Cross-border payments: The value of the LEI for Indian businesses

24 august 2023

In today’s globalised economy, harmonisation of cross-border trust services is critical as the volume of trade across digital platforms continues to increase. For the Indian market, in particular, the Legal Entity Identifier (LEI) offers an essential solution to improve the efficiency and security of international transactions. In this article, we look at the role of the LEI in invoice matching and how it can strengthen interoperability and trust between trading partners.

The importance of invoice matching

Invoice reconciliation is the process of matching invoices received from suppliers with records in the organisation’s accounting systems to ensure that all invoices have been received and processed correctly. This helps to avoid overpayments or underpayments and to recognise discrepancies at an early stage. Automated invoice reconciliation also saves time and resources that can be better utilised elsewhere.

The LEI and its role in invoice reconciliation

The LEI enables a unique identification of legal entities involved in transactions. By linking to important reference information publicly available via the Global LEI Index, the LEI provides a reliable basis for invoice reconciliation. For cross-border payments, in particular, the LEI makes it easier to verify the identity of counterparties and thus helps to build trust.

A pilot project to improve e-invoice reconciliation

A proof-of-concept (POC) pilot project between Japanese and European partners shows how the LEI can be integrated into electronic seals (seals) to improve the authenticity and interoperability of e-invoices. In this project, the LEI is embedded in the eSeal and used to seal invoices digitally. This enables simultaneous confirmation of the document’s authenticity and the sending organisation.

Advantages for the Indian market

The integration of the LEI into cross-border payment flows offers numerous specific advantages for Indian companies:

1. increasing transparency and building trust:

Trusted business partners: by uniquely identifying business partners through LEI, Indian businesses can ensure they deal with legitimate and verified companies.

Improved market position: Indian companies using LEIs can increase their transparency with international partners, strengthening their credibility and market position.

2. increased efficiency and cost reduction:

Automated invoice reconciliation: the use of LEIs facilitates automation of the invoice reconciliation process, saving time and resources.

Reduced error rate: Automated processes reduce the likelihood of human error, resulting in more accurate and faster reconciliations.

3. promotion of innovation and competitiveness:

Access to global markets: Standardisation and interoperability of data will enable Indian companies to access international markets more efficiently and expand their export business.

Strengthening SMEs: Small and medium-sized enterprises (SMEs) in India benefit, in particular, from increased efficiency and lower costs, which make them more competitive.

4. improved risk management and compliance:

Ensuring compliance with regulations: The use of LEI facilitates compliance with international and local regulations, as the identity and ownership structure of business partners are transparent and traceable.

Reduction of fraudulent activities: Unique identification of business partners helps reduce fraud and other criminal activities, increasing market confidence.

5. promotion of sustainable investments:

Sustainable business decisions: The availability of accurate and transparent data enables Indian companies to make more informed and sustainable business decisions.

Supporting ESG initiatives: The LEI provides accurate information on corporate structure to support Indian companies’ environmental, social, and governance (ESG) reporting.

The future of the LEI in cross-border payments

The benefits of the LEI go beyond invoice reconciliation. The Financial Stability Board (FSB) and other international organisations are promoting the standardisation of payment messaging, including integrating the LEI into ISO 20022 messaging. This would significantly increase the LEI’s usefulness and extend its application to other areas of cross-border payments.

Conclusion

The Legal Entity Identifier (LEI) offers a valuable solution to improve invoice reconciliation and promote transparency and trust in cross-border payments. For the Indian market, the LEI provides significant benefits by increasing efficiency, reducing costs and enhancing interoperability. By continuously promoting and integrating the LEI, Indian companies can strengthen their competitiveness in the global market and make sustainable business decisions.