Ease of doing business for MSMEs: The e-invoicing or e-invoicing system completed a year of its trip in October. It has been a roller coaster ride for many businesses, especially micro, small and medium enterprises (MSMEs). This continues to be difficult for newcomers. Electronic Invoicing is an Indian government initiative to transform the way businesses interact with each other in the long term.
Applicability of electronic invoicing
As part of electronic invoicing, you can get validated invoices with unique invoice reference numbers (IRN) and signed GST Network (GSTN) Quick Response Codes (QR). Your GSTR-1 and the GSTR-2A / 2B of the corresponding buyers are filled automatically. As of April 1, 2021, all those whose total annual turnover exceeds Rs 50 crore must generate electronic invoices for their business-to-business (B2B) and export sales, also covering medium-sized enterprises according to the revised definition of MSMEs.
Electronic invoicing has been implemented to address gaps in GST data reconciliation and reduce tax evasion. You can claim a true input tax credit all along the supply chain and benefit from the automation of tax preparation. In addition, the interoperability of data between the different software makes it possible to integrate the management of accounts payable into your organization’s invoicing system.
Despite many advantages, the electronic invoicing system is not without its challenges, especially for medium-sized businesses. Since electronic invoicing is at the heart of a business’s operation, any failure in its configuration or implementation can hamper business continuity.
Disruption of daily operations
It is difficult for you to rectify errors in electronic invoices where IRN is already generated because it is a time consuming process. A small mistake like valuing or reporting a bad GSTIN buyer can turn out to be a headache. You may miss some mandatory fields according to the electronic invoice scheme, such as the mandatory six-digit HSN code for B2B invoices. You cannot rectify such errors directly on the same electronic invoice, but must cancel it and generate a new invoice to report to GSTN.
Also Read: Over 5 lakh of Udyam Retail and Wholesale Registrations in 5 Months Since Inclusion in MSMEs
In addition, you are not allowed to cancel an electronic invoice if it is associated with an active electronic invoice, despite errors. In addition, electronic invoices cannot be canceled after twenty-four hours of their generation. In such cases, you primarily need to use credit memos, which results in additional documentation work. Since modifying electronic invoices is not an option available to taxpayers, the rectification process becomes difficult. The lower layers of mid-sized businesses struggle to deal with such frequent cancellations and revisions of electronic invoices. It is also due in part to the choice of enterprise resource planning (ERP) solutions and could also be due to a lack of defined and tested processes.
Problems in electronic invoices related to electronic invoices
The electronic invoice attached to an electronic invoice, which expires more frequently, results in the cancellation of the electronic invoice and the generation of a new one, the validity of which you cannot extend. The validity of an electronic waybill depends on the weight of the means of transport and the distance traveled. In many cases, the validity of electronic waybills is shorter than the actual requirement. You must extend the validity of these e-way bills separately on the e-way bills portal.
In addition, you have to separate the documents requiring the generation of electronic invoices from the others, which is a daunting task without automation or technological support. These multiple tasks can negatively impact the productivity of teams in these small and medium-sized businesses, increasing documentation and putting unnecessary strain on the limited resources with which the business operates.
Need for in-depth testing
We have observed that team efficiency has declined for several clients due to an improper and untested implementation of the electronic invoicing system. We have also found that the quality of electronic invoices suffers from a loss of tracking when there are no predefined access roles and responsibilities assigned within your organization. You need to involve multiple teams to plan and create an efficient electronic invoicing system, such as finance, warehouse, etc.
Lack of storage
Many small and medium businesses do not have storage devices. You may be affected by the lack of storage facilities and servers for IRNs, which are not supported by GSTN. The audit consists of reviewing the trace of electronic invoices generated during the financial year.
Reconciling electronic invoice data: a tough task
You must reconcile the auto-populated electronic invoice data in GSTR-1 with the account books or sales register for accurate GSTR-1 filing. You must regularly sort the B2B data of Business-to-Consumers (B2C). If you run out of automated systems or solutions, there is a risk of errors and penalties. Several medium-sized businesses affected by the COVID-19 pandemic could not afford reasonable quality solutions to meet their automated reconciliation needs.
Subscribe now to the Financial Express PME newsletter: your weekly dose of news, views and updates from the world of micro, small and medium enterprises
Problems beyond your control
MSMEs are also affected by untimely server outages, directly affecting their day-to-day business operations. If you increase the electronic bill on invalid GSTINs it can cause a huge problem. There are no proper validations for GST registration of canceled customers / buyers.
The government must also provide appropriate end-to-end system support to businesses for smooth compliance. The e-invoicing system can be improved, with more businesses joining the ecosystem in the coming months, especially smaller businesses not using ERP or tax compliance solutions. As a small business that is compliant with electronic invoicing, you can quickly refocus on the mainstream market. One can also conveniently operate from remote areas as a bill discount, and digital loans will surge in India if e-invoicing is extended to MSMEs.
Archit Gupta is the founder and CEO of Clear. The opinions expressed are those of the author.