And as the reality of this change and size of this change sets in, there will be a mad rush to find solution providers.  The problem is that most companies will look at the wrong problem or think that there is a standard solution from their ERP provider – rest assured this is nothing like CFD.  It is not a simple XML schema or an internal signature that can be managed via a middleware like SAP PI.  You have to have 3^rd parties involved beyond the ERP system as you need a government signature – and if you miscalculate the implementation, day to day maintenance and change management – you will not be able to ship, collect from customers or ensure you pay your VAT remittances correctly. 

Many companies will put a fire drill together and find a low cost way of doing this as it is not a budgeted project.  However, the low cost solution will only look low cost because they will leave you doing all the work. Getting the "timbre fiscal" and unique IDs through the government providers is not the real problem with CFDI. The real problem is with the SAP configuration and customer specific requirements that you deal with on a daily basis.  

So here are RED FLAGS to be aware of:

If a solution providers says to you:  "Just map your SAP data to this standard file format" -- please raise the flag and start waving. This is the most overlooked issue and the one that will derail your project and create issues with Customer collections and Supplier payments.

Why you ask: it is because there is no such thing as a standard SAP solution.  No one company has implemented SAP ERP the same, there are pricing configurations unique to their business, unique internal processes such as payables processing, and unique end customer requests.

• Classic data extraction issues include but are not limited to:
• Discounts - there is only one field on the Mexico XML
• What if your customers wants to see the discount per line item on the PDF
• Is a discount a percentage, a flat rate, or some arbitrary logic that is customer specific
• Question – how many customers do you have, how many different pricing configurations do you have – all of this will be difficult to map into a rigid XML
• Surcharge
• The Mexico XML has no field for Surcharge
• Most customers want this as a line item on the invoice – how do you manage just this one example of an “Extended Attribute”
• Extend Attributes are the issue with deploying along with Master data issues – if your provider doesn’t help you – you will be left with coding this and maintaining this throughout your SAP upgrades as well as through the constant government changes

If a solution providers says to you:  "We support the entire process for electronic invoicing in Mexico” – please ask what “the entire process” means to them as it most likely leaves out the major issues.

• Most solutions will handle the general compliance, but the main issues are behind the firewall
• Issues with your unique SAP system
• Issues with printing the PDF to place on the truck
• Reconciliation issues – Canceled Invoices, or managing Credit/Debit notes when a supplier invoices has the wrong tax information or pricing on it.
• Most solutions stop at a “Service Transfer Point” meaning: once they hand the signed file back through the firewall – they are done. In reality, the process isn’t done until it is integrated to SAP and released for Payment. 

If a solution providers says to you: “It is just a local issue, and you don’t need a global project team or support team” – please ask yourself one question: where is my SAP system located? If it is not in Mexico and it is centralized in the US, Europe or Asia – then it is a global issues.  It will affect the SAP system, require integration technology, require constant SAP monitoring and upgrades to meet the mandates, and more.  For a multi-national – the SAP deployment affects the local team, and the in country requirements always affect the global IT teams.

If a solution providers says to you: “If you can just wait for a month or two, we will have a solution ready”

• What does this mean?  Many large organization are going to wait on so called standard solutions because they saw these for CFD.  However, CFD doesn’t have all the process issues of CFDI. 
• Also, CFDI has been around for more than 18 months -- many companies had to transition in  July 2012. How does any credible provider for CFDI not have a solution ready when it has been around for so long?

I have recently put together an RFP check list for SAP multinationals to ensure they are asking the right question. Please feel free to connect with me or contact me at steve.sprague@invoicewareint.com

• Accounts Receivable: This is the most important aspect of the legislation and will be the downfall of many implementations. Outbound billing to end customers in Mexico will require significant changes that not only affect your ability to create a legally valid invoice, they also affect your ability to collect. With CFDI, the outbound process is real-time, requires significant changes to the SAP system, and affects your ability to hip.

•  Logistics: Unlike the legacy batch invoice processing, the real-time CFDI process requires that a PDF representation of the approved XML with a government signature accompany the shipment.  By requiring a physical representation of the invoice on the truck, a process similar to the Brazil Nota Fiscal requirements, it is imperative that companies have contingency built into their business processes, so that validation doesn’t get in the way of customer shipments.

• Accounts Payable: Inbound receiving and payment of domestic purchases are also affected by the legislation.  Whether you are utilizing local resources or have transitioned to a Shared Service, all supplier XML invoices need to be collected, validated and archived for a period of 5 years.  The massive transition to CFDI will have two major effects on AP operations. First, the payables staff will be inundated with electronic XML invoices that needs to be validated in real-time and archived on premise for 5 years. The overwhelming majority of companies have been validating invoices manually. Many AP teams will see a 300-500% increase in electronic invoicing, so manual efforts will be stretched to their breaking point.  Second, as many suppliers will be new to the CFDI process, a manager can expect to receive a high percentage of invalid invoices.  Companies do not want to process government invalid invoices as this will create audit risk and tax deduction implications.

Because everyone who uses SAP has configured their pricing configuration, applied customer specific business processes, and are upgrading SAP at their own pace; there is no standard out of the box SAP solution. Don't forget the SAP work that is required -- and look for solutions that solve all your issues, not just one process.

It is now more critical than ever to make sure that you have a strategy in place in order to stay compliant and avoid costly fines. Being able to quickly change and adapt your ERP system and business processes to meet these mandates is a costly and time consuming operation.

