Finance

How e-invoicing could help solve the late payments problem

- September 1, 2021 4 MIN READ

Across Australia, small businesses are doing it tough. After a promising first half of the year, almost half of the country is back in extended lockdowns which make it hard just to get by. And the pandemic has only compounded the longstanding issue of late payments, a problem many small businesses face, making it harder to keep cash flowing. Small businesses should, however, be aware of e-invoicing, a new tool they can soon add to their kit that improves the way businesses pay – and are paid, writes Joseph Lyons, Managing Director Australia & Asia, Xero.

Our latest data from Xero Small Business Insights saw the time small businesses wait to be paid by suppliers slip to back 23.3 days, in line with the past year’s average, while late payments tracked 6.7 days in the same month. This means small businesses are being paid almost an entire week late on average – a wait that’s unfortunately too long. So where does e-invoicing come in?

Changes to the Australian accounting landscape mean it will soon be ready for broad use by businesses that send and receive invoices, helping to speed up payment times and more easily manage cash flow, among other benefits. But some of you may be wondering what exactly e-invoicing is in the first place and how it’s different to invoicing online. Here’s what you should know:

E-invoicing explained

Normally, invoices are created in accounting software or manually in a word processor and sent via PDF over insecure email or printed and posted. Whichever way you choose, businesses still have to enter the data in their system, or use automation tools like Hubdoc, to pay them. E-invoicing, on the other hand, is a way for businesses to exchange invoices electronically, sending them directly between accounting systems and reducing the need for manual data entry.


For example, a donut shop might receive invoices from suppliers for ingredients and send invoices to nearby cafes that purchase the donuts wholesale. Paying suppliers would involve digging through emails to find invoices then manually inputting the details into accounting software before making payment. With e-invoicing, these simply appear automatically as bills awaiting approval, no data entry required. Sending e-invoices to the cafes would all happen in the same system and offer peace of mind that they made it safely to their destination.

But what if you already send and pay invoices electronically? E-invoicing differs from other ways you may be sending invoices (eg. using software like Xero to send a PDF via email) as it directly exchanges between software using the secure, centralised Peppol network.

Why small businesses should get started with e-invoicing

E-invoicing has big benefits in store for small businesses. For starters, each time an e-invoice replaces a paper or PDF invoice, it can save a business up to $20. These savings can add up fast for the 89 per cent of small businesses (and their bookkeepers) in Australia which still process paper or PDF invoices manually. And what else?

  • Speedy payments: E-invoicing takes out the hard parts of a normal invoice, like manual data entry. Invoices arrive as bills ready to be paid, making it easier for a business to pay their invoices so others, in turn, can be paid faster too.
  • Fewer errors: E-invoicing dramatically reduces the hands an invoice passes through so there’s less chance of getting something wrong. Standard fields ensure all the right information is included to reduce admin and make it a smooth process, in one place.
  • Greater security: Invoices go through a secure e-invoicing network, with no human intervention, reducing the risk of fraud or foul play.

So, where to begin? E-invoicing is like many of the technologies we’ve come to know and love. If you were around, think back to when we first began using email. It was groundbreaking but only worked if the other person had an account and was plugged into the Internet. These days, everyone uses email so we don’t give it a second thought. E-invoicing also needs both parties to be registered to work. Registering to receive e-invoices through the Peppol network is quick, easy and free within your accounting software. Taking a few minutes now means you’re ready to go as the network grows.


How e-invoicing improves payment times

The gains from e-invoicing can help you get paid faster. And right now? Australian businesses that work with certain government agencies can already see the impact. The Australian government is starting the push for businesses to move to e-invoicing and the largest federal government agencies can already receive invoices electronically (with smaller agencies having to fully transition by 1 July next year). Government agencies in NSW aren’t far behind and must make the switch by 1 January 2022. They have committed to paying invoices within five business days, much faster than the payment times we’re seeing at the moment.

Certain industries that work closely with government agencies, like professional services, will start seeing the impacts from the get-go. And the more businesses that are on board – both big and small – the more it will snowball.

While e-invoicing is only just beginning in Australia, other countries began earlier and we can already see what they’ve gained. Singapore launched its e-invoicing platform, InvoiceNow, in January 2020. Registrations have since grown to more than 40,000 businesses, as well as government, a sizable portion of Singapore’s small businesses and sole traders. And the benefits are being felt already. Businesses like Terra Sol, whose main clientele includes government agencies, can quickly save time and increase efficiency. The smart bin manufacturer estimates time savings of 30-50 per cent since being able to send e-invoices to Singapore’s Accountant-General’s Department.

E-invoicing is an exciting opportunity to reshape how small businesses make and receive payments. If you have a few moments to spare in this busy time, register for e-invoicing now so you reap the benefits as soon as possible – and hopefully start saying goodbye to late payments in the near future. With more government agencies and big businesses signing up, this small change means you’ll be ready when everyone hits go.

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