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With Chile’s electronic invoicing mandates set to take effect in only a few short months, it is important to understand that your solution selection criteria should include more than just the DTE connectivity. If you don’t understand how you will meet the 7 requirements for “Readiness” through the SII website, you could find yourself with a solution that still doesn’t allow you to operate your business.

As part of go-live, an organization needs to make their readiness declaration.  The 7 requirements include:

 

  1. Have Requested Folio CAF
  2. Folio Management (in SAP)
  3. Archive/Store the documents in repository
  4. Send the documents to SII
  5. Receive the inbound documents (and respond with accept or reject)
  6. Reconcile Libros at month end match DTE sent daily
  7. Contingency

The common mistake that many companies are making:

  • Corporate IT teams are told that they just need to find a DTE integration provider and not looking at the end to end issue out of SAP ERP which is their system of record for all reporting extracts and trigger point for all transactions filed with the government

The issue:

  • You create 3 disparate projects (one for SAP configuration, one for Libros report extractions, and one for transactional DTE management)
  • All 3 pieces are required to work in combination in order to go-live, but who is the subject matter expert across the end to end process
  • Modules are loosely integrated leaving audit risks. As an example, the SII returns to status messages for each DTE registered via email. You want to ensure you have full status updates on all of your DTE before you file your Libros reports. However, with 3 separate solution models, this almost never gets done. And it is the little areas and gaps that create the most risk.
  • How does a DTE provider certify your test data scenarios across SAP configuration that was done by some other team and report extractions that were done by another team?

The ramification of not looking at this holistically: Your internal teams are left trying to figure out the process for readiness and managing the objectives by November 1st, 2014.

  • Do you have the subject matter expertise to ensure you pass all the requirements?
  • Have the providers you looked at include this Readiness project work as part of their service? Has this been overlooked by the teams as the requirements are new?
  • Will you not be able to show one part of the 7 step process because your systems are loosely coupled and not a single solution?

 

You will run into a lot of vendors in Chile, and many will say they can support compliance. So ensure you understand the entire process or you will find yourself with operational issues, IT support issues and at risk for audit penalties.  Remember this is as much a project management issue and SAP ERP issues as it is a DTE integration issue. Make sure your providers solve the SAP configuration issues, the Libros reporting extracts, the DTE integration and the assistance and management of your readiness declaration.

Over the last 4 weeks, we have explored the top 5 reasons why companies are switching off on-premise software solutions to cloud providers, more specifically hybrid cloud. Here is a quick recap of the key take-away elements as well as a review of why the selection of the best solution is imperative:

 

  1. On-Premise NFe solutions have too many failure points and monitors
  2. Day-to-Day support needs to be real-time: Most on-premise solutions have their operations shut down for days to weeks every year because of support challenges
  3. No ERP system is configured the same – on-premise solutions force your ERP COE to alter their ERP global upgrade strategies every time there is a change.
  4. Change management involves too many people, different groups, and different system developers
  5. Lack of coverage and functional capability – these solutions are usually limited to country coverage and have gaps in functional requirements such as support for Service Invoices.

 

As you approach the 3.1 upgrade, I wanted to remind everyone of the risk of getting this wrong. This is a mission critical process that has both operational and financial tax implications.  Consider the following:

 

You Can’t Ship if NFe is not Working

 

Many companies have been shut down for upwards of 5 to 6 days at a time.  Can you imagine not being able to ship your goods to your customers for a whole week?  You should check with your local operations, as you might be surprised that this has happened to you recently.  In order to avoid these costly incidents, ensure you solutions have a single, comprehensive monitor and built-in “contingency” modes.

 

Local Audits and FCPA for US Public Companies

 

In Brazil, they literally have the ability to audit you in real-time. Not only do they have the transactional data of Nota Fiscal, they have aggregated reporting monthly, quarterly and annually called SPED to ensure that accuracy and consistency. Non-compliance can mean local fines (on average 500 Reais per XML issue) or fines of 75% to 150% of the incorrect taxes. Such measures helped the government demand a record 109 billion Reais in unpaid taxes from individuals and companies in 2011 (Source: Reuters). For US companies, they also must worry about the Foreign Corrupt Practices Act, as fines can come from the SEC as well. It is a local issue and a corporate issue.

