The Carrot and the Stick in Mexico’s e-Invoicing roll-out

In a recent article about Mexico’s approach to e-invoicing adoption, Javier Vega Flores, President of AMEXIPAC related the country’s initiative to the metaphor of ‘the boy and the donkey’ - better understood as ‘carrot and stick’ practice.

According to Flores all governments usually ‘carry a carrot and stick in order to get their programs moving’ - with the stick outwardly representing mandatory regulations imposed on national businesses, and the carrot outwardly representing optional programs (incentives) a business can leverage in order to adapt to the new method.

Inwardly, however, the carrot and the stick are part of a much greater strategy.

In the case of Mexico, for example, its e-invoicing initiative came as a direct result of calls from the retail industry for electronic invoicing to be included as part of the government’s modernisation program.

As is with most markets, economies and typically, societies in general, the loudest voices (i.e. those that are heard) come from the biggest players. So, the Mexican government answered the calls of these corporates by targeting them and requiring they adopt the mandatory changes necessary to adapt to the new e-invoicing model (stick). The rest of the market was left with no obligation. 

As Flores describes in his article, throughout the rest of the ten years it took for the Mexican Government to successfully roll-out a fully functioning e-invoicing program across its retail industry, the stick was strategically and continuously applied to the largest industry players and those directly connected to the sector.

While before e-invoicing, all Mexican businesses had to go through specialised printing entities connected to SAT (the Mexican Tax Authority) and report on a daily basis the closed transactions they had with taxpayers, as the idea of electronic invoicing was slowly released, businesses such as banks and telecoms began opting to ‘self-print’ their invoices, based on the sheer number of invoices and statements they were handling (carrot).

But, by later applying the stick, and requiring these businesses to migrate to e-invoicing if they wanted to keep the status of making their own invoices ‘in house,’ the government ensured compliance with their new program of modernisation.

Soon after, major vendors and suppliers of the retail industry were also met with the stick when it became mandatory for them to begin e-invoicing. This was later extended to all companies and individuals with particular annual sales or above, and the threshold for eligibility was lowered every year.

At this point it becomes clear that the practise of showing the carrot slowly diminishes after it has served its purpose to acclimatise smaller industry members to the notion of e-invoicing. When they are eventually shown the stick, mandatory adoption is not only more acceptable as an idea, but easing into the practise is far more fluid because the sector’s main influencers, who are often responsible for the livelihood of these smaller businesses, are already up and running.

To-date, in 2014, the chain of influence that has been created by showing the stick to Mexico’s large industry vendors (main influencers) has slowly filtered through to all of the smaller fishes in the retail pond. All individuals and taxpayers are or are in the process of being required to provide fiscal receipts for professional services.

As Flores concluded in his article, ‘the bottom line is that you need both the carrot and a stick to make the wagon move. Mexico has done this and we have gone from a few hundred thousand invoices per year into the multiple billion invoices.’

By strategically applying the stick to large players in the industry, over time, Mexico was able to impact the rest of the sector to eventually comply with the practice of e-invoicing and this is because the carrot is always incentive-based. In the case of Mexico, the carrot naturally revealed the benefits of e-invoicing to the remainder of the retail sector who were similarly affected by the large-scale adoption of leading businesses in the industry.

Hand in hand with the stick, the carrot (or incentive) was a persuasive tool used to acclimatise the rest of the industry to this new method of e-invoicing, slowly rising in the background. The stick ensured a more aggressive form of adoption to ensure that e-invoicing could be rolled out from the top down.

This was the strategy employed by Mexico in order to successfully roll-out a national e-invoicing program across its enormous retail industry. And, it is not an extraordinary practice. The 'carrot and stick' method can be applied to any facet of life that requires widespread (or even small-scale) adoption of a process, method or function. How would you use it to your advantage?

Javier Vega Flores’ full and insightful article, ‘Mexico’s E-invoice Regulatory Practice: Carrot or Stick’ is featured in The Paypers’ ‘E-invoicing, Supply Chain Finance & E-Billing Market Guide 2014’

The report, which provides detailed insight into world-wide e-invoicing, supply chain finance and e-billing functions contains a huge inventory of information, including an entire chapter dedicated to individual company profiles and best-practices. Download The Paypers’ ‘E-invoicing, Supply Chain Finance & E-Billing Market Guide 2014’ now.