Benefits of E-Invoicing for SMEs, Malaysia – A Competitive Advantage

 

Small and medium-sized enterprises are the backbone of the Malaysian economy. There are a total of 1.15 million SMEs in Malaysia, comprising more than 97 percent of the nation’s businesses and delivering 38.2 percent of GDP. With the revolution of e-invoicing in Malaysia, its SMEs must understand and embrace the benefits of e-invoicing for SMEs, Malaysia.

According to a survey by Tungsten Network, businesses globally have reported cost savings of up to 80% by adopting e-invoicing. Additionally, a study by the Institute of Finance and Management (IOFM) found that processing times improved by over 60% for companies that implemented e-invoicing solutions.

While the government is doing all it can to help the nation adopt an e-invoicing mandate from August 2024 for companies with a turnover of RM 100 million, it’s time the SME segment also starts planning ahead the adoption of e-invoicing. Though not immediately, manufacturing SMEs will have to take up digital invoicing by January 2025, when the government, in its Phase 2, mandatory e-invoicing in Malaysia for SMEs or companies with annual revenue or turnover not more than RM 50 million. Of course, the government incentives for e-invoicing in Malaysia will be there for an easy adoption and reap the benefits of e-invoicing for Malaysian SMEs.

What is The Definition of an SME in Malaysia?

In Malaysia, the definition of small and medium-sized enterprises (SMEs) is categorized by the number of employees and annual sales turnover. The definitions are different for the manufacturing sector and the services and other sectors.

What is E-Invoicing?

E-invoicing is the process of sending and receiving invoices electronically. Unlike traditional paper invoices, e-invoices are created, sent, received, and stored digitally. This method reduces manual processing and the likelihood of errors.

Methods To Opt For E-Invoicing in Malaysia by SMEs

There are three methods through which an SME in Malaysia can opt for digital e-invoicing. These include:

1. Direct usage of MyInvois Portal.
2. API Integration where the user will take help of a third-party service provider or software technology.
3. PEPPOL network via Peppol-ready service providers or Peppol service providers.

Key Benefits of E-Invoicing in Malaysia For SME’s

1. Cost Savings

• Reduced Paper and Printing Costs: SMEs can save on the cost of paper, printing, and postage. As per the global standards, companies are already saving upto 80% on invoicing costs by switching to e-invoicing for SMEs, Malaysia.
• Lower Storage Costs: Digital invoices eliminate the need for physical storage space, reducing costs. A study by Paystream Advisors found that companies saved an average of $7.50 per invoice by adopting e-invoicing solutions.

2. Faster Payments

• Quicker Invoice Processing: Digital invoices are processed faster than paper ones, reducing payment cycles. Industry standards cite that processing timings improve by more than 60% by adopting digital e-invoicing initiatives.
• Improved Cash Flow: Faster processing and payment lead to better cash flow improvement, which is essential for a small enterprise and can be achieved by e-invoicing for SMEs, Malaysia. According to a report by Tradeshift, businesses that adopted e-invoicing saw a 15% improvement in cash flow.

3. Enhanced Accuracy

• Reduced Errors: Automation will reduce the chances of human errors that are common in manual data entry while E-Invoicing for SMEs, Malaysia.
• Accurate Data: E-invoices ensure accurate and consistent data, minimizing disputes and delays in your work processes.

4. Improved Efficiency

• Smooth Operations: E-invoicing in Malaysia will fasten and improve the invoicing process, making it more efficient.
• Time Savings: Employees spend less time on manual invoicing tasks and more on value-added activities.

5. Environmental Impact

• Eco-Friendly: Reducing paper use contributes to environmental conservation, appealing to eco-conscious clients.

6. Regulatory Compliance

• Easier Compliance: E-invoicing tax compliance Malaysia becomes easy and helps businesses comply with tax regulations, such as Malaysia’s Sales and Service Tax (SST).
• Audit Trail: Digital records create a clear audit trail, simplifying compliance and audits.

Let’s help you understand with the help of an example:

Example 1: TechSolutions Malaysia

Background: TechSolutions Malaysia, a tech startup based in Kuala Lumpur, implemented e-invoicing in Malaysia to streamline its billing process.

Challenges

• High costs associated with traditional paper invoicing.
• Delays in receiving payments affecting cash flow.
• Frequent errors and disputes from manual data entry.

Solution: TechSolutions adopted an e-invoicing system that integrated with their existing accounting software.

Results

• Cost Savings: Reduced paper, printing, and postage costs by 50%.
• Faster Payments: Reduced payment cycles by 40%, improving overall cash flow.
• Improved Accuracy: Decreased error rates by 60%, leading to fewer disputes and faster issue resolution.