 

So Now What?  Here is a list of questions to go and ask your business:

  • How many resources are supporting the ERP system and Nota Fiscal process?
    • How many SD (Sales and Distribution) resources?
    • How many MM (Material Management) resources?
    • Who owns the integration of the systems?
    • How many people are in the Shared Service center processing invoices in Brazil (both AR and AP)?
    • What is the cost of the physical architecture (hardware, maintenance)?
  • How long do Brazil ERP upgrades take, what is the internal cost per project?
  • When there is an error – where do we find it? What is the process?
  • When something is wrong – who do we call? What is the process?
  • When the government changes
    • Who is responsible for upgrading each solution component?
  • Are your Inbound Receiving teams manually entering data or do you automate the DANFe process?
  • Do you match the supplier XML to the Purchase Order before the truck arrives?
  • How many people are in your Shared Services to process Brazil invoices?
  • How many of your invoices are “touchless” – processed without any human intervention?
  • How much time does your finance team spend at the end of a month fixing data issues that were just pushed through the process?

 

We have given you the basic requirements to understand the “real” cost of trying to manage Brazil Nota Fiscal, now it’s your turn to do the research.

 

Over the last few years, I have spoken with many organizations who have implemented SAP ERP across Latin America as well as many that have either canceled the project or have support and change management nightmares on their hands. Here are the top 5 reasons I see projects fall off the rails.

 

• Thinking that Latin America is similar to European Rollouts -- yes there is a similar concept of VAT tax; however, the complexity of the tax laws and the pace of change to those laws are often overlooked. I have seen projects that have been underestimated by hundreds of thousands of dollars to millions because the amount of localization requirements and unit testing were underestimated.

 

 

• Latin America can easily be moved onto a Financial Shared Service Platform -- many companies are looking at consolidating repetitive business processes in centralized groups. And well Latin American countries can be transitioned, it is not as simple as just passing an invoice off to a global account payables team.  Because the government is involved in literally every single invoice transaction, this also means that any changes (i.e. Credit/Debit or even product codes) has to be coordinated with the government systems.  For example, in Chile, an AP team has 8 days to approve or reject a supplier e-invoice. After 8 days, this invoice is considered to be locked and can no longer be cancelled by a supplier. Instead, the invoice must be adjusted by the supplier registering a Credit/Debit Note that references the original invoice. 

 

 

• An Invoice In Many Countries Acts as a Bill of Lading - In Braziil for example, one NFe equals one truck - meaning that you would not have an NFe spread out over multiple shipments (i.e. partial shipments). This is because the Invoice (Nota Fiscal in Brazil terms) acts as a bill of lading that allows the legal movement of the goods through out the country. If a truck were ever pulled over, a customs agent, weigh station clerk, or police officer could ask to see the PDF version of the Invoice accompanying the truck and do a real-time check to ensure the goods on the truck match what was registered with the government. Overlooking the linkage and importance of real-time support equals complete shut downs of your operations.

 

 

• SAP ERP is not the Financial System of Record -- This one always amazes me. A company will spend millions on implementing and training staff, but all of the invoicing and government reporting is left to local providers.  This leads to multiple issues:

  • Data in your SAP system is often different than the 3rd party reporting system. Why? Because changes are often made to data to ensure the reports that are sent to the government are correct and those changes are done outside of SAP. Isn't the purpose of implementing SAP to have visibility, governance, and control of your financial data.
  • Violation of the Foreign Corrupt Practices Act -- Remember that FCPA doesn't just cover bribery. The premise of the legislation is all based on executive management having accounting visibility and controls in place to avoid fiscal issues.  Almost 80% of all FCPA fines are due to accounting issues. Over 104 companies are officially being investigated for FCPA violations in 34 counties, including Mexico and Argentina – the two most investigated Spanish-speaking countries in the world according to Lexpan (www.lexspan.com) - a leading research firm on FCPA violations.

