Mandatory E-invoicing Enhancing SMB Governance In India With e-invoicing, the government not only plugs the holes in the taxation route but also benefits SMBs to track invoices in real-time, make easy input tax claims, and automate the tax filing process
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With nearly 30 per cent contribution to the GDP of India, small and medium businesses (SMBs) will play a significant role in making India the third largest economy worldwide by the year 2030.
Intending to empower SMBs further and give the digitisation agenda a push, the Indian Government has extended the applicability of e-invoicing for SMBs from October 2022. E-invoicing, or electronic invoicing, involves using computerised systems to process employee invoices, streamline the accounts payable process and increase the efficiency of transactions.
Fake invoices have been a constant cause of concern for the Government and have led to many tax frauds even before the Goods and Services Tax (GST) was implemented. However, with e-invoicing, the Government not only plugs the holes in the taxation route but also benefits SMBs to track invoices in real-time, make easy input tax claims, and automate the tax filing process.
By bringing more and more businesses under the e-invoicing fold, the Government envisages several benefits that will help in the seamless growth of these businesses as they manage operations and compliance procedures smoothly.
The benefits accruing to SMBs are manifold:
Eliminating human errors
E-invoices need to be generated and uploaded on the e-invoice registration portal in an end-to-end digital process. Once verified, the invoices are transferred to the GST portal and e-way portal in real-time, thus reducing the possibility of human errors significantly.
Seamless cash flows and minimising fraud
Each financial activity has a traceable digital route, from the generation of the invoice to tracking and approving the invoices. With every step being recorded and executed precisely, suppliers make timely payments knowing that the process is cyclical and reliable. Further, invoices, once generated, cannot be cancelled or modified. It takes care of the duplicity issue that has plagued the ecosystem for a long time. E-invoicing, therefore, reduces the chances of fraudulent transactions.
Facilitating remote management
E-invoices break barriers of geography and time as business owners can access them at any time on any device. It can be a great enabler in reducing human time and labour costs as well as seamless remote management.
E-invoicing helps businesses sort compliance issues significantly and can help SMBs create a digital footprint. This transparency enhances their credibility with financiers, thereby improving their chances of loan accessibility when they need capital.
The challenges that exist
One of the key components of e-invoicing is the integration of the invoicing systems of small business owners with the Government's Invoice Registration portal. However, some SMBs struggle with this because they still record their B2B invoices offline and use traditional accounting ERPs.
For better compliance, SMBs need to figure out the following:
- GST return procedure and filing procedure since the GSTR 1 will automatically fill in the B2B supply
- The details of transactions that need e-invoices and separate them from the other necessary paperwork
- Maintain source documents on suppliers. It will help them properly input information such as GST identity numbers and other relevant details
- Conform to a real-time invoice referencing system that can generate the Invoice Reference Number (IRN)
As is evident, the accounting software the organisation chooses plays an important role in seamless invoicing. The compliance process has become simpler with highly flexible and scalable solutions available today. Moreover, there are customisable solutions available today that are perfect for the ever-changing needs of fast-growing businesses.
For an SMB, it is therefore important to find a vendor with relevant experience, to help the business reorient its ERP systems and align with the new e-invoicing standards. It is advisable to choose a vendor with adequate experience in invoicing and familiarity with the GST norms in India.
Further, the software solution provided should be scalable to suit the needs of a growing business. Finding a vendor who will partner in the progress of the business is important, as support will be required throughout the invoicing journey. The business may require support not just with the reconfiguration of its ERP system but also with the training of its staff.
The good news is that SMBs have taken to digitisation at a steady pace post-pandemic and are more willing to embrace changes.
As a country, we are taking fast strides towards becoming an economic superpower. Cognisant of the prominent role SMBs are playing, making e-invoicing mandatory for SMBs is a strategic move by the Government that resolves a range of issues pertaining to governance. Everything from accurate data accounting and remote management of businesses to simplifying compliances can be resolved by e-invoicing.
For the Government, e-invoicing is crucial as it reduces compliance burden and curbs duplication and fake invoicing. E-invoicing is thus the pathway that paves the way for a reliable input tax credit. Further, a proper audit trail renders SMBs more creditworthy.
A major reform in helping the country take digital strides is underway, and SMBs are the cynosure, playing an important role in the digital transformation of the nation.