E-Invoicing in Australia: Shortens Payment Time, Improves Debt Collection

Debt collection efforts among Australian businesses will be improved significantly with the use of electronic invoicing (e-invoicing) for B2B and B2C transactions. In July 2022, the Australian and New Zealand governments adopted the Pan-European Public Procurement On-Line (PEPPOL) framework as the standard and network for e-invoicing. The Australian Tax Office (ATO) was nominated as Australia’s Peppol Authority based on the agency’s digital initiative such as the Single Touch Payroll.

E-Invoicing, Shortened Payment Time and Better Debt Recovery Efforts

Benefits of E-Invoicing

“E-invoicing will improve business cashflow through faster payment times and deliver significant benefits and efficiencies to suppliers and the Government by reducing transaction costs and handling errors.”

Sen. Cormann.

The ATO identified three benefits of e-invoicing to Australian businesses:

  1. Saves time and money.
  2. Reliable and secure.
  3. Reduce payment times.
  4. Interconnected trading.
  5. Environmentally-friendly.

E-invoicing saves time, simplifies and automates processing

By using the digital form of invoice, businesses reduce the time it takes from them to process payments. The ATO said small businesses have to collect $26 billion in unpaid invoices at any given time. Of all late payments, over 20% are due to errors on invoices. Over 20% of erroneous invoices are due to the invoice being sent to the wrong recipient following manual data entry.

Businesses save $21.69 when they switch to e-invoice

The ATO said a business spends $9.18 to process an e-invoice, while a business will spend $30.87 to process a paper invoice and $27.67 to process a PDF invoice. Further, as e-invoices conform to standards, information exchanged is correct and high quality. E-invoicing reduces manual handling and re-keying of information to make sure that are few incorrect or lost invoices. Consequently, e-invoicing reduces fake or compromised invoices, billing scams, and money loss.

B2B e-invoicing is secured

False billing scams are rampant in Australia and reportedly resulted to more than $227 million losses in 2021, according to the Australian Competition and Consumer Commission. Payment redirection and false billing scams are two problems that the e-invoicing network aim to eradicate as the e-invoices are exchanged securely through the Peppol network.

Businesses can cut payment time

Recognising the impact of extended payment terms to small-medium enterprises (SMEs), the Morrison government has been in the frontline in proposing digital invoicing technology. While the new rules currently relate to procurement contracts with the federal government, Sen. Cormann encourages the private sector to follow suit.

It takes 36.7 days for a big business to pay an SME. The Australian Tax Office (ATO) believes one of the benefits of e-invoicing is the reduction in payment times especially when the destination is using the same accounting management software. The small business ombudsman believes e-invoicing will improve cash flow for businesses. Late payments continue to hamper small business viability, with half of all small businesses reporting late payments on 40 per cent of their invoices. Cash flow improves when payment time improves.

E-invoicing connects Australian businesses

Businesses only need to connect once on the Peppol network to be able to trade with other businesses that are also using the Peppol network, this is regardless of the size of business and the software used. According to the ATO, large businesses can add Peppol to their trading networks to help their SME trading partners to exchange invoice data directly from their software.

Businesses can hit ESG targets

Einvoicing will reduce the use of paper and other resources when managing manual invoices. Reduction in these resources can help businesses achieve their environment, social, and govenance (ESG) targets.

Interest payments for unpaid invoices.

One of the features of the new rules is the interest payment. The government will pay interest to those who are not paid within five days from submission. The 5-day late interest payment policy will apply to contracts valued up to $1 million. This policy has a significant positive impact on businesses transacting with the federal government because data from the finance ministry showed that 94.8% of contracts by volume (or 69,611) were below $1 million. The government will also pay interest for every day delayed.

Payments made without e-invoicing will maintain the 20-day term until all government agencies will impose the 5-day term throughout 2020. The 5-day term will also only apply to domestic small-medium enterprises (SME) suppliers and won’t include contracts or standing offers already in place. For businesses to effectively take advantage of the new rules, the ATO though has one advice: Make sure information in e-invoice is correct.

“While businesses will still need to apply their internal quality assurance processes, e-invoicing will provide opportunities for business owners to focus on growing their business, rather than spending time on labour-intensive and costly administrative processes,” ATO e-invoicing director Mark Stockwell said.

Takeaway

E-invoicing is nothing short of revolutionary in the way businesses work. It is a crucial transition that has the welfare of domestic SMEs in mind. Currently, the new e-invoicing rules apply only to government contracts. However, business groups expect the private sector to follow suit. A more streamlined payment process that minimises invoice errors will ensure timelier payments and improved debt recovery efforts.

You can read einvoicing news and resources that may be helpful to your business here.

Search this article
Scroll to Top
Scroll to Top