Latin American countries have been global frontrunners in adopting electronic invoices – the practice of submitting and formalizing business invoices with the government online. Almost one-half of the 36 billion electronic invoices issued in 2017 were issued in Latin America. Chile introduced voluntary electronic invoicing in 2003; Argentina, Brazil, and Mexico made invoice digitization mandatory in 2007, 2008, and 2011, respectively. By the end of 2016, 70-80 percent of businesses in Chile, Brazil, and Argentina and 94 percent of businesses in Mexico used electronic invoicing, and 77-89 percent of all invoices, depending on the country, issued were electronic.
Most of Latin America is moving to electronic invoices: Guatemala launched its e-invoicing system in 2019 and is gradually including companies into it; Colombia mandated e-invoicing in 2019; Peru required SMEs to start using e-invoices in 2020; and Ecuador plans to require e-invoices by 2023. Uruguay, Paraguay, Bolivia, Panama, Honduras, and Costa Rica are all rolling out e-invoicing systems.
In Chile, e-invoice reporting was made mandatory in phases, depending on firms’ capabilities – in 2014 for large companies, in 2016 for urban MSMEs, in 2017 for urban microenterprises and rural MSMEs, and in 2018 for rural microenterprises. Companies have to first register with the Chilean tax authorities, Servicio de Impuestos (SII), to issue e-invoices. They then receive a digital signature for stamping DTE invoices and are supposed to use a standardized invoice. The company will then need to submit its electronic invoices in XML format for pre-approval via an official e-invoicing provider, which then sends the document to SII. Once approved and validated, the e-invoice is returned to the provider, who then sends it to the customer using a digital signature. The shipment cannot be made until SII confirms the invoice. The process is similar in Brazil and Mexico. Chile has also launched a mobile app to help firms issue and validate e-invoices. To raise awareness about the e-invoicing system, SII has carried out workshops throughout the country with industry associations and accountants, among others.
A range of documents – non-taxable or exempt invoices, purchase invoices, settlement invoices, credit notes, and debit notes – must be electronic in Chile. In addition, starting in 2020, Chilean taxpayers must issue bills of lading electronically with SII. Companies can choose to use SII’s free invoicing systems or private software; 85 percent have chosen the former.
Most Chilean businesses migrated to the system by 2019 – however, over 90 percent of businesses used e-invoicing also before that time. Research suggests that e-invoicing has significantly improved governments’ tax collection rates, reduced tax evasion, and pre-empted fraud.
Electronic invoices can also be a useful first step in a company’s digital transformation and provide benefits and efficiencies to businesses. For example, e-invoices have helped small businesses fuel their cash flow, access working capital and factoring services by using their accounts receivable as collateral. The factor can use the invoice as collateral, which helps small businesses improve their cash flow and cost of credit. While a traditional unsecured line of credit in Chile might have incurred a 40 percent interest per year in the past, factoring might only cost 12-24 percent. Introduction of e-invoices has helped fuel the 50 percent annual growth of factoring in Chile, now equivalent to 8 percent of GDP.
Digital invoicing also helps MSMEs save time and the numerous direct and indirect costs involved in invoice processing and managing invoices in both accounts receivable and payable sides. Paper-based or PDF invoices can in total cost as much as some $12-15 to prepare, process, email, and edit; studies suggest e-invoicing can lower these costs by 70-80 percent. Even a simple accounts receivable processing can be 40-50 percent cheaper using fully electronic and automated invoices. On the accounts payable side, entering and processing e-invoices can be 90 percent cheaper than processing paper-based invoices.
In the United States, it has been estimated that businesses can reduce costs by $4-$8 per invoice when migrating from paper to e-invoicing. E-invoicing also helps obtain timely payments from clients; reduce errors, duplication and fraud in invoice processing; and reduce times to chase unpaid invoices, which can cost businesses as much as $25 per hour in staff time per invoice.
E-invoicing helps MSMEs reduce their compliance costs with governments, as well as the costs of handling and storing physical documents. In the United States, paper-based accounts payable invoices cost $3.90 and paper-based accounts receivable invoices $1.90 each to store, while storing e-invoices in the cloud is a small fraction.
E-invoicing also helps MSMEs track their finances online and thus can also serve as an accounting tool. Brazil has gone a step further, developing a mandatory public digital accounting system called SPED (Sistema Público de Escrituração Digital) that includes modules for businesses to manage digital signatures, electronic invoicing, bookkeeping, and tax rec. SPED essentially collects all financial, accounting, tax and labor information from Brazilian companies into one place.
E-invoicing systems require resources to build and operate. Tax administrations need certain infrastructure, storage, communications, and data security capabilities to manage billions of documents as well as changes in businesses’ statuses; IT systems and business intelligence tools to analyze patterns and detect errors or fraud such as double invoicing; and efficient auditing practices. In addition, governments need to carry out training and awareness-building campaigns for MSMEs to implement e-invoicing systems.
However, once in place, e-invoicing systems can help create new e-government services. For example, Brazil has leveraged electronic invoices to track highway cargo and reduce vehicle and cargo theft. The Brazilian tax administration uses RFID tags that are integrated with the e-invoices for transported goods. Antennas scan transport vehicles as they pass highway goods-transport control units. This also enables shippers to track their cargo and estimate delivery times.
Other countries are taking note of the gains in Latin America. For example, South Korea adopted mandatory electronic invoicing in 2011, Italy and Finland started requiring e-invoices for every B2B transaction in 2019, and the European Union began requiring e-invoicing on transactions between public administrations and providers in 2019.