How to help small businesses switch to e-invoicing

At a glance:

• Encouraging incremental innovation through user-friendly technologies including e-invoicing can lead to significant productivity gains for small businesses.
• E-invoicing can lead to faster payments, better control over cash flow and forecasting, and more accurate reporting.
• Adopting e-invoicing can save small businesses up to 10 hours a week and free them up to focus on revenue-generating tasks.

Around 3.3 million invoices are exchanged in Australia every day, many of them printed on paper and posted, or emailed as PDFs. The Australian Taxation Office estimates the cost of this kind of manual invoicing at between $27 and $30 per invoice.

By contrast, e-invoicing is estimated to cost less than $10 per invoice.

Those figures aren’t always enough to convince a small business owner of the merits of digital accounting software like e-invoicing. Where the convenience and cost-savings might be obvious to an accountant or bookkeeper, the business owner might be wary of costs associated with new software, time spent getting staff trained up, and potential security issues. And then there’s the general overwhelm that can accompany the thought of plunging into new tech.

The Productivity Commission’s third interim report addresses this issue by emphasising the need for incremental innovation to improve productivity across the economy. Think of it less about diving into the most radical new technological advances, and more about the adoption of easy-to-implement, user-friendly technologies that can lead, together, to significant gains in productivity.

See how marginal gains transformed the British Olympic Cycling Team and helped Team Sky to three TDF victories in the video below.

Incremental innovation uses the concept of marginal gains outlined in the video to highlight the impact of small changes, over time, together. Or, as Productivity Commission Deputy Chair Dr. Alex Robson explained on the launch of the report, “...there are likely to be bigger gains in encouraging everyday, incremental innovation across the vast majority of Australian businesses”. Pursuing change in this way differs from traditional policy approaches that, Robson told us, had focussed on cutting edge invention.

So for accountants and bookkeepers looking to help their small business clients see the light of digital solutions, it’s a good idea to lead with a ‘baby steps’ approach rather than with dramatic leaps.

Well established in the market and with great efficiency-boosting potential, e-invoicing is a good first step to take into digital accounting solutions. Here are some of the key advantages of e-invoicing for small businesses.

1. Faster payments for better cash flow

Bookkeepers and accountants should lead with the big guns: e-invoicing will help businesses get paid faster.

E-invoicing is the secure digital exchange of invoice information through accounting software providers. By reducing the inefficiencies associated with manual systems (think preparing and posting paper invoices, invoices travelling from inbox to inbox awaiting approval), e-invoicing can lead to faster processing and approval of invoices. Faster payments means businesses have greater control over their cash flow and can forecast more accurately.

Faster processing also means business can benefit from pre-negotiated discount terms on payable invoices. Thirty days and a 2% discount can quickly get away when a paper invoice goes missing, has to be disputed or ends up in the wrong intray. With e-invoicing those discount opportunities can be met far more easily.

Ivan Jelic, CPA and director of 2+2 Business Services, has many clients in the hospitality industry who use accounting software apps like Dext and Lightyear.

“The client gives the supplier an email address connected with the app, the supplier sends an invoice to that email address and it is then immediately downloaded into the accounting software. The owner or manager and bookkeeper can view and approve the invoices for payment and batch them through MYOB, Xero or whatever software they use. It’s a seamless process,” says Jelic. “There’s no potential for paper invoices to get lost or for emailed invoices to end up in the wrong inbox.”

It’s an especially useful option for hospitality businesses where there can be a daily flow of invoices associated with produce delivery and staying on top of them is essential to managing cash flow.

2. More accurate record-keeping and compliance

E-Invoicing automatically captures and stores invoice data, making it easier to manage and retrieve records compared to paper invoices. And the margin for human error – a duplicate payment, an invoice filed in the wrong folder, a discount not accurately noted – is vastly reduced.

“Some apps will alert you if it looks like you’ve got a duplicate invoice,” says Jelic. “It makes it much harder to make a mistake.”

Automated record keeping like e-invoicing is especially helpful when it comes time to report to the ATO by ensuring an accurate and up-to-date record of supplier costs and GST payments. No more hunting down paper invoices that have fallen behind the filing cabinet or been accidentally thrown into the recycling bin.

“Tax time is much more streamlined,” says Jelic. “It’s just a matter of downloading the relevant records.”

3. Greater efficiency and productivity

A recent survey by MYOB found 62% of Australian small and medium businesses thought they could save up to 10 hours every week by adopting e-invoicing. Eighty-three percent of SMBs are spending up to 20 hours a month issuing invoices while one in 10 says invoicing takes between 20 and 49 hours of their time every month.

By encouraging your business clients to let e-invoicing take the weight of admin-heavy, manual invoicing, they can get that lost time back to focus on higher-value work like generating revenue, strategising for the future, building relationships and being on the lookout for growth opportunities.

For Jelic, digital accounting software that enables e-invoicing is a “no brainer” for small businesses.

“It’s hugely more efficient and can help prevent unexpected interruptions that can spiral into expensive delays. I’ve seen, for instance, a client’s supplier cut them off overnight for missing payment on a $44 invoice that had been lost in a pile of other paperwork. With digital accounting software that wouldn’t happen – the invoice would just be lodged along with all the others.”

Moreover, e-invoicing provides business owners with greater visibility into their cash flow so they can make more informed financial decisions and allocate their resources more effectively.

Making the switch – how accountants and bookkeepers can help

Some businesses might be resistant to switching from paper to electronic invoicing – perhaps they’re anxious about learning how to use new technology and feel more comfortable with their traditional paper system. Or maybe they’re sceptical about the security of a digital system or worry it will cost too much to implement.

As their accountant or bookkeeper, you’re in a unique position to give them evidence-based reassurances and guidance about these issues. Here are four tips for getting them across the line:

• Highlight the benefits of e-invoicing for cash flow, efficiency and long-term cost savings. There are plenty of low-cost apps on the market and even some good free ones. 
• Provide reassurance about security. E-invoicing can reduce the potential for payment redirection and false billing scams by enabling secure exchange through the Peppol network by approved access points and by using the buyer’s and supplier’s ABNs. 
• Provide guidance on how to transition. This might involve giving advice on the best e-invoicing solution for their needs and budgets along with what pitfalls to look out for. 
• Prepare to get hands-on when it comes to training. It will be a learning curve and you’ll likely find yourself the go-to person for questions and frustrations. “Digital accounting software doesn’t replace a bookkeeper or accountant,” explains Jelic. “It does mean your bookkeeper or accountant can make more value-added contributions to your business because they’re not wasting time keying in data from paper or PDF invoices.” 

Moving from paper-based to electronic invoicing can be challenging but in the long run – and ideally even in the short term – you and your business clients will see the pay off.