As business-to-government compliance mandates spread throughout Latin America and into the global economy, these countries are regularly introducing new ways to standardize and automate financial reporting and tax collections. New regulations often go well-beyond traditional e-invoicing, affecting even more business processes. Recently, we examined how these mandates add complexity to the sales process; this week, let’s turn our focus to procurement.
Complications are inherent in mandates that affect inbound receiving. For example in Brazil, if a supplier’s invoice is not 100 percent accurate and valid, many companies will refuse the shipment as VAT tax is triggered upon the physical movement of goods and buyers don’t want to be held liable for correcting inaccurate tax amounts. Even worse, if you do detect errors too late in the process, you could lose the ability to take deductions – and for multinationals that could add up to millions of dollars annually.
Another difficulty resulting from business-to-government mandates is that they enforce strict processes for invoice changes. In Chile for example, a buyer has eight days to accept or refute a supplier’s invoice. After this point, it is automatically assumed that the invoice is correct and has been approved, which is why shipment and invoice verification is so important. Adjusting an invoice after eight days requires a supplier to register a credit note with the government servers. Similarities apply for invoice cancellations. If your suppliers don’t follow the appropriate process, you may be taking deductions on canceled invoices, and during an audit these deductions would be backed out and even penalized as illegal.
While business-to-government mandates add complexities to procurement, these regulations provide added value that can help to streamline inbound receiving and accounts payable processes. In fact, our clients have been able to increase employee productivity by up to 50 percent while lowering the costs associated with inbound receiving through automated processes.
All shipments in mandated countries, such as Brazil, must be accompanied by a valid, government approved invoice, which has several benefits:
1) You can receive the invoice often even before goods arrive for verification that what is arriving is an approved purchase.
2) You can automate inbound receiving using this e-invoice and the associated PDF on the truck, turning hours of manual data entry into a single scan-and-click process to ensure that the invoice matches the shipment.
3) You can mark invoices okay-to-pay in real-time, as soon as the shipment arrives, accelerating approvals.
These mandates and automations also help to streamline accounts payable processes. With invoices approved immediately upon the receipt of goods, the AP team can focus on managing inaccuracies to ensure compliance. Errors carry a hefty price tag - in Brazil, fines amount to ~500 Reais per incorrect XML and 75% to 150% of the tax value of the invoices in question – so automating approvals and reporting helps to minimize costly discrepancies.
As more and more countries introduce business-to-government mandates that intrude into an increasing number of operational processes, it’s imperative to understand all of the implications of these mandates. Stay tuned as we examine the implications on human resources and cash flow processes.