Why the e-invoicing mandate is good for businesses in Latin America

October 14, 2014

When it comes to having a favorable business environment, few would associate more regulations as being the answer. Increasingly complicated compliance issues often create more red tape, which makes it that much harder to accomplish things in the most cost efficient way possible.

With this in mind, business owners who operate in Latin America - conduct transactions with companies or customers based in this part of the world - are likely well aware of the e-invoicing mandate that's currently in effect in several countries, including Mexico, Chile, Brazil and Argentina. The mandate requires sellers to register invoices with tax authorities so that the government can keep track of the type of commerce that's taking place in the region.

And while this new compliance issue may seem like just one more thing to complicate the buying and selling process, the e-invoicing mandate is actually a great development that businesses may soon come to appreciate.

The following are just a handful of ways in which the government's inclusion into the economy may actually have more positives than negatives:

Helps reduce tax fraud
Fernando Martinez Coss, an official with Mexico's Tax Administration Service, recently told the Economist that the e-invoicing mandate was put into effect in order to get a handle on companies not paying their taxes. The government has lost a lot of revenue as a result of these schemes, as much as $3.4 billion between 2007 and 2009. Not only is this against the law, but this illegal activity ultimately does harm to the country in which taxes are collected, as much of it goes back to the public through investments in infrastructure and public services.

With the e-invoicing mandate, however, the government can improve its auditing capabilities by being able to track down companies that still need to pay taxes, thanks to the invoices that record when transactions occurred.

Gives businesses a better picture of the consumer
Business owners thrive on providing a service to customers that they want. The best way in which to do this is by reviewing what they've purchased in the past. As the old saying goes, the best indicator of the future is often past behavior. Thus, e-invoicing is the best friend of big data because it gives entrepreneurs a hard copy of what consumers and/or other businesses are purchasing. In other words, e-invoicing provides greater insight into the consumer so that businesses know where they should focus their efforts.

Makes overall business process more efficient
While it's always important that a consumer is sure about whatever product or service they're paying for, once the decision is made, the transaction process should ideally be short and sweet. With e-invoicing, the accounts payable process is streamlined through processing by matching invoices to purchase orders and good receipts. This should also help businesses with inventory. In other words, because they have a hard copy of what items have been purchased, business owners can then determine what things they need from their supplier to ensure they have plenty of supply for most-wanted items.

Lowers costs & Access to Capital
As noted by the Economist, paper invoices in Mexico used to cost about $12.50 a piece. The reason for this was because there was so much to it, as the invoices have to be printed, delivered and stored. E-invoicing has helped cut out many of these steps. Provided they have the right technology and compliance services, e-invoicing is cheaper and also better for the environment because it eliminates the need of paper.

Many companies look at the negative, but their are so many business process improvements that can reduce operational costs.  More importantly, the forced automation opens up the opportunity for supply chain financing in the region which can bring more liquidity and better cash flow management to growing businesses across the region.


 

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