Example 2: FreshFarm Produce

Background: FreshFarm Produce, an SME in the agricultural sector, shifted to e-invoicing in Malaysia to enhance their billing accuracy and efficiency.

Challenges

• Inefficient and time-consuming paper invoicing process.
• Difficulty in managing and storing large volumes of paper invoices.
• Compliance issues with tax regulations.

Solution: FreshFarm Produce integrated an e-invoicing solution into their financial management system.

Results:

• Enhanced Efficiency: Billing process became 45% faster, allowing the team to focus on core business activities.
• Better Compliance: Simplified compliance with tax regulations due to accurate and timely invoicing.
• Environmental Benefits: Reduced paper usage by 70%, supporting their commitment to sustainability.

A Global Case Study of an SME Using E-Invoicing

Company: Halliday Lighting (UK)

Background: Halliday Lighting is a UK-based SME that specializes in the design, manufacture, and supply of lighting products. The company was facing challenges with its traditional paper-based invoicing process, including high costs, inefficiencies, and delays in payments.

Challenges

• High costs associated with printing, postage, and storage of paper invoices.
• Delays in payment processing, leading to cash flow issues.
• Frequent errors and discrepancies due to manual data entry.
• Difficulty in tracking invoices and maintaining compliance with tax regulations.

Solution: In 2019, Halliday Lighting implemented an e-invoicing solution provided by Tungsten Network, a leading provider of digital invoicing and supplier finance solutions.

Results

1. Cost Savings

• Halliday Lighting reported a 60% reduction in invoice processing costs after adopting e-invoicing.
• The company saved approximately £20,000 annually in printing, postage, and storage costs.

2. Faster Payments

• Payment cycles were reduced by an average of 15 days.
• Improved cash flow management due to quicker invoice processing and payments by e-payments integration e-invoicing Malaysia.

3. Increased Efficiency

• The e-invoicing solution automated the entire invoicing process, resulting in a 50% reduction in time spent on invoice processing.
• Reduced errors and disputes due to accurate and consistent data entry.

4. Compliance and Visibility

• Enhanced compliance with tax regulations and audit requirements through digital record-keeping.
• Improved visibility and tracking of invoices throughout the entire lifecycle.

Testimonial: “The switch to e-invoicing has been transformative for our business. We’ve seen significant cost savings, cash flow improvement, and increased efficiency in our invoicing processes. It’s been a game-changer for our operations,” said John Halliday, Managing Director of Halliday Lighting.

Checklist for an e-Invoicing Compliance Solution For SMEs

Looking for SST-Compliant e-invoicing software Malaysia is your best bet. While you still hustle to understand the basics of e-invoicing processes in Malaysia, we have for you a list of key features identified as necessary while you consider an e-invoicing compliance for SMEs Malaysia.

1. SST Compliance

• Ensure invoices being generated by e-invoicing software Malaysia comply with specific tax regulations of Malaysia like SST.
• Supported by a team of analysts and accounting/ compliance experts.

2. Data Validation

• Verify the presence of 53 mandatory data fields in invoices before processing, in line with company and/or Malaysian tax authority MDEC guidelines.

3. Authenticity & Integrity

• Implement Electronic Data Interchange (EDI).
• Incorporate digital signatures to ensure document authenticity.
• Utilize legal SST/VAT documents, such as signed digital images or data files.

4. Government Mandates

• Integrate with government systems Malaysia, i.e. LHDN portal for quick and accurate verification process.
• Adhere to government-mandated processes and standards, like Digital Signature Act 1997, Customs Act 1967, MCMC, MDEC and SST.

5. Archiving

• Maintain a secure electronic data warehouse for all invoice-related documents.
• Maintain transaction audit trail of the past 7 years.
• Provide management information for both buyers and suppliers, while adhering to data protection laws.

6. Audit and Reporting

• Display invoices in a human-readable format.
• Generate reports suitable for various internal and external stakeholders.
• Prepare compliance documentation for non-signed EDI transactions, including a comprehensive trading partner list, automatically generated daily invoice summary report, and tax exemption documents.

Going Forth

The adoption of e-invoicing in Malaysia is not just a regulatory requirement but a strategic move towards digitalization and modernization. By embracing the technology of e-invoicing for SMEs Malaysia and future-proof their operations, smoothen processes, and position themselves for long-term growth and success in the Malaysian market.

While SMEs across globe already reaping benefits from e-invoicing model, it’s finally time for Malaysian SMEs to take the lead and revolutionize their transactional processes.