E-Invoicing Adoption: A Tale of Two Continents — North America vs. Latin America
No need to convince you that Electronic invoicing (E-invoicing) is necessary, to facilitate the movement of goods and improve the `trade` of services.
Businesses of all sorts, Financial institutions, and Fintechs, all agree on this. According to Research & Markets, the global e-invoicing market size reached $ 11.2 Billion in 2022 and the 5yr projections are for a 20+% annual growth rate, reaching $ 35.9 Billion by 2028.
And let’s make it clear that a pdf created by the supplier of goods and services, sent in an envelope or as an attachment in an email, is NOT an e-invoice. By the way, unfortunately, this is how I still operate as a small Swiss business with international clients and a Swiss accountant.
An e-invoice is a digital invoice with the billing information presented in a structured format and transmitted electronically from supplier to customer. E-invoices flow from ERP systems to accounting systems, as well as through e-invoicing software, payment gateways, and compliance systems.
Currently, there are dozens and dozens of vendors supporting their economies in digitizing invoices and also processing e-invoices. However, the bitter reality is that each economy has taken a different structured format for e-invoicing and the cross-border nightmares are intensifying.
The reality is that when E-invoicing is left to the market forces, the economy ends up with hundreds of providers offering automated e-invoicing solutions. Despite the dazzling choice, thousands of businesses of all sizes lag in their adoption of an e-invoicing system.
Nasdaq reported that there were 150 e-invoicing solution providers in the US but only 38% of US businesses were using electronic invoices (2019 data source).
I am sure that with the COVID effect, these statistics look much better today in the US. However, the lack of interoperability between these solutions is surely plaguing the movement of goods and services.
It is the same friction that stubbornly persists in cross-border transactions.
South of the US, Latin America has taken a very different approach and is recognized as the leading example and an early pioneer in e-invoicing. As Dr. Alejandro Betancourt, explained in our discussion on Conversation & Insights ` Fintech Data-Driven AI Model Training in LATAM: A Real-World Example`, in the early 2000s, Chile as a country started creating an invoicing system to track transactions, improve taxation, and digitize the invoice process. This central system turned invoices into digital assets, allowing for faster financing and creating a financial market for invoices. Over time, other Latin American countries like Peru, Ecuador, Colombia, and Brazil adopted similar invoicing systems and central registries.
The main beneficiaries of this system are the suppliers who no longer need to wait for extended periods to receive payment for their invoices. The process is now much faster and more efficient, enabling companies to access their funds sooner and maintain liquidity. This central invoicing system also allows real-time assessment of counterparty risks, which enhances financial stability.
Nasdaq reported that while in the US adoption of e-invoicing was just below 40%, in Brazil, Chile, and Mexico, e-invoicing adoption had reached over 90%!
Rates in Chile, in particular, were impressive as the country started the implementation of mandatory e-invoicing in 2003 with a centralized, standardized reporting structure, and by 2019, 97% of billing was filed electronically.
As a result, right now Latin America has an edge in deploying AI for invoice-backed financing.
Having said that, the lack of cross-border interoperability amongst Latin American countries is a major drawback.
In 2021, Brazil exported $12 billion worth of goods to Argentina, while Argentina exported $11.2 billion worth of goods to Brazil.
In the first five months of 2023, the overall trading volume between the two countries was of US$12.5 billion. (Source)
In 2022, Chile imported $10.17 billion worth of goods from Brazil (Source)
The network effects of a centralized and standardized e-invoicing system are significant, but they can’t extend beyond the borders of the domestic market. All economies nowadays have multiple international trading partners. There are no economies that don’t have Imports and exports.
There are multiple Free trade agreements globally but the lack of e-invoicing interoperability is hinging on the money flows and data flows. If we can’t harness that data, then we can’t improve on financing and cash flow management.
Chile, Colombia, Peru plus all Central American countries have bilateral trade agreements with the US.
Chile, the early e-invoicing pioneer is a significant trading partner with the US. In 2021, bilateral trade in goods between the United States and Chile totaled $30 billion, and bilateral trade in services for 2020 totaled $6 billion (Source).
If the US and Chilean e-invoicing systems were interoperable and the data flows were centralized, then risk assessment of counterparty risks, financing for trading partners in both countries and their cash flow management would all be hugely improved.
“AI is only as good as the data you train it on.”
New Public infrastructure is needed to enable seamless cross-border data flows and collaborations to standardize structured digitization of data flows. Money is just data. Economies are about trading goods and services no matter how advanced or analog they are. Standardizing e-Invoicing is core to economic activity. No matter what kind of money is used for payment, e-invoicing has to evolve to a frictionless level. We talk about the tokenization of assets while we haven't addressed invoicing. We talk about the impact of Foundation models in Finance, while there is no standardization of sensitive trade data to be harnessed securely.
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