Mexico’s New E-Invoicing Requirements: Fast-Track Legislation, Scale, and Impact

Mexico recently accelerated the implementation of its e-invoicing requirements. The compliance requirements under the Comprobante Fiscal Digital por Internet (CFDI) are complex by any electronic invoicing standard. Today, we continue an interview we recently conducted with Invoiceware’s CEO Scott Lewin and VP of Marketing/Product Strategy Steve Sprague.

Spend Matters: Why was the announcement/requirement fast tracked?

Invoiceware: The transition to CFDI has been in discussions for almost 18 months now. The government has slowly been phasing in the requirements to transition to CFDI if you look at the history. For example:

  • July 2012 – the first wave of companies were mandated onto CFDI
  • September 2012 – the SAT released a free portal for the creation and registration of CFDI for small businesses
  • January 2013 – eliminated the use of “Folios,” which preceded the CFD format.

Our view is the government was learning potential issues during each one of these changes. In September, the SAT actually reduced the number of mandatory fields (i.e. last four digits of payment account) in the XML as they learned they were causing issues in the deployment of the schema.

Spend Matters: What is the scale of the impact?

Invoiceware: Virtually all companies will be affected either directly (a change on the Account Receivable side to transition to CFDI) and indirectly (and purchasing organization that buys from in country domestic suppliers). Here’s additional context and specifics:

Directly affected AR – Outbound CFDI generation

  • Most multinationals will have a project to migrate as they fell under the previous “grandfather” clauses – estimated ~150,000 companies will make the transition as CFD is phased out.
  • With the change in revenue from 4 Million Pesos to 250,000 Pesos a year – this will add another few hundred thousand small businesses to the CFDI process.

Indirectly – affecting the Account Payables

  • In the Dec 28, 2012 legislation, the SAT made the XML CFDI the document of record. Not the PDF or paper print out.  All supplier CFDI needed to be collected, validated and archived for a minimum of 5 years.
  • With 90% of invoices transitioning, the amount of XML to process in Mexico will sky rocket. Many companies had been validating manually.  This tidal wave of compliance could overwhelm Account Payables organizations that are not set up for automation.

Spend Matters: How much additional revenue will Mexico bring in (or fraud prevention) as a result of the requirement? What are some ways of thinking about how to quantify this (and will other countries follow in Mexico's footsteps sooner rather than later because the business case is so sound for government to have such a mandate)?

Invoiceware: I don’t have the stats on the amount of tax leakage the government intends to capture. However, 95%+ of the economy will be captured under this process. Mexico is one of four countries in Latin America heavily pursuing electronic invoicing along with Brazil, Mexico, Argentina and Chile.

Spend Matters: What does this mean/why should we care?

This change will impact over 500,000 businesses in Mexico (this includes all multi-nationals with operations in Mexico). The government will have full visibility on the entire invoice process – ensuring the values sent are the values paid and eliminating the potential for tax fraud.

Consider the business impact:

  • Short deadline for change, as it is expected that it will happen by the end of the year (Dec. 31 2013)
  • It moves from a batch process to real-time validations
  • It also impacts the ability for suppliers to ship goods (i.e., no compliance, no shipment)

For Accounts Payable, on 28 December 2012, Mexico SAT announced that the XML (including the CFDI invoice) is what they care about for audit purposes. This means that the A/P team needs to collect supplier XML, validate it, and archive it for 5 years. With 500,000 companies their processes changing, A/P departments will see a massive spike in the amount of XML coming in. And most have been doing it manually on the government website, yet there is no way they will be able to stay manual with volumes 2-5x higher with the mandate.

Stay tuned for Part 3 in this series, where we'll explore the advantages of the requirement for business and government, cross-border transaction impact and how the legislation compares with other global e-invoicing mandates and requirements, including other countries in Latin America.

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