- By Archit Gupta
Ease of Doing Business for MSMEs: The e-invoicing or electronic invoicing system completed one year of its journey in October. It has been a roller coaster ride for many businesses, especially micro, small and medium enterprises (MSMEs). It continues to be a tough one for newly onboarded ones. E-invoicing is the Indian government’s initiative to transform the ways businesses interact with each other in the long run.
Under e-invoicing, you can get invoices validated with unique Invoice Reference Numbers (IRN) and signed Quick Response (QR) codes from the GST Network (GSTN). Your GSTR-1 and corresponding buyers’ GSTR-2A/2B get auto-filled. Since April 1, 2021, all those with a total annual turnover exceeding Rs 50 crore must generate e-invoices for their Business-to-Business (B2B) and export sales, also covering the medium enterprises as per the revised MSME definition.
E-invoicing was implemented to plug gaps in GST data reconciliation and curtail tax evasion. You can claim genuine input tax credit along the supply chain and enjoy the automation of tax return preparation. Further, the interoperability of data between various software helps integrate the accounts payable management to the invoicing system in your organisation.
Despite many advantages, the e-invoicing system is not free from challenges, especially for medium enterprises. Since e-invoicing is the core to the functioning of a business, any failure in its setup or implementation can hamper business continuity.
Disruption in daily operations
It is difficult for you to rectify errors in e-invoices on which IRN is already generated as it is a time-consuming process. A small mistake such as the value or reporting a wrong buyer GSTIN can prove to be a headache. You may miss mandatory fields as per the e-invoice schema, such as the six-digit compulsory HSN code for B2B invoices. You cannot rectify such errors directly on the same e-invoice but must cancel it and generate a new invoice for reporting to the GSTN.
Moreover, you are not allowed to cancel an e-invoice if it has an active e-way bill attached to it, despite errors. Also, e-invoices cannot be cancelled after the twenty-four hours of their generation. In such cases, you must predominantly use credit notes, leading to more documentation work. Since the amendment of e-invoices is not an option given to taxpayers, the rectification process becomes challenging. The lower strata of the medium enterprises find it strenuous to manage such frequent cancellations and revisions to e-invoices. It is also partly due to the choice of Enterprise Resource Planning (ERP) solutions and could also be due to a lack of defined and tested processes.
Issues in e-way bill-linked e-invoices
E-way bill attached to an e-invoice, expiring more frequently leads to cancellation of e-invoice and generation of a new one, where you cannot extend the validity. The validity of an e-way bill depends upon the weight of the conveyance and the distance covered. In many cases, the validity of e-way bills is shorter than the actual requirement. You must extend the validity of such e-way bills separately on the e-way bill portal.
Further, you must segregate documents that require e-way bill generation from the rest, which is an uphill task without automation and technological support. Such multiple tasks can negatively impact teams’ productivity at such medium and small enterprises, increasing the documentation and putting unnecessary strain on the limited resources with which the business functions.
Need for thorough testing
We have observed that teams’ efficiency dropped for several clients due to improper and untested implementation of the e-invoicing system. We also found that the quality of e-invoices suffers from loss of track where there are no pre-defined roles and access responsibilities assigned within your organisation. You must involve multiple teams to plan and build an efficient e-invoicing system, such as the finance, warehouse, etc.
Lack of storage
Many medium and small enterprises lack storage arrangements. You can be affected by the lack of storage facilities and servers for IRNs, not supported by the GSTN. Auditing involves reviewing the trail of e-invoices generated during the financial year.
Reconciliation of e-invoice data: An uphill task
You must reconcile e-invoice data auto-populated into the GSTR-1 with the books of accounts or sales register for accurate GSTR-1 filing. You should regularly sort B2B data from Business-to-Consumers (B2C). If you lack automated systems or solutions, there is a risk of errors and penalties. Several medium enterprises affected by the COVID-19 pandemic could not afford reasonable quality solutions to fulfil their automated reconciliation needs.
Issues beyond your control
MSMEs are also affected by untimely server crashes, directly impacting their daily operations of enterprises. If you raise e-invoice on invalid GSTINs, it can cause a huge problem. There are no suitable validations for cancelled customers’/buyers’ GST registration.
The government must also provide proper end-to-end system support for businesses for smooth compliance. The e-invoicing system has scope for improvement, with more businesses joining the ecosystem in the coming months, especially small enterprises not using ERP or tax compliance solutions. As a small business complying with e-invoicing, you can refocus business in the mainstream market quickly. One can also conveniently function from remote areas as invoice discounting, and digital lending will take a massive leap in India if e-invoicing gets extended to MSMEs.
Archit Gupta is the Founder and CEO at Clear. Views expressed are the author’s own.