The positive turn due to the sudden outbreak of the COVID-19 pandemic was the trigger to push towards adoption of new technologies. Corporates and MSMEs alike took to upgrading and adopting new technologies as it became important in the time of an unprecedented crisis-- the world in a lockdown mode and demands of supply chain finance rising globally.
The supply chain finance volumes saw an extensive rise in the last 18 months. Traditionally, supply chain finance (SCF) has been a fairly slow and cumbersome process. It has always been the document--heavy, slow manual systems which include the intense Know Your Customer (KYC) checks, which are often not feasible for time-sensitive and low-manpower MSMEs. These drawbacks and inefficient systems make SCF a less attractive and less profitable option for lenders.
The MSME sector is next only to agriculture in terms of providing employment. MSME sector also accounts for 48 percent of India's exports. With strong and complex forward and backward linkages, the sector provides essential support to large enterprises and their value chain.
The new wave of digitization looks at dealing with this problem by making the service more efficient and transparent as the integrated systems simplify information sharing and KYC. The COVID-19 lockdown in various states made it difficult to procure and transfer physical documents and it is then that the role of technology became even more important.
Digitization offers a more efficient and less resource-heavy solution that makes banking and SCF services more profitable in the future. Electronic invoicing or e-invoicing has emerged as a viable solution for corporates and MSMEs.
What is E-invoicing?
E-invoicing mainly involves suppliers reporting invoice details to the notified portal and obtaining a reference number. Aside from this, it is important to see that a uniform standard for the invoice was worked out and notified as ‘INV-01’. This has got all the elements of a typical commercial invoice for the supply of any type of goods or services.
The standard is based on Universal Business Language (UBL), with certain customizations to cater to Indian business practices. This paves way for ‘machine readability of invoice and the much-needed ‘inter-operability among businesses, i.e. by allowing direct transmission of invoices digitally from one accounting/ERP system to another.
The paperless paradigm of e-invoicing has enhanced the overall efficiency of businesses in the following ways:
● elimination of data entry errors
● reduction of reconciliation issues
● reduction of disputes among transacting parties
● faster payment cycles
● substantial reduction of paper
● reduction of processing costs
● better internal controls
Eventually, these networks may support the exchange of not just invoices but other documents like purchase orders and even payments. Thus, e-invoicing is going to revolutionize the way businesses send and receive invoices from each other.
Banks and FIs in the country are gradually moving from traditional asset-based/ratings-based lending to cash flow-based lending. This is a very beneficial trend for MSMEs.
A big factor affecting the ability of MSMEs to convert trade receivables into liquid funds is ‘slow-paying' invoices. As part of the AA framework, e-invoicing will make it possible to share invoice data with banks and FIs on a real-time basis. The digitally signed invoice from the government portal can act as the single source of truth for the document raised by the supplier. It is also possible to flag an already-financed invoice to avoid the possibility of the supplier submitting the same invoice again to another financier.
Benefits of e-invoicing
Electronic invoicing or e-invoicing, which was started back in October 2020, is on the verge of the completion of its third quarter and successfully so. It has several benefits:
Tax compliance would become a part of the business process
GST returns will be pre-populated
E-way bill will be auto generated and can be used wherever required
Mitigate fraud risks
E-invoicing has a lot more to offer to the business ecosystem in the future. Electronic invoicing is an important component in the supply chain finance process providing significant benefits to SMEs and their suppliers. The digitization of invoices significantly reduces the cost of generating invoices as well as the time to process them.
E-invoicing results in increased productivity and automation since data is sent directly from the buyer to the SME’s accounting system. Thus, eliminating the need for manual data entry. In addition, a fast and efficient payment method can help SMEs maintain a friendly relationship with their suppliers.
Another advantage of using E invoices is the simplification of account reconciliation. Many jurisdictions around the world have introduced regulations related to electronic invoices.
Thus, e-invoicing is going to make the ‘payables financing’ process, reliable, faster, and data-driven. The turnaround time for grants of loans, especially for MSMEs will be drastically reduced. Export invoices are also covered in e-invoicing. As export invoices and shipping bills have many data fields in common, auto-population of a major part of the shipping bill from e-invoices is another potential use case of e-invoicing.
(Arun Poojari is Co-founder, Cashinvoice.in--a digital invoice marketplace)
