“The Future of Invoicing” is a course of articles focusing on technological innovations that are reshaping the way we perceive and carry out invoicing. The first article in the series showed that the invoicing process is only one small part of a bigger whole, known as ‘receivables management’ and emphasized the tremendous role of technology-driven receivables management platforms for creating a cheap, slick and extremely powerful process, which is far less vulnerable to human error.
In the second take, we’d like to concentrate on another fascinating innovation called ‘Code-driven compliance’ and its importance for the future of invoicing.
International Compliance: An Obstacle for Invoicing?
Global businesses are booming, as more and more companies are breaking barriers and doing business internationally. The rapidly-changing world of economics, innovation and automation is triggering new regulations and scrutiny to better manage digital processes. New rules and regulations are being adopted frequently, resulting in numerous complexities that businesses must face, especially in regards to their invoicing process.
As laws and regulations are constantly changing, it has become increasingly difficult for companies to keep up to date with the dynamics of international compliance. In fact, a business must keep track of approximately 220 regulatory revisions daily and currently, regulatory fines exceed $345 billion since 2009 based on information from Deloitte. As the cost of compliance continues to increase substantially every year, business owners struggle to find a solution for this growing problem.
Fortunately, technology enables greater efficiency in regards to compliance. The implementation of automated regulating mechanisms into day-to-day processing assures a secure, compliant process at minimal cost. This opens up new opportunities for receivables management platforms, which can now scale and verify processes much faster for each country of operation.
Invoicing across borders
Invoicing activities are an essential, yet complex process for any business. This is especially true in regards to cross-border businesses, which must abide by an abundance of international and local laws and compliances. Despite their best efforts businesses still face several core issues when dealing with cross-border invoicing.
Cross-border businesses must uphold international compliances, due to several vital reasons:
- Tax Regulations: An online invoice is not only viewed as a transaction receipt but is also a vital document when it comes to tax collection. Since for many countries, taxes are a significant source of revenue, a lot of emphasis is put on regulations of invoice management processes, to ensure that they are done properly. Due to this, there is a significant risk associated with noncompliance with local regulations. Some of these may include administrative fines, loss of a business’s rights to deduct VAT, protracted audits, trading partner audits and sanctions under criminal law in some countries.
- Format: There are compliance requirements for electronic invoices, which may vary in different local legislations, especially in regard to Business to Government suppliers (B2G) and for Business to Business invoices with Tax authority clearance (B2Tax). This makes the implementation of formatting rules a complex and time-consuming task.
- Communication: Additionally, with multiple currencies and language barriers, it’s easy to see how businesses may face various challenges and risks when it comes to global compliances, especially when they are constantly changing.
- Data Quality: Human-made errors such as incorrect input of information and typos, are one of the largest issues that invoicing departments face today, as even the smallest mistakes can be detrimental in regards to regulatory laws.
- Process legitimacy: The regulation on invoicing and taking payments from customers varies in different countries and for different business models (B2B, B2C, B2G, etc.). Such regulations are usually constituted in local and international commercial law and shape the type of conduct, that is due to apply in one specific constellation. For businesses, that provide goods and services across borders and to different client segments it might be really hard to keep track and apply the correct process configuration.
Code-Driven Compliance — Automated regulation from within
Technological innovations have allowed us to be more efficient in all areas of life and this is no different in regards to keeping up with necessary laws and regulations.
The term ‘Code-driven compliance’ has been appearing in different contexts for quite some time now. In general, it describes the utilization of new technology to facilitate the delivery of regulatory requirements in an efficient and straightforward way, in order to help businesses comply with local and international regulations automatically.
Through the use of AI, algorithms, and machine learning it is possible to integrate a complex set of regulating mechanisms, which then automatically evaluate the given data and are able to manage and scale a process, so it complies to a preset legal framework. This helps businesses reduce the pressing cost and effort, which are usually associated with traditional methods of international compliance. Moreover, code-driven compliance can help improve day-to-day practices and minimize risk not only for invoicing but throughout the full receivables management cycle. Therefore, RMPs (Receivables Management Platforms) are to be seen as a serious acceptor and/or developer for code-driven compliance mechanisms, which can be integrated into the very core of a system or added as a separate microservice, in order to gain agility.
Here’s why modern Receivables Management Platforms apply code-driven compliance:
- Minimize Cost&Effort: When abiding by global compliances traditionally, humans must know and utilize dozens or even hundreds of compliances, laws, and regulations. This is not only incredibly difficult but also undoubtedly time-consuming and cost-ineffective. Automating compliance processes increases efficiency and lowers costs significantly in regards to cross-border activities. Furthermore, an automated system also lowers costs associated with staffing such as salaries, office space and supplies.
- Reduce Risk: Code-driven automation systems also significantly reduce the risks associated with tax compliance. By having automatic access to up-to-date tax information, businesses can avoid financial penalties and other sanctions associated with noncompliance with laws and regulations. Additionally, business owners have greater control through cohesive audit trails which include secure data transfers, invoice images and most of all, compliance measures throughout all steps of the invoicing process.
- Optimized Debt Collection: Compliance practices are key, especially when it comes todebt collection. Regulations regarding collecting overdue payments vary greatly from country to country. Through the use of technology, all local requirements such as collection fees, personal data processing and specifics for out-of-court and court procedures, are automatically managed and taken care of.
- Treat Customers Fairly: Through the use of code-driven compliance, RMPs ensure that customers are treated fairly and that legal requirements are effortlessly met for each collection territory.
Technology is the key to efficiently following international compliance practices in each phase of the receivables management process. Embracing automated procedures and intelligent systems can completely minimize human errors in processing thanks to its pre-coded rules. Thankfully, these technological advancements already exist in the form of code-driven compliance and are bound to make the full receivables management processes easier and more efficient, including invoicing, dunning, debt collection and customer communication.
If you want to learn more about the application of code-driven compliance in RMPs, make sure to visit the eCollect website. eCollect is the first technology-driven, cross-border receivables management platform, that provides efficient and cost-saving full-cycle receivables management, that can be programmed to comply with any international and local legislations.