The Current and Future state of E-invoicing in Malaysia

Learn about e-invoicing in Malaysia, its benefits like quick transactions and tax compliance, and the shift from old methods. Understand the roles of IRBM and MDEC, the challenges, opportunities, and the 4-corner model in e-invoicing.

By
Ajith Kumar M
April 22, 2024
10 min

Introduction to E-Invoicing in Malaysia

Imagine you could send an invoice to your customer, and they receive it instantly, without paper, without delay. That's e-invoicing! In Malaysia, this isn't just imagination; it's becoming a reality. E-invoicing is a new way of sending bills electronically. It's part of Malaysia's big plan to become more digital in how it does business. The government is working hard to make this digital shift happen, and e-invoicing is a big step in that direction. By using computers and the internet to deal with invoices, businesses can work faster and make fewer mistakes. This means companies can get paid quicker, and everyone saves time and paper!

Current State of E-Invoicing Process

  1. Account Receivable: The seller creates an entry for the amount due from the buyer in their financial records.
  2. Prepare Invoice: The seller prepares the invoice, detailing the transaction in a document.
  3. Generate Invoice in PDF Format: The invoice is generated in a digital format, often as a PDF, but it's still treated as a traditional document.
  4. Send PDF Invoice via Email: The seller sends the invoice to the buyer via email, moving the process from physical to digital.
  5. Receive PDF Invoice in Email: The buyer receives the invoice in their email inbox.
  6. Data Entry: The buyer manually enters the invoice data into their system or uses OCR (Optical Character Recognition) to capture the details.
  7. Account Payable: The buyer records the invoice in their accounts payable, acknowledging the debt to the seller.

Challenges in the Current State:

  • Manual Data Entry: Invoicing requires manual input or OCR, which can lead to errors.
  • Labour Intensive: The process consumes time and labor, especially with manual data entry or scanning.
  • Cost: There are costs associated with labor and potential errors.
  • Time and Errors: Manual processing is slow and susceptible to mistakes.
  • Lack of Traceability: It's difficult to track the invoice's delivery and processing status.

Future State of E-Invoicing Process

  1. Account Receivable: Similar to the current state, the seller records the receivable in their system.
  2. Prepare E-Invoice in System: The seller prepares an electronic invoice directly in their financial system, formatted for easy electronic interchange.
  3. Process E-Invoice in System: The electronic invoice is automatically processed in the buyer’s system, without the need for manual data entry or email.
  4. Account Payable: The buyer’s system recognizes and records the invoice in their accounts payable ledger automatically.

Advantages of the Future State:

  • System-to-System Exchange: Invoices are exchanged directly between the seller’s and buyer’s systems, streamlining the process.
  • No Manual Data Entry: There is no need for manual input or OCR, reducing the risk of errors.
  • Efficiency: The process is faster and more efficient, as it is handled electronically.
  • Cost Savings: E-Invoicing reduces labor and administrative costs.
  • Traceability: Electronic handling improves the ability to track the status of invoices.

In the future state of e-invoicing, we anticipate a smoother, more reliable, and cost-effective approach to managing transactions, allowing for real-time updates and integration between seller and buyer systems. This transition is poised to revolutionize the invoicing landscape by reducing manual effort and increasing efficiency.

IRBM and MDEC Roles and Responsibilities

In the world of e-invoicing, the Inland Revenue Board of Malaysia (IRBM) plays a vital role. They make sure that every electronic invoice follows tax laws. They're the guardians of tax rules. When it comes to teaching businesses about e-invoicing, the Malaysia Digital Economy Corporation (MDEC) takes the lead. They show companies how to switch to e-invoicing and help them understand the benefits, like saving time and money. Think of MDEC as a guide, helping every business along the path to this new, digital way of invoicing.

Tax Reporting and Compliance

For taxes, e-invoicing is a big help. It makes sure that when a business earns money or spends money, the tax office knows about it straight away. This way, the taxes are right, and the government gets a clear picture of how much business is happening. By August 2024, all large businesses will have to start using e-invoicing, and by the mid of 2025, every business in Malaysia will be using it. This is to make sure that everyone is doing their part in the country's economy.

Conclusion

E-invoicing in Malaysia is a big step into the future. It’s about all of us – businesses, the government, and service providers – working together to make things better. As we all get used to this new way, we'll find that it makes doing business faster, easier, and better for our planet since we'll be using less paper. If you're in Malaysia, get ready for e-invoicing because it's going to be a part of how we all do business very soon.