Making company cash flows visible: Open banking and e-invoicing

This article focuses on how open banking and e-invoicing can work together to enhance the efficiency of companies' financial management.

What is open banking

Open banking refers to the open APIs provided by banks, through which customers can securely share their banking information with third parties. The EU's Payment Services Directive (PSD2) is one of the most well-known examples of this. Since 2019, banks within the EU have been required to enable the sharing of customers' account information and making payments through these interfaces.

Open banking and its benefits for companies' financial management

Open banking enhances companies' financial management by enablinprocess automation. With standardized open banking APIs, companies can, for example, directly import their account data into accounts receivable, allowing payments to be automatically matched with invoices. This reduces manual work and minimizes the risk of errors, thereby speeding up cash flow and improving the company's liquidity.

Whereas solutions that raise the level of automation used to be long and expensive projects, open banking now enables even smaller companies to automate their processes at a reasonable cost. This is especially beneficial in international trade, where managing payments and transactions can be challenging due to regulatory differences and varying banking systems.

Especially outside of Finland, many small and medium-sized enterprises (SMEs) continue to manage their accounts receivable manually. This adds complexity, especially for companies with operations in several different countries.

International e-invoicing has become increasingly common, but it still poses challenges. Different countries have varying regulations and standards, which have made it complicated to automate and integrate invoicing processes. However, the use of systems like Peppol can now significantly reduce this complexity.

As e-invoicing becomes more widespread, it is crucial that the invoicing system can be integrated with a company's ERP solution and other financial management systems. This is where open banking solutions come into play. With open banking, account information and payment transactions can be seamlessly integrated into accounts receivable and invoicing systems, enabling real-time monitoring and reporting.

Example: a Finnish SME 

Imagine a scenario where a Finnish SME operates in several European countries and aims to maximize the use of e-invoicing across all locations. The company has struggled with manually matching payments to invoices, which has consumed a lot of time and resources. 

Open banking allows the company to automate the import of account information into accounts receivable and match payments to invoices. Heeros offers a comprehensive solution for this together with its partners OpenText and Enable Banking.

Of course, it is true that without the widely used payment references common in Finland, achieving the same level of automation immediately in other countries may be challenging. However, by combining different payment details, the process can be significantly streamlined compared to traditional methods. This reduces manual work and speeds up the invoicing process, improving cash flow management and liquidity. Additionally, real-time monitoring and reporting enable better cash flow forecasting.

Open banking and future prospects

Combining open banking and e-invoicing offers significant opportunities for companies. Automation and digitalization are crucial for enhancing business efficiency and improving competitiveness.

Collaboration among various stakeholders is key to maximizing the benefits of open banking. Banks, technology companies, and regulatory authorities are working together to develop new standards and practices that support digital financial management and e-invoicing.

It is advisable for business decision-makers to closely monitor the developments in open banking and e-invoicing markets. The development is driven not only by opportunities but also by necessity. Especially in Europe, rapidly spreading online invoicing mandates will impact the daily operations of every European company.

The following three simple scenarios for 2030 outline how automation, ecosystems, and regulation related to open banking and e-invoicing might evolve in Europe.

Background: Complete automation, fragmented ecosystems, strict regulations

By 2030, automation has been taken to the extreme, with companies' financial management processes operating almost entirely without human intervention. Open banking APIs and e-invoicing systems seamlessly connect companies' bank accounts, accounts receivable, and payment systems. The amount of manual work has been minimized, and financial management tasks are handled in real-time through artificial intelligence and machine learning.

However, ecosystems remain fragmented. Various players offer their own solutions with limited compatibility, creating challenges especially for SMEs that must choose between different ecosystems. The lack of collaboration prevents the full potential of the market from being realized.

Regulation is strict and continuously evolving. New data protection regulations and standards require companies to make significant investments in security and compliance. However, strict regulation ensures high levels of data security and reliability, which in turn increases customer trust in the systems.

Scenario 2: The era of ecosystems

Background: Moderate automation, strong ecosystems, flexible regulations

By 2030, automation has not yet reached its full potential, but SMEs widely adopt automated solutions in financial management. Open banking and e-invoicing are well-established, though some manual work remains, especially in complex invoicing processes and international transactions.

Ecosystems have developed into strong and well-integrated networks. Banks, technology companies, and regulatory authorities work closely together to create shared platforms and standards. These ecosystems enable seamless integration between different systems.

Regulation is flexible and supportive of innovation. Regulatory authorities collaborate with independent actors to develop standards that enable the rapid adoption of new technologies and services. This encourages companies to invest in new solutions and improves market dynamics.

Scenario 3: Regulated Europe

Background: Limited automation, fragmented ecosystems, extremely tight regulation

In 2030, automation has advanced but has not reached its full potential due to the restrictions imposed by strict regulations. Companies use open banking solutions and e-invoicing, but significant manual work remains necessary, especially to meet security and regulatory requirements.

Ecosystems are fragmented and competition is fierce. Banks, technology companies, and other players compete for market share, making it challenging to establish unified standards and slowing down the spread of innovations. This hinders the full potential of the market from being realized and increases costs for businesses.

Regulation is extremely strict and complex. Authorities closely monitor all open banking and e-invoicing solutions, adding to the administrative burden and costs for companies. New regulations require continuous adaptation and investment in security and compliance, which slows the adoption of new innovations. On the other hand, stringent regulation ensures a high level of data security and reduces risks, enhancing market reliability and stability.

Summary: Three tips

Open banking and e-invoicing offer significant benefits to SMEs in streamlining financial management. Open banking enables secure sharing of banking information with third parties, automating and speeding up financial management processes. On the other hand, e-invoicing streamlines the invoicing process, especially in international trade. By combining these two aspects, companies can achieve substantial advantages in cash flow management and financial efficiency. Lastly, here are three tips for SME decision-makers:

1. Leverage open banking solutions to automate account information. Open banking solutions enable the automatic import of account information into your accounts receivable system, reducing manual work and the possibility of errors. This speeds up the allocation of payments to invoices, improves cash flow, and enhances liquidity. For instance, solutions offered by Heeros, in collaboration with OpenText and Enable Banking, can be highly beneficial in this regard.

2. Integrate e-invoicing system into the financial management ecosystem. E-invoicing enables companies to automate their invoicing processes and integrate them directly into their ERP systems. This facilitates invoice processing and reduces manual work, especially in international business where varying regulatory and banking systems can be challenging.

3. Monitor market and regulatory developments actively. Open banking and e-invoicing are evolving rapidly, and regulations are constantly changing. Keep your company updated on new opportunities and obligations. A good partner can help you maximize the benefits of open banking and e-invoicing while ensuring your business remains compliant with current regulations.