 

• MOST IMPORTANT -- CONSTANT CHANGE AND SUPPORT -- Because Latin America is constantly adjusting their invoice and tax regulations, global consolidations always underestimate the cost of support and change management after go-live.  I spoke to two companies in the last week that just finished their Brazil SAP go-live in April/May only to find out they need to completely update the system for version 3.1 by December 1st, 2014.  And in 2015, they will face an eSocial implementation. Change affects the SAP Center of Excellence in two ways:

 

  • Fire-drills are often the response to change as the requirements often don't get to the corporate teams until too late -- expensive resources are pulled off innovation projects and piled on to fix the short term maintenance problem.  This expense on top of new software updates and external subject matter experts runs into the hundreds of thousands of dollars a to millions a year for multinationals with operations in multiple, mandated countries.
  • Global regression testing -- as with all ERP vendors, the localization requirements are released for older versions (4.7 as an example with SAP); however, implementing those notes in your customized and highly configured ERP system that may have 35 countries running on the same template is not as simple as just uploading a note or two. 

 

So if you are embarking on a SAP ERP Rollout to Latin America -- ensure you partner with those that have done the implementation before, and make sure you do the cost analysis of the real cost of the rollout -- the cost of supporting and managing the pace of change. It is after year 1 that the cost traditionally spike.

Top 5 Reasons Why Companies are Using Brazil version 3.1 to Transition off of on-premise solutions

 

Many on-premise solutions do not have the capability of supporting the full spectrum of Latin America requirements. As examples:

 

Country Coverage is often limited

 

  • On-premise solutions that focus on Brazil Nota Fiscal and SPED do not support Mexico, Chile and Argentina. This forces multinationals to have four different solution providers, one per country. And it forces, four different integration points, four different servers, and four different support points and four different upgrade projects to coordinate when the government change.

 

  • Cloud providers have the ability to offer multiple countries on a single platform. With the economies of scale, on maintenance, support, hardware, and change management, it makes sense to look at multi-country providers especially for those companies that run or are moving to a global instance of SAP ERP.

 

Many solutions don’t cover all of the processes

 

  • On-premise solutions have functional gaps.  For example, many don’t support Service invoices. Instead you have to build and maintain the government connections via a middleware. Many of these solutions only support PO-backed invoice for 3 Way Matching.  And many of these solutions release the government updates too late. Remember it is still up to you to figure out how to implement and test all those new requirements.

 

  • Cloud providers especially those with a Hybrid Cloud delivery model are able to support all requirements and often reduce internal support costs by upwards of 80 percent. The reason is simple – instead of paying maintenance to receive software, you pay a service fee that includes not only all the software, but also the implementation of those changes at no additional cost.  More simply – with on-premise you pay maintenance to get the upgrades and pay consulting to implement them; with Cloud you pay one service fee and you get all the upgrades and installation at a fixed a predictable cost.  I

The result for companies that continue to maintain on-premise deployments are rising support costs and rising change management costs. This is due to having to support too many individual solutions as well as these solutions having white spaces. Remember: White spaces equal cost and are either covered by your internal resources or your system integrator.

 

In an area of the world that is constantly changing, why would you try to be an expert on compliance? If you are running an on-premise solution this is exactly what you are doing—your team is trying to understand the legislation, trying to understand the SAP ERP requirements, trying to translate those to into process designs, implement, test, support and update every 6 months.  Cloud providers bring the advantage of economies of scale and predictability in an environment of constant change. Companies that are turning away from on-premise solutions and replacing them with SAP Hybrid Cloud services are:

 

  • Reducing their SAP ERP support costs in Latin America by upwards of 70-80%
  • Increasing the productivity of their line of business users by 25-40%

With the scale of the changes in Brazil, Argentina, Chile and Mexico for 2014, I encourage you to use the upgrade as an opportunity to re-evaluate your solution direction for e-invoicing in Brazil as well as across Latin America.