E-Invoicing: Saving Time and Money, Improving Cash Flow

Cash flow is expected to improve when the New Zealand government implement e-invoicing policy. Earlier this year, the New Zealand and Australian governments jointly agreed to adopt the Pan-European Public Procurement Online (PEPPOL) framework in invoicing. Australia will roll out new e-invoicing rules this January and it is expected that New Zealand will soon follow suit.

E-Invoicing: Saving Time and Money, Improving Cash Flow

E-Invoicing: Saves Time and Money

The e-invoicing policy is in line with the A-NZ governments’ Single Economic Market agenda (SEM) to foster better business relations in the Trans-Tasman region. This system will allow the supplier and the buyer to send an e-invoice directly into each other’s system even if they are not using the same system. The governments said $30 billion will be saved within 10 years following the adoption of e-invoicing.

One of the major causes of late payments and unpaid debts is invoicing error, which error could be as simple as typing in the wrong company name. E-invoicing will reduce, if not eliminate such error, because the system will reduce the manual handling of bills and the repeated keying in of incorrect information. There will be improved accuracy and faster exchange of information.

The MBIE has recognized that cash flow is the biggest killer of small businesses especially because big businesses often extend payment terms at the detriment of its smaller contractors. Xero, provider of cloud-based accounting software platform, leads the small and medium enterprises (SME) business community in New Zealand in pushing for the creation of a voluntary code of ethics for invoice payment time precisely because of problems in payment time.

E-Invoicing: Improves Cash Flow

Small businesses run the New Zealand economy. They comprise 97% of the country’s enterprises and contributes an estimated 26% of the country’s GDP. Small Business Minister Stuart Nash work is being done, alongside implementation of the e-invoicing system, for payments to be paid immediately, which is ideally 10 business days.

Legislation requiring businesses to pay up within a specific period will allow businesses to get cash as they are due. Businesses would be compelled to pay the full amount on time especially when the government will impose interest for late payments. A shorter gap between invoicing and payment also means shorter time for businesses to have improved cash flows.

Moreover, e-invoicing can cut administrative costs. Businesses will save $10.41 when using the e-invoice. According to MBIE, an e-invoice costs $7.63 to process, while it costs $25.67 to process a paper invoice and $23.01 to process a PDF invoice. This significant savings can be used by both the creditor and debtor business to improve their cash flows.

Takeaway

E-invoicing will revolutionize the way New Zealand does business. It is still a plan in the making but it won’t be long before New Zealand follows its neighbor in transitioning to an internationally-approved standard of doing business. This policy has the welfare of small businesses in mind as it is expected to drastically improve the financial status of small businesses by saving them time and money, thus improving their cash flow.