council has built a common format for e-invoicing in Australia, and has agreed on a transfer protocol. Now they are building the proof of concept for a four corners transaction model that would allow any supplier to send invoices to any buyer. The South Australian Government is helping pilot this concept, with transactions flowing from OzEDI (an Australian e-invoicing solution) to Basware. If this concept is successful, it will prove the model, and open the door for more providers and more invoice traffic.

Where are we today?

In the U.S., we are following the same path. The Business Payments Coalition is a volunteer group of organizations and individuals working together to promote greater adoption of electronic business-to-business (B2B) payments and remittance data. The e-invoicing work group has been working to develop technologies and rules to help bring continuity and interoperability to the U.S. market.

With the help of the U.S. Federal Reserve, our whitepaper cataloged the majority of e-invoice technical standards in use in our market today. This exercise has brought light to exactly how fragmented the market is today. In 2018, we will be working to build the business case for unification, and begin work to develop a standard format that can be used across industries.

Todd Albers, senior payments consultant with the Federal Reserve Bank of Minneapolis, and the convener of the e-invoicing work group, has stated that one of the first steps to automating B2B payments and increasing B2B payment efficiencies is the invoice. Albers said, “The U.S. has several different open e-invoicing models to choose from, why not bring together interested parties through the Business Payments Coalition to see if the U.S. can leverage what other markets have done, and collaborate on setting an open, standards-based interoperability framework for the U.S. market.” 

Standardizing the U.S. market will no doubt lead to faster adoption, and greatly reduce the reliance on manual, paper-based processes in our AP and AR departments. I believe that 2018 can be a breakthrough year for these initiatives – stay tuned for updates on the progress made in the U.S. and Australian markets!

How can Basware help?

Basware is a believer in the open model concept when it comes to e-invoicing because it means any supplier can join for free and continue sending invoices in the same way they already operate. Then, Basware converts those formats into true e-invoices for our customers. We have already built interoperability relationships with over 220 global e-invoicing providers – making our network the largest open business network in the world.

Check out our whitepaper, 6 Steps to e-Invoicing Success, to learn more about how organizations can successfully move away from paper invoices.