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Accounts Payable Compliance: Understanding and Importance

Accounts payable automation has become a key driver of efficiency and cost savings for businesses across industries. Organizations can significantly reduce the time and cost associated with invoice processing by adopting AP automation tools. However, it’s important to note that simply adopting AP automation tools may not be enough. It’s essential that the tool also helps with accounts payable compliance by ensuring global compliance with local tax regulations. By streamlining the invoice processing workflow and automating compliance checks, businesses can achieve a higher level of accuracy and reduce the risk of non-compliance penalties.

According to recent studies, businesses that implement AP automation can achieve a 53% reduction in the average time it takes to create an invoice, saving up to 167 hours per 10,000 invoices processed. Additionally, automation can save organizations up to $0.89 per invoice.

However, in today’s era of e-invoicing, it’s about more than just streamlining processes and reducing costs. As a result, tax authorities in different geographies have implemented various regulations and guidelines for the processing and storing electronic invoices. For example, in the European Union, electronic invoicing is governed by the EU Directive on electronic invoicing in public procurement. At the same time, in the United States, the IRS has established guidelines for the processing and storing of electronic invoices.

Failure to comply with these regulations can result in penalties and legal consequences. Therefore, understanding the basics of invoice compliance and adhering to global e-invoicing guidelines is crucial for businesses operating in different geographies. Furthermore, by adopting accounts payable automation solutions that ensure accounts payable compliance with these regulations, organizations can streamline their processes, reduce costs, and avoid legal issues and reputational damage.

Let’s first understand the rudiments of invoice compliance and then analyze the impact of global e-invoicing compliance guidelines on current invoicing processes across businesses in different geographies.

Clearance model

Tax authorities are increasingly looking to simplify tax collection by gathering compliance data directly from transactions as they occur. For example, the clearance e-invoicing model, which is becoming more popular, requires that every transaction be approved by/reported to the government in real-time before the buyer and seller can complete it. This new approach involves a three-way communication paradigm between buyers, sellers, and the government, transforming how enterprises do business in countries that mandate real-time authorization of every invoice. Clearance Model was started in LATAM countries with Mexico and Brazil being in the forefront. Slowly it has got adopted in the other regions of the world like Italy, Turky, China, France and many more.

It is predicted that by 2025, enterprises in both industrialized and emerging economies will conduct more than 75% of all invoicing electronically with tax administrations, in real-time or shortly after that. For example, according to Billentis (an industry analyst firm focused on e-invoicing), Colombia found it could reduce 50 percent of the country’s tax evasion by applying clearance models.

Within the next six years, the clearance model will dominate global e-invoicing, with the market for e-invoicing and business enablement for this technology-driven tax enforcement model growing from nearly $4.8 billion in 2019 to $20 billion by 2025.

With Zycus, you can expand your business more strategically, as you can validate and ensure that correct taxes are charged on every invoice. Zycus supports the end-to-end Clearance model from the Buyer perspective for Invoices, Credit memos, and Payment receipts across multiple countries like Mexico and Italy. For example, once the supplier has created a valid CFDI invoice /credit memo/payment receipt in Mexico, it just needs to upload to the Zycus supplier portal. The system checks for structural validity and then checks it from the Mexican government’s SAT validation standpoint. A corresponding document will be created in the Zycus supplier and the eInvoice portal if the invoice is valid.

For Outbound, in case the supplier uploads or emails a cXML or unstamped CFDI file. Zycus’ solution will route it for approval/stamping with the Mexican government.

Content Compliance

One of the primary concerns with accounts payable automation is content compliance. The content of invoices must comply with various regulatory requirements, including the format, language, and data fields required. Failure to comply with these regulations can result in costly penalties or legal action.

In a survey conducted by Ardent Partners, 51% of respondents cited content compliance as a significant challenge in their AP automation initiatives. This highlights the need for organizations to adopt a solution to automate their accounts payable processes while ensuring content compliance.

With Zycus, you can easily maintain content compliance across all the countries by using pre-defined templates and configuring country-specific forms per your requirements.

Tax Compliance

Automatic tax calculation is a boon to the modern business world due to various reasons, including the increasing complexity of tax laws, the risk of non-compliance, and the need for accurate and timely tax payments. According to a study conducted by Ernst & Young, 68% of tax executives believe that tax laws and regulations have become more complex over the past three years, making it more challenging to accurately calculate taxes manually. In addition, failure to comply with tax laws can result in significant penalties and fines, which can be costly for businesses. For example, in 2018, the IRS assessed over $13 billion in penalties and interest for failure to pay taxes, file returns, or deposit taxes on time.

To ensure compliance with tax laws and avoid penalties, businesses must calculate taxes accurately and on time. Automatic tax calculation is the most efficient way to achieve this goal.

Zycus supports automatic tax calculation via third parties like Thompson Reuters. The platform allows taxes to be manually entered and get verified from the automatic tax engine of Thomas Reuters. If there is a significant deviation of the taxes, above and beyond the threshold, by the user, the user will have to either change the taxes as recommended by the automatic tax calculation mechanism or proceed with what he has entered. An approval workflow is set up to ensure appropriate checks and balances for the correct tax to be entered and approved.

Conclusion

Compliance with local and global regulations is essential for businesses to streamline invoicing processes and avoid legal issues. From content compliance to tax compliance, enterprises must adhere to various regulations and guidelines, primarily when operating in multiple countries.

Fortunately, tools such as Zycus can help businesses achieve compliance while saving time and reducing costs for their Accounts Payable processes. The AI led Accounts payable solution provides pre-defined templates and country-specific forms, Zycus enables users to set up forms with specific fields for each country, ensuring compliance with local regulations. Additionally, Zycus supports automatic tax calculation via third-party providers like Thomas Reuters, making it easier for businesses to validate and ensure that the correct taxes are paid.

Finally, in today’s era of e-invoicing, businesses need to be aware of and adhere to global guidelines. Failure to comply with these guidelines can result in penalties and legal consequences, making compliance an essential aspect of invoicing processes. Zycus’s e-invoicing solutions help you adhere to global guidelines.

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