Following the 2020 Value-Added Tax (VAT) Gap report, which revealed that EU Member States lost over $100 billion USD in VAT revenue, the European Commission is rolling out ViDA – a new set of measures to update and improve the EU’s Value-Added Tax system. Through this initiative entitled “VAT in the Digital Age”, they hope to tackle business efficiency issues caused by advances within the digital economy while boosting tax revenues for all national governments.
ViDA is revolutionizing cross-border invoicing in the EU, streamlining intra-community sales and purchases as well as those between European countries and non-EU trading partners. Companies located outside of the EU offering services or products to customers within must take specific steps to ensure their invoicing processes adhere to ViDA for a successful (and compliant) transaction. This will ensure all billing requirements are met and no disputes arise due to non-compliance. As France and Spain are set to begin ViDA adoption in mid-2024, this article will discuss how SaaS companies can ready themselves for the changes ahead, best practices, and what’s at stake if businesses are unable to make the shift.
It is important for companies to familiarize themselves with the requirements outlined by the European Commission and evaluate their current invoice creation and transmission process. To ensure continuity of accounting processes, businesses must adhere to ViDA’s regulations for electronic invoice transmission and reception. This essentially turns the invoicing process into the first domino of digital transformation for AR and AP. Being fully compliant requires suppliers to send their invoices in a machine-readable format. The invoices must be adhere to defined standards. In turn, customers must have the capability to receive and process the machine-readable invoices sent. In addition, a secure means of communication such as a digital certificate may be necessary for both parties to prove compliance with ViDA. This challenge presents a chance for any supplier to stand out from the competition and make meaningful progress towards digital transformation.
The accounting world is undergoing a major transformation, thanks to ViDA. This regulation may appear to be overhead; but in reality, it’s pushing businesses of all sizes into the digital age. For many companies, this is a challenge that must be addressed to stay compliant – but it also presents a unique opportunity.
Are you prepared to meet the demands of ViDA compliance in a digital world? If not, have no fear – it may just be a matter of putting the right pieces in place! To achieve full compliance with ViDA, companies must answer three questions:
- Is your current technology stack fit to send invoices electronically?
- Do you possess all of the customer and vendor contact details required to adhere to this regulation?
- Are you equipped to process electronic payments?
Answering “no” or “not quite” indicates that one should look into finding an accounting system (ERP) paired with compatible technologies for automation of accounts receivable (AR) and accounts payable (AP) automation, which allows the AR and AP processes to become the digital front door for seamless compliant e-invoice processing.
By adapting to the changing regulatory landscape, companies have the chance to unlock powerful automation for their accounting teams. Investing in modern technologies can provide a range of new possibilities that create greater efficiencies and enable teams to work smarter. Moving to an electronic model should lead to fewer manual processes, eliminating many of the menial, manual data entry workflows, and in some cases, the elimination of manual documents altogether. With the right technology mix, e-invoicing will lead to streamlined processes, requiring fewer communications and follow-ups. In short, the right technologies will make business accounts easier to manage, more accurate and efficient.
By adopting e-invoicing, companies can look forward to greatly improved insight into their finances. E-invoices accelerate data availability and empowers accounting teams to make decisions – something that is indispensable if they intend on achieving optimal performance. Timely fiscal information also gives organizations significantly enhanced control over the ebbs and flows of cash flow within the organization.
Non-compliance with regulations is a costly mistake for any business; not only do companies face fines, but the loss of trading partners can prove to be even more damaging. Companies who have neglected ViDA compliance risk losing their competitive edge as clients seek out vendors that are better positioned with compliant systems and processes.
What would happen to your business if you no longer were able to work with customers in the EU? What if you were unable to accept e-invoices and lost key vendors or suppliers? The potential losses are real and should not be taken lightly.
To stay ahead of the curve, companies must ensure they are compliant with ViDA regulations by investing in the right technology stack to enable them to send and process electronic invoices. Leveraging modern technologies can provide a range of new possibilities that create greater efficiencies and enable teams to work smarter – ultimately allowing companies to stay competitive on an international scale. By taking the necessary steps towards e-invoicing, organizations will be able to benefit from streamlined processes, improved insight into their finances and enhanced control over cash flow within the organization.
Matthew Shanahan is Vice President of Strategy and Cofounder of Lockstep whose mission is to help the world’s accounting teams work better together. Matt specializes in building new software categories and finding product-market fit. He has taken products from zero revenue through exit including IPO and acquisition. Matt has held senior positions at Globys, Azuqua, Scout Analytics, Documentum, and Accenture. Matt holds an MS and BS in Computer Engineering from the University of Washington.