E-invoice is a digital proof of a transaction between a seller and a buyer that replaces paper or other electronic documents such as invoices, credit notes, and debit notes. The Malaysian government has announced that e-invoice will be gradually implemented from 1 August 2024 for targeted taxpayers. This initiative aims to digitize tax administration activities and improve tax compliance, efficiency, and transparency.

But how will e-invoice affect small businesses in Malaysia? Here are some of the potential benefits and challenges of adopting e-invoice for small businesses.

Benefits of e-invoice for small businesses

• Cost savings: E-invoice can help small businesses reduce the costs of printing, mailing, storing, and processing paper invoices. According to a study by the Asian Development Bank, the average cost of processing a paper invoice in Malaysia is RM 41.68, while the average cost of processing an e-invoice is only RM 9.60. This means that small businesses can save up to 77% of the invoice processing costs by switching to e-invoice.

• Faster payments: E-invoice can also help small businesses get paid faster by eliminating the delays and errors associated with paper invoices. E-invoice can be transmitted instantly and securely to the buyers, who can then verify and approve the payment electronically. This can improve the cash flow and liquidity of small businesses, especially in times of economic uncertainty.

• Better data quality: E-invoice can also improve the data quality and accuracy of the transactions between sellers and buyers. E-invoice can prevent duplicate, missing, or incorrect invoices, as well as reduce the risk of fraud and tax evasion. E-invoice can also enable small businesses to access real-time data and analytics on their sales, expenses, and tax obligations, which can help them make better business decisions and optimize their performance.

• Environmental benefits: E-invoice can also contribute to environmental sustainability by reducing the paper consumption and carbon footprint of small businesses. According to the IRBM, if all businesses in Malaysia adopt e-invoice, it can save up to 636 million sheets of paper and 76,320 trees per year, as well as reduce the greenhouse gas emissions by 190,080 tonnes of CO2 equivalent per year.

Challenges of e-invoice for small businesses

• Technical requirements: E-invoice requires small businesses to have the necessary hardware, software, and internet connectivity to generate, transmit, and receive e-invoices. Small businesses may need to invest in upgrading their existing systems or acquiring new ones that are compatible with the IRBM's specified format and standards for e-invoice. Small businesses may also need to ensure that their systems are secure and reliable to prevent data breaches and system failures.

• Compliance issues: E-invoice also requires small businesses to comply with the IRBM's rules and regulations for e-invoice, such as the mandatory fields, transmission modes, retention period, and audit trail. Small businesses may need to familiarize themselves with the IRBM's guidelines and procedures for e-invoice, as well as seek professional advice or assistance if needed. Small businesses may also need to monitor and update their systems regularly to keep up with the changes and updates in the IRBM's e-invoice framework.

• Change management: E-invoice also requires small businesses to change their existing business processes and practices to adapt to the new way of invoicing. Small businesses may need to train and educate their staff, customers, and suppliers on how to use and accept e-invoice, as well as address any resistance or challenges that may arise during the transition. Small businesses may also need to communicate and coordinate with their business partners and stakeholders to ensure a smooth and seamless implementation of e-invoice.

Conclusion

E-invoice is a digital transformation initiative that can bring many benefits and challenges for small businesses in Malaysia. Small businesses should be aware of the implications and impacts of e-invoice on their business operations and prepare themselves accordingly. By embracing e-invoice, small businesses can not only comply with the IRBM's requirements, but also improve their competitiveness and sustainability in the digital economy.