Importance of Invoice Verification in Lending Process

Bill discounting and invoice factoring have stood the test of time as essential mechanisms for businesses to manage their cash flow. However, what has truly transformed this age-old practice is the digitization of data and the advent of revolutionary technologies. With the introduction of GST, e-invoicing and e-way bills in India, a new era of digital lending has emerged, marked by streamlined processes and innovative credit products.

With GST Data coming on AA ecosystem, availability of GST Data becomes easier. For now, limited Data sets are enabled (B2B Sales Invoices, Turnover and Tax settlement Summary) via AA. However, for a robust digital process more information is needed and can be expected to be available on AA in future.

Let us understand the various data sets which can be useful typically from an invoice verification angle.

Overview of GST, E-invoicing and E-way Bills

GST Compliances

All the regular taxpayers are mandated to file GSTR-1 and GSTR3B on a monthly or quarterly basis. GSTR-1 filing serves as a detailed disclosure of a business’s outward supplies over the specified period, accompanied by the corresponding tax liability. Not only does it provide the government with an accurate overview of a supplier’s sales activities, but it also lays the foundation for recipients to claim eligible input tax credit (ITC) via auto populated GSTR2A/GSTR2B.

GSTR-3B serves as a summary return filed by taxpayers to provide a consolidated view of their outward supplies, tax liabilities and obligations. Within GSTR-3B, taxpayers must concisely declare the outward supplies and corresponding GST payable, the input tax credit (ITC) they are eligible to claim, and details about purchases subject to the Reverse Charge Mechanism (RCM), if applicable. Additionally, this return offers insights into any tax liabilities for the relevant month and provides a comprehensive snapshot of taxes already settled.

E-invoicing in India

E-invoicing is applicable to the taxpayers with turnover above 5 Cr. with certain exemptions like banks, insurance, Goods Transport Agencies etc. are exempt from e-invoicing. All the B2B invoices and Export invoices generated by a business need to be registered with the Government system i.e. the Invoice Registration Portal (IRP) to obtain a unique identification number for every invoice called Invoice Reference Number (IRN). Along with the Invoice Reference Number or IRN, the IRP will also create a digitally signed QR code with select details from the invoice and digitally sign the uploaded invoice data. Thus, an e-invoice is a document that has an IRN associated with it and a digitally signed QR code printed on it.

E-way Bills in India

E-way bill is a document required to be carried by a person in charge of the conveyance carrying any consignment of goods as mandated by the Government in terms of Rule 138, Section 68 of the Goods and Services Tax Act. An E-way bill under GST needs to be generated before the commencement of the movement of goods or consignment.

Though the underlying document in all the three data sources above is the same, there are some aspects which may vary as the document moves from one system to another.

Here are some important pointers to keep in mind for a well-rounded approach to this transformative endeavor.

1. The Spectrum of Applicability

The E-invoice mandate is notably applicable to B2B transactions and exports, while the comprehensive purview of GST Returns (GSTR1) extends to encompass all sales activities, including B2C and exempt sales reported across various levels of aggregation. Although e-invoices pave the way for certain sections of GSTR returns to be pre-filled, it is crucial to recognize that additional information present in GST Returns may not be covered by either AA or the e-invoice process. Similarly, the E-way bill is applicable for goods but not for services and hence not all invoices may have an e-way bill.

2. Immutability and Cancellation of E-invoices

An e-invoice, once generated cannot be modified. However, it can be cancelled within 24 hours, provided that no active e-way bill accompanies the invoice. Cancelling an e-invoice prompts the need for a fresh invoice with a distinct invoice number, as the cancelled numbers are not open for reuse.

3. The Intricacies of QR Codes and Status

The Signed QR code on an e-invoice provides some important details of the invoice like seller GSTIN, document number, buyer GSTIN, invoice value, unique IRN number etc. However, it does not have the status of e-invoice. GSTN portal has an option to search by IRN no and get the status. However, that is not available as an API as of now. While the Invoice Registration Portals (IRPs) in their capacity may provide enriched APIs and value-added features, there could be limitations. Furthermore, cancelled e-invoices are not pre-filled within the GSTR1.

4. Data Discrepancies post E-invoice Auto population

E-invoices seamlessly make their way into the GSTR1 through auto-population almost real time. Yet, a window for amendments and changes remains open before the actual filing of the GSTR1. Any change in invoice or even mere re-upload of some information can inadvertently lead to the overwriting of e-invoice data. Although a less frequent scenario, financers need to cross check data to rule of possibility of any intentional data discrepancies.

5. The Aftermath and Amendments

The filing of GSTR1 does not mark the finality of data submission. Debit notes, credit notes and amendments provide avenues to rectify and update previously filed information. While amendments may not be frequent, debit and credit notes are common business scenarios. Also, the connection between invoices and debit/credit notes is not always one-to-one. As such, meticulous attention to these aspects is essential, given their potential to impact past data submissions.

Benefits of Digital Invoice Verification

Invoice Verification is traditionally done by lenders as a part of their post finance audits and mostly the process is manual by taking physical copies of invoices or visiting the borrower to collect the information required. There is a rise in the need for automated invoice verification now that there is data available digitally based on borrower’s consent.

Let’s understand how and at what stages lenders can benefit with Invoice verification

Pre-Financing Stage Invoice Verification: E-invoicing enables lenders to conduct invoice verification before providing financing, leveraging real-time data availability to ensure the legitimacy of the invoices.
Supply chain Financing – Tracking movement of goods: Throughout the supply chain, the movement of goods requires e-way bill compliance. Utilizing digital verification of e-way bills enhances the credibility of invoices. The use of FastTag allows for tracking goods transported by road, a crucial aspect given that nearly 98% of e-way bills pertain to road transport.
Invoice Audit – Precision through GST Data: Ultimately, the authenticity of an invoice is confirmed through the data filed in GSTR1 and GSTR 3B. These filings serve as the conclusive declaration of the invoice and its associated tax liabilities to the government. These filings also provide the details with respect to credit debit notes which can be aggregated to understand the frequency and amounts involved. Similarly, amendments to information can be mapped to the original invoices.

Conclusion

In the realm of modern lending, ignorance is far from bliss. Understanding the intricacies of GST data dynamics, e-invoicing and e-way bill and effectively aligning these three datasets with the invoices submitted for lending purposes is paramount for a successful supply chain/invoice discounting model. The amalgamation of technology, regulations, and financial practices underscores the need for continuous adaptation and a proactive approach to stay ahead in the digital lending revolution. As businesses and lenders embrace these changes, they are poised to unlock new opportunities and elevate the efficiency and transparency of lending practices.

IRIS Credixo – Your GST Data Lending Partner

IRIS Credixo offers a set of APIs covering publicly available GST data and consent-based data filed in GST returns. Additionally pre-processed data sets, reports and insights are also available as enhanced data APIs which can quickly plug into any system. Banks, lending institutions and fintechs can integrate these APIs in their credit models and provide faster and seamless lending experience to the MSMEs.

IRIS Credixo APIs can embed into your existing credit appraisal or loan origination systems. Alternatively, institutions can also build new applications and expand to new use cases based on the GST data available.

A full-blown web-application is already set up for IRIS Credixo, which helps data users i.e. the banks and fintechs to visualize the spread of GST data for lending.

Credixo stands at the intersection of Data and Lending Experience. It allows lenders to grow volumes, stand out from the competition and gather meaningful customer data to provide seamless “lending in the box” credit experience and design tailored customer journeys.

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