Spend Matters welcomes this guest post from ApexPeak.
You can draw parallels economically between Latin America and Southeast Asia. Both regions have emerging markets, share similar growth rates and have recently seen a value-added tax (VAT) placed on retail purchases. They are both experiencing irregularities in both public and private procurement, as well.
In this second part of a 3-part series, we look at the experiences of Mexico, Chile, Brazil and Argentina, the continent’s forerunners in implementing e-invoicing and tax reform, and ask what Southeast Asia’s emerging nations can learn from their successes and failures.
In a recent survey conducted by ApexPeak, Gosocket Corp and Invoiceware International, were asked what they thought Southeast Asia could learn from Latin America in terms of BRB and B2G e-invoicing. Respondents agreed unanimously that e-invoicing would help any country that has implemented VAT, including giving a boost to business productivity.
E-invoicing Makes a Case for Real-Time Supply Chains
“In the past, it took months before business owners, meeting for the first time, could do business. E-invoicing introduces trust and transparency and makes the case for real-time supply chains. By real-time, I mean business owners getting together and doing business more rapidly and being able to create products faster,” said Mario Fernández, chief executive officer of Gosocket Corp.
“All commercial operations of private companies in Latin America are bound by an invoice, which must comply with several important requirements, and that is why the implementation of electronic invoicing is revolutionising the way companies do business.”
E-invoicing Adds Liquidity to an Economy
Scott Lewin, chief executive officer of Invoiceware International, agrees. “Government can measure, in real time, trends in the economy, spot investment opportunities and make investments.”
In addition, Lewin sees mandatory e-invoicing as an opportunity for alternative financiers to add liquidity to Southeast Asian economies.
“There is an opportunity to add liquidity to the economy, based on scale and affordability. E-invoice approval can lead to liquidity to grow businesses. In countries where factoring rates can be 30–48 percent annually, mandatory e-invoicing can help build a financing platform for small-business owners at capital costs. That’s roughly half that of the current factoring rate, as a supplier can use the credit rating of their larger buyers,” he says.
An e-invoice becomes an “instance” for a cash advance or payment. Cash is moving away from cumbersome cards and paper-based requests, and technology is providing a frictionless path to connect business owners with alternative finance.
Southeast Asia Marches Toward Alternative Finance
Nowhere is the problem of cash flow felt more acutely than in Asia Pacific. According to a survey conducted in 2013, 35% of micro-enterprises complained that maintaining adequate cash flow was the biggest barrier to profitability.
One estimate of the implication of Basel III regulations reported in Wholesale and Investment Banking Outlook, Morgan Stanley and Oliver Wyman, suggests the average return on equity from lending to small and medium-sized enterprises (SMEs) will decrease by 3 percentage points, and the cost of complying with Basel III will increase funding costs for Asian banks by 2-5%. Banks are likely to shift some of the cost to SMEs through higher interest rates, thereby reducing demand for credit.
Management consultant, Oliver Wyman, estimates that, in 2011, only 12-15% of Southeast Asian micro-enterprises had access to traditional lending. These conditions are likely to stem demand for alternative financing, such as invoice-advance financing.
According to fund intermediaries (also referred to as loan brokers), small-business owners in Singapore are more aware of term loans than any other source of finance. However, this is likely to change, as it has done in the UK, where awareness of alternative finance grew to 60% category recognition, and products such as P2P lending and invoice-advance have become mainstream.