This article originally appeared in GT News on May 23, 2015. Follow this link to read original article.
As e-invoicing takes hold across Latin America, companies can benefit from financing opportunities and added liquidity in supply chains, ultimately enhancing the stability and efficiency of local economies in the region.
Latin America has been on the forefront of mandating electronic invoicing and fiscal reporting regulations. Brazil implemented the first e-invoicing requirement in 2007, and similar legislation has quickly expanded across the region.
E-invoicing is now mandated in several countries, including Mexico, Argentina, Chile, Ecuador, Peru and Uruguay. Colombia and Costa Rica are also on the brink of enacting compliance legislation this year, enforcing unavoidable regulations that multinationals must pay attention to and abide by – or face operational shutdowns and potentially millions in fines.
However, companies do face a choice in how they see these complexities. Despite the challenges inherent in these mandates, do companies merely comply? Or, are there opportunities to be leveraged?
Latin America: The Situation
Latin America is the global leader in standardized electronic invoicing, with 10 countries to have some kind of legislation enacted by the end of 2015. The implications of these regulations point to increased transparency and government tax reporting revenue as an aid to improvements in economies across the region.
Brazil started this movement in 2007, and with reports of annual increased revenue – including a $58bn increase in 2012 due to regulatory enforcements – more Latin American governments have started to introduce their own versions of e-invoicing compliance regulations. This year, with Costa Rica and Colombia expected to solidify mandates, these countries look to strengthen competitiveness across the region and improve their own fiscal status, while helping companies reduce costs and gain efficiencies.
Complimenting required e-invoicing, multiple countries across Latin America have also imposed a series of fiscal reporting requirements that ensure companies are paying taxes accurately. Relying on these added tax collections, countries are seeing increased annual revenue while reducing instances of fraud due to stringent processes that enforce transparency.
Companies doing business in Latin America must comply with regulations or potentially face millions of dollars in fines and costly business disruptions. To avoid both pitfalls, companies have to integrate their systems in order to comply with the government invoicing, reporting and approval processes. Without proper compliance measures in place, companies will likely experience:
- Shipping delays: Companies cannot ship goods unless an approved invoice is physically on the truck in many countries. If invoicing errors or any minor IT malfunction prevent transmission or printing of the invoice, operations can be shut down for days.
- Refused collections: If an invoice is not 100% accurate, customers will not pay, sometimes even declining goods by physically turning the truck around at the gate. With standardized electronic invoices, the receiving company can review it in real-time for errors, often even before the goods arrive.
- Fines and penalties: Latin American governments rely on value-added tax (VAT) collections and businesses can only take VAT deductions that are backed by accurate and registered electronic invoices. The penalties for deducting incorrectly equal 75% - 150% of the tax value, which can add up to millions.
At a minimum, companies need to update their IT systems regularly to maintain compliance and avoid these issues, but managing compliance internally can be costly, especially as more countries adopt the mandates. Dedicated resources are required to monitor regulatory changes, interpret the mandates into business systems requirements and implement new IT processes to comply with government mandates.
Outsourced local vendors are available to manage some of this process, but overseeing multiple vendors can take almost as much time as maintaining compliance internally and these solutions sit outside the corporate accounting system, leaving internal teams maintaining the majority of updates. Instead, proactive companies are moving toward a regional solution that standardizes compliance, increases employee productivity and ensures that the corporate enterprise resource planning (ERP) system is the sole system of record across Latin America.