Unfortunately, most organizations are not prepared for the upcoming changes and will underestimate the work load involved in meeting these new mandates.

Four Things You Need to Know:

• DON’T WAIT – there are literally hundreds of thousands of organizations that will need to comply and a limited number of vendors to meet the requirements.

• THIS IS NOT A TRIVIAL PROJECT: the legislation and required business processes will affect your ability to ship, your ability to collect money from your customers, and your ability to legally file your taxes in Mexico.

• VENDOR SELECTION IS KEY: As the project will affect your ERP system, ensure your vendor understands the process, has knowledge of the ERP system, provides an end to end solution, and speaks both Spanish and English natively – or you might find yourself in a never ending project.

• BOTH AP AND AR ARE REQUIRED: The legislation for CFDI requires both the production of electronic invoices when you are the supplier sending to an end customer (Accounts Receivable) and when you are the buyer receiving invoices from your supplier (Accounts Payable). Both processes have their own legal and technical requirements.

I will have further commentary as we breakdown the details of process changes, but fundamentally this is a major move affecting most companies doing business in Mexico.

CFD is sunset, there are no "grandfather" clauses in the updates. Many organizations have been lulled into a peaceful sleep with the older knowledge that the government would still accept CFD. This is because in the past (and by past I mean before May 31, 2013) you could still send CFD XML if you had been doing CFD prior to Jan 1, 2010.  There have been a number of CFDI mandates since then, and the CFD "grandfather" clause had always applied. UNTIL NOW -- in the resolution posted on the Mexico SAT website CFD is no longer viable as of January 1, 2014: 

The official documentation of the legislative changes was published: El 31 de mayo de 2013 se publica en el DOF la 2ª Resolución de Modificaciones a la Resolución Miscelánea Fiscal para 2013 (2ª RM para la RMF 2013). Link to Mexico SAT Documentation

With CFD eInvoicing no longer allowed -- are are the basics you need to understand about CFDI in Mexico:Establishing a Legal Entity

1. Obtain a Registro Federal del Contribuyente RFC (Mexican Tax ID)
2. With the RFC apply for FIEL (Firma Electronica Avanzada). It is based on PKI Public Key Infrastructure to identify and verify the information about tax payer before the SAT (Mexican Tax Authorities). 
3. With the FIEL apply for CSD (Certificado Sello Digital) to be used with CFDI process flows
4. Have a solution provider capable of mapping your proprietary invoices into XML v3.2 defined by Anexo 20 of the Mexican tax code Miscelania Fiscal. This is by far the most underestimated issue with CFDI invoices as no customer accounting system is configured the same.  Additionally, your customer specific requests can also have a major affect and create an integration nightmare to force your data into the government standard (not once but across all the different variations you have in your business and all the different variations requested by your customers
5. Apply a digital signature known as a sello with the CSD.
6. Validates the XML syntax obtain the “Timbre Fiscal” or government seal
7. You must store the “Timbre Fiscal” in your back-end accounting system
8. You must print out the invoice, which now includes the “Timbre Fiscal” and the strictest following of the law states you should place a copy on the truck at the time of shipping – similar to the Brazil Nota Fiscal model.
9. By law, you must make the signed XML available to your end customers 
10. Most companies will send the signed XML invoice and the PDF rendering to the customer via email, but other channels exist such as B2B communications or uploading to a customer portal
11. These invoices must be stored for a minimum of 5 years.
12. If you have to change the invoice, you must first cancel the original invoice with the government and generate a new one; otherwise, you will still be on the hook for the older invoice tax implications
13. Note: Large customers can make the process more complex by requesting “Addenda” information.  An Addenda is a specific space within the government XML that you can put specific information. The government does not care about this information, but for example a Wal-Mart might want the supplier to put the PO # in the Addenda, so they can expedite their payables process.  Customer requirements can make the entire process much more complex as you can get these Addenda requests and/or a customer may request a lot of additional information on the PDF printout that is specific to them.
14. As a buyer, when you receive the XML invoice. The laws state that you need to validate that the XML is authentic and registered with the SAT and then archive this XML for 5 years as it will be the fundamental document if there is an audit.  

This is a complex business process change; the process will impact your ERP system configuration; so don't wait until the last minute -- contact a solution provider today before the other 500,000 companies do. You definitely don't want to be last in line during this transition.

1. Shared Service organization often overlook the requirement to validate all inbound supplier invoices. This legislation took effect on Dec. 28 2012.  Many companies I speak with will tell me that they handle this manually.  And this is fine until the volume of CFDI jumps 1000%. Make sure you understand the implications on your Accounts Payable organization or you may face criminal prosecution for tax evasion.  
2. Your Accounting system will not be a one to one plug in to the government XML standard. This is the most overlooked issue in Mexico and can cause project delays of months.  Ensure your solution understand how to manage your SAP master data or you will have nightmares as you try to get your data into the system.
3. Your customers will have impact on the solution design.  The Mexico CFDI process is capable of customer specific customization in the XML, known as an Addenda, and in the PDF layout.  Make sure your provider is not telling you to give you one file format or that there is a standard PDF format. If you overlook this issue - your customers will probably not pay you.
4. Project implementation in English and Spanish -- this is a business process change that affects AR, AP and Logistics -- it will require SAP configuration changes, so you global team better be able to communicate clearly to define requirements and objectives.

In the coming weeks, we will explore each of these points in more detail, but contact the global providers and start planning today.