Regulations Are Reshaping the Way Companies Transact with Each Other
In the first blog of our e-invoicing series, we explored the pivotal role of e-invoicing in pioneering the transformation of business-to-business (B2B) transactions. This foundational piece highlighted how e-invoicing is reshaping the landscape of business interactions by streamlining processes, enhancing accuracy, and driving efficiency. In the current post, we delve deeper into the regulatory frameworks influencing these digital transformations, examining the opportunities and challenges that arise as businesses adapt to evolving compliance requirements.
The Emergence of a New Transaction Ecosystem
After decades of paper-based dominance, business-to-business transactions are digitalizing and digitally transforming. e-Invoices and digital networks are streamlining accounts payable and receivable processes, enhancing efficiency and accuracy. Transactions are also becoming enriched with data, especially to display sustainability-related information.
Prompted by new regulation, digital-first thinking, and good corporate governance, businesses are changing how they collaborate and transact. This presents an opportunity for vendors to develop innovative solutions that meet the needs of today’s B2B landscape.
Regulators face the constant challenge of implementing measures that ensure market integrity, consumer protection, and alignment with public interests, while simultaneously fostering innovation and economic growth.
Regulations and the Burden of Responsibility
Reducing costs and improving efficiency are constant concerns for businesses. Companies explore every avenue to achieve these goals, from leveraging technology to optimizing workflows.
However, businesses must also contend with numerous external factors that can influence their operational effectiveness. Regulations are one of these external factors. Enterprises and their leadership are entrusted with the responsibility of ensuring compliance, which requires investments in personnel, technology, and training — oftentimes, all three.
Personnel
To stay compliant with evolving laws and regulations, companies must proactively recruit, train, and retain specialized personnel. These experts ensure adherence to current legal frameworks and monitor upcoming changes, like the introduction of new regulations or amendments to existing ones.
For example, the General Data Protection Regulation (GDPR) mandates that companies handling large volumes of personal data appoint a Data Protection Officer (DPO). Highly regulated industries like banking and healthcare often require multiple layers of compliance personnel throughout their organizations, in addition to industry-specific regulations and overarching ones.
As digital businesses increasingly rely on complex technologies, leadership must ensure their workforce possesses the necessary skills to navigate both current and future regulatory landscapes. This involves establishing management structures that can anticipate staffing needs and strategically invest in technology and training to maintain compliance. Public and private companies have distinct compliance needs and requirements. While technology can assist in meeting these needs, it cannot replace dedicated teams responsible for ensuring operational compliance. That is why technology and training is so important.
Technology
Technology and regulations are intertwined, existing in a state of interdependency with stronger linkages than often recognized. Regulators face the constant challenge of fostering innovation and economic growth, simultaneously safeguarding consumers and the public interest. This requires ongoing assessment of the benefits and drawbacks that new technologies bring to society.
In the European Union (EU), policymakers understand the importance of this dynamic and actively foster dialogue and collaboration between regulators, industry leaders, enterprises, technology experts, and vendors. To facilitate change management within organizations when it comes to regulation and technology, the EU provides support and self-service tools.
This collaborative approach is crucial, because while regulatory changes drive transformations in business-to-business transactions, technology provides the tools and solutions for effective compliance.
By understanding and proactively adapting to this interplay, businesses can leverage technological advancements to navigate the evolving landscape of B2B transactions and gain a competitive advantage. Vendors will play their part by supporting their clients in ensuring that they bring the right systems online at the right time.
Training
Sustainable compliance requires more than just training; it demands a culture of open communication and employee empowerment. Management must proactively inform employees about evolving regulations and the rationale behind them, providing the necessary resources and support to adapt without disrupting workflows.
Ensuring that the training covers both the law and technologies that are either being regulated or used to ensure regulation is key. This transparent approach fosters trust, reduces resistance to change, and enables employees to confidently contribute to a compliant organization.
Regulators must ensure a level playing field for businesses of all sizes, as multinational corporations have greater resources to invest in compliance compared to smaller enterprises. While not always perfect, European regulators have been leaders in promoting inclusive dialogue and collaboration among stakeholders to address these challenges.
Regulation as an Innovation Driver in B2B
At first glance, new invoice-related regulatory changes may easily be perceived as an added burden, however, within these changes there exists a significant area of opportunity if organizations successfully broaden the scope to include finance process improvements.
e-Invoicing could serve organizations as a catalyst for organizations to spearhead the introduction of more efficient practices for finance departments, facilitated through process automation.
Additional protocols in B2B document exchanges, particularly invoices, increase data accuracy while reducing manual intervention, which then enhances operational efficiency.
Fraud prevention
e-Invoicing unlocks new potential for tax authorities to combat value added tax (VAT)- related fraud, addressing the blind spots for VAT evasion and avoidance. The starting point for EU tax authorities begins with invoking greater controls in monitoring the integrity of VAT data being reported by organizations. For this tax enforcement modernization effort to serve its true purpose, several European tax authorities are establishing their own document exchange screening and approval processes, commonly referred to as continuous transaction control (CTC).
This is an important step in the future of the transaction that veers towards creating transparency and mitigating fraud at the point of the transaction. This involves new technical elements requiring organizations to submit invoices to designated regulatory platforms for approval prior to delivery to the end recipients.
Audit readiness
An advantage for both organizations and tax administrations that arises through e-invoicing is advanced audit readiness. European governments are tasked with, among other things, implementing two of the common transaction control models: the post-audit and clearance models.
Each having their own benefits, tax authorities will have more control in performing audits at will. Previously performed solely after the event, tax authorities that have adopted clearance models are able to carry out audits in real-time and/or upon request for each transaction. This removes the need to request and wait for information from taxpayers. Some European tax authorities are using this as an opportunity to explore new ways of incentivizing organizations.
For example, the Italian government initially introduced e-invoicing for B2G transactions in 2014; now it has gone on to introduce remote audit checks that will lower government interference with tax remittances for B2B exchanges.
Organizations looking to deploy e-invoicing will need to overcome significant hurdles such as breaking down data silos, improving data quality and consistency, and, in some instances managing high volumes of complex data, to avoid non-compliance penalties
Conclusion
As the landscape of B2B transactions evolves under the influence of new regulations, businesses must embrace the opportunities presented by e-invoicing and digital transformation.
This transition not only meets compliance needs, but also drives efficiency and innovation within organizations. Businesses must actively leverage the interconnectedness of technology, personnel training, and regulations to shape the future of transactions and drive growth.
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