Malaysia Joins the Digital World: E-invoicing Opens Doors to Improved Efficiency

While in Western economies like North America and Western Europe the impact of digitalisation has long made itself felt across Finance and Accounting processes, the Middle East and North Africa, along with the broader ASEAN region, has been much slower to adopt electronic processing. In these regions, changes tend to be driven through government initiative rather than the private sector, for example in supporting B2G invoice digitalisation through the digitizing of trade documents, supporting public procurement portals, and encouraging early payments on e-invoices. The Singaporean government was an early starter, mandating e-invoicing for its suppliers since 2008, supported by the Inland Revenue Authority, which recognises electronically preserved invoices for the purpose of record keeping. Across other countries, however, the trend has been slower to take off.

That may be about to change, as Malaysia has joined the ranks of countries committed to e-invoicing. Early in 2015, Malaysia implemented GST laws in support of indirect taxation. As part of this legislation, e-invoices are now officially recognised without the requirement for physical signature – a traditional hurdle to electronic anything. This opens the door to significant opportunities for businesses across Malaysia.

Here are some challenges that stand in the way of progress as well as opportunities that beckon.

CHALLENGE: Resistance from Labour Market

Much of the Asian region suffers from overpopulation and governments are under constant pressure to find and create jobs to support their economies. For some of these countries, the proposal for electronic processing implies job losses that they are not comfortable with. It's a standpoint that Finance expert Mandar Joshi does not agree with.

"While adopting more digital processing will certainly eliminate manual and routine clerical jobs associated with invoicing, this is an enormous step forward for companies," he explains. "But at the same time it presents an opportunity that many don’t yet understand or are failing to recognise."

While clerical jobs are being replaced by technology, these employees are now free to take on more value-adding knowledge-based services, Mr. Joshi says, which deliver far more value for the customer: "Eliminating a tedious and time-consuming role allows employees to step up and be more proactive. The result is a definite win-win for any organisation making the move".

CHALLENGE: Budgetary Constraints

No matter how lucrative, however, new implementations are expensive. Introducing electronic processes, in the initial stage, requires change management, broader vision, and strategic commitment. This investment is necessary to vault up the value chain and deliver an improved end-service. And although any new process, once commoditised, will see a drop in costs associated, the challenge is that this is not something every company should want to wait out. "Sticky" invoice processing causes delays and expensive errors. For companies wanting to leverage their cash flow to fund growth activities, this is not an option – or should not be, explains Mr. Joshi, who has spent his career evaluating the viability and impact of Finance processes across global organisations. "Despite budgetary constraints, brave finance leaders will recognise the validity of e-invoicing as a step forward", he believes.

OPPORTUNITY: Advantage of the Pioneer

Many of the technology innovations in Finance have emerged in Western markets, where they have now been integrated and are accepted. As an economy that has not experienced these changes first-hand, and is still in the incubation phase, Malaysia is next in line to adopt these innovations. Those Finance leaders who are quick to grasp the new opportunities will also be the ones to gain a competitive advantage. Pioneers will be well rewarded and recognized for the trailblazers they are.

OPPORTUNITY: Positive Impact on Cost of Working Capital

One of the key benefits of e-invoicing is that it incurs far lower error rates in creating and sending real-time invoices. In addition, the automation technology enables the immediate linking of invoices. Under the old scenario, invoices were booked manually into the ERP system which then establishes the credit periods and due dates for the customers. A large pile of invoices could easily take a week or more to input with the result that the customer has suddenly "gained" an additional week or more to pay, on top of the established 30 or 60 days. In other words, the impact of a manual invoicing process on working capital is disadvantageous. E-invoicing optimises payment terms automatically and improves liquidity when it is most needed. In today's competitive markets focused on growth, this is a necessity rather than a "choice".

OPPORTUNITY: Scalable and Easy to Train

With processes defined by traditional manual invoicing, expanding into new markets often means recruiting and training new staff members on tedious work processes. In an electronic world, it's easy to replicate the technology by training on steps to be taken, rather than the process itself, with the advantage that the technology replaces the additional knowledge base complexities of manual invoicing. Standard operating processes designed around manual invoicing, on the other hand, unnecessarily clog up the system.


There is another more practical issue: As the number of companies across Malaysia adopting e-invoicing increases, this will have a domino effect. Mr. Joshi explains: "Imagine if you have a customer that represents a big segment of your business. If that customer has adopted e-invoicing, they will influence you significantly enough to jump on board. In the same way, companies will start pushing back on their supplier networks to get them to adopt e-invoicing. Companies that invoice their customers electronically will not want to be held back by manual processes on the supplier side. That kind of imbalance would not be healthy for the enterprise," he says. "No company will tolerate its suppliers holding it back."

This presents an opportunity, in other words, to get on board ahead of the wave – but also a threat that not doing so in a timely fashion might mean having your hand forced down the line.

Right now, the technology available in the market is wide open for the taking, says Mr. Joshi. Companies are still hesitant about taking a big step forward to embrace e-invoicing but it is a matter of time, as experts across the region agree.

"I see the change happening right now across Malaysia and its neighbouring countries. Everyone is in a sort of holding pattern waiting to see who will take the next step forward," he says. "But as these decisions are taken, we are sure to see a ripple effect spread out across the market. The benefits are there; the tools exist – it's a matter of committing to change."

Mandar Joshi is a Certified Accountant and MBA with 15 years of experience in multinational environments, presently in the position of Partner with Avere Advisors. He has served across diverse industries such as Oil & Gas, Mining and Chemical manufacturing. He has worked with Ernst & Young and BDO in the field of business advisory prior to joining the industry. Mr. Joshi’s expertise lies in managing complex treasury operations as well as leading large-scale IT application projects such as ERP, Business Intelligence, E-invoicing and EDI.