Compliance

External compliance

External compliance refers to complying with external laws, rules and regulations imposed by governments, regulators or industry associations. These can vary depending on the country or industry in which the company operates.

For example, every company in the Netherlands must comply with the Occupational Health and Safety Act and the General Data Protection Regulation (AVG). If they do not, the Dutch Labor Inspectorate and the Personal Data Authority, respectively, can impose sanctions, such as a fine. 

Internal compliance

Internal compliance refers to adherence to internal policies and procedures that a company has established for itself. These guidelines often focus on maintaining business ethics, managing operational risks and ensuring the quality of products or services. 

For example, companies can dictate to themselves that incoming invoices are always paid within x number of days, as it was found that delayed payments to suppliers negatively affect their relationships with key partners and cause inefficiencies in their financial processes. By establishing and adhering to internal rules about timely payment of invoices, a company improves its operational efficiency, financial health and business relationships.

It highlights how important it is for companies not only to comply with external regulations, but also to develop internal standards and procedures that contribute to their overall success and integrity.

Different forms of compliance

In addition to external and internal compliance, other different forms of compliance can be distinguished. This diversity in forms of compliance stems from the different types of risks and requirements that organizations face. Some forms of compliance apply to (virtually) all companies and organizations, while some depend on industry, geographic location, and the specific operational aspects of a company or organization.

Examples of compliance forms: 

• IT compliance: Includes compliance with laws and regulations related to information and cybersecurity.

  • Handy to know: 4Exchange is committed to security and is ISO9001, ISO27001 and ISO 27017 certified. 

• Labor law compliance: Relating to compliance with labor laws and standards.

• Financial compliance: Are you compliant with local and international financial regulations and laws now and in the future, e.g. billing? 

  • A huge amount is changing in this area, thanks in part to the arrival of the VAT in the Digital Age (ViDA) bill. Wondering what this means for compliance? Read our free white paper 'Compliance and VAT in the Digital Age'.. 

Risks of non-compliance

Noncompliance occurs when a company or organization fails to comply with legal regulations, industry standards, or internal policies and procedures.

Non-compliant behavior can range from ignoring financial regulations and labor laws to violating environmental regulations or codes of ethics. There are several reasons for noncompliant behavior. For example, due to lack of awareness or because compliant procedures are too complex for employees to follow. Non-compliant behavior can occur knowingly or unknowingly, but often leads to significant risks and consequences for the organization. For example:

Legal sanctions and fines

One of the most immediate risks of noncompliance is the possibility of legal action, including fines, penalties and even criminal prosecution.

Reputation damage

Non-compliance can lead to serious reputational damage for a company. When a company breaks the law or ignores ethical standards, it can lead to negative publicity and the loss of trust from customers, investors, and the public. This risk often arises from incidents such as data breaches, environmental scandals, or ethical violations.

Operational disruptions

Another major risk of non-compliance is business disruption. Such disruptions can lead to loss of revenue, increased costs and damage to customer relationships. 

For example, if an e-invoice does not conform to the appropriate standard, or in the case of Continuous Transaction Controls to government rules, then the result may be that invoice is not paid by the receiving party. 

The importance of compliance

Thus, compliance helps organizations avoid legal, operational or reputational problems that can result from violating laws and regulations. But the importance of compliance goes beyond that. In fact, compliance plays a crucial role in ensuring a company's integrity and success.

Increase customer loyalty

A well-managed compliance program promotes an ethical corporate culture and contributes to customer, investor and public trust. Therefore, this also gives compliance strategic value.

Not for nothing do experts at Deloitte, for example, advise basing the compliance strategy on the company's norms and values. Moreover, they see that when ethics are fully woven into a company's DNA, it has a positive effect on customer loyalty and respect for the brand.

Encouraging innovation

In addition, compliance enables companies to effectively manage risk and anticipate changes in the regulatory landscape. In this way, compliance can drive innovation by encouraging companies to find new solutions to meet regulatory requirements.

An example is when companies need to meet a certain payment deadline and therefore want to optimize their invoice processing process, ultimately choosing to switch to e-billing. 

 

Compliance challenges

So it is very important for a company or organization to be compliant, but that is sometimes easier said than done. In fact, there are quite a few challenges in this area. 

Changing laws and regulations

One of the biggest challenges is keeping up with constantly changing, often more complex regulations. Especially for international companies, complying with laws and standards that vary by country or region can be particularly challenging.

A current example of this is how countries are handling VAT audits. More and more countries are moving from a Post-Audit Model to a Clearance Model. In these countries, e-billing is becoming mandatory and there are Continuous Transactions Controls; every invoice with a VAT component must first pass the government for approval before it can be sent to the customer. However, the exact details of this, including technical requirements for e-invoices, vary from country to country. This makes it very complex for companies operating internationally to remain compliant. 

In the coming years, this will only become more complex, thanks in part to the European Commission's legislative proposal VAT in the Digital Age (ViDA). This states that every European country will soon have to introduce a form of Continuous Transaction Controls, but a clear, unambiguous standard is (still) missing from the plans. 

Technological changes and cybersecurity

With rapid technological advances come new data security and privacy risks. Companies must constantly adapt their compliance strategies to digital realities, with a particular focus on protecting personal data and securing IT systems.

Cost of compliance

Compliance can be expensive, especially for smaller companies. The cost of developing, implementing and maintaining effective compliance programs, as well as training staff, can be significant. Especially when a company wants to do it all itself. Therefore, it can pay to outsource (part of) compliance to an outside expert. For example, 4Exchange can completely relieve you of any worries regarding compliant e-invoices and other electronic document exchange. 

Engaging employees in compliance

Creating a corporate culture in which compliance is seen as an integral part is a major challenge. Employees at all levels must understand why compliance is important and how they can contribute to compliance with relevant laws and regulations.

In addition, effectively communicating compliance requirements and training staff, especially in large or decentralized organizations, can be challenging.

Improve compliance

Compliance is primarily a matter of behavior. Therefore, if you want to improve compliance, it means that you will have to influence the behavior of your colleagues. A successful compliance strategy therefore focuses on creating an environment where everyone can say and do the right thing.

Look for intrinsic motivation

Compliance is still regularly seen as an end in itself, creating a check-off culture. In this way, compliance becomes an obligation and takes the form of all kinds of "thou shalt not" or "it must be so" rules. Not exactly attractive for employees to follow, let alone go the extra mile.

Look for intrinsic motivation to actually do better. Do you only want to comply with all the rules or do you really want to be a reliable partner for your customers? Do you only want to meet the minimum requirements or do you really want to make a difference? How can compliance not only align with your organization's norms and values, but how can it even strengthen them?

Communicate clearly with employees

Then it is important to communicate this clearly internally and bring everyone into the story. Make compliance an integral and indispensable part of your culture, which is based on issues such as integrity, ethics and trust. Make sure that all colleagues within the company, from the CEO to the cleaner, understand why compliance is so important and what it means to them. What impact does it have on their work? What behavior is expected of them?

Explain standards, procedures and rules clearly and effectively, focusing especially on why. Because when people understand the underlying reason, they feel more involved and are less likely to break the rules.

 

Make compliance as easy as possible

Make it as easy as possible for employees to be compliant. People simply prefer to take the easy way out. If the official, established process is incredibly complicated and cumbersome, chances are that colleagues will deviate from it and find their own way to get things done faster or with less effort. Therefore, provide clear and efficient ways of working that colleagues can easily follow and are therefore naturally compliant.

Automation plays an important role in this. After all, it makes processes more effective and efficient. It prevents employees from having to perform all kinds of manual and unnecessary work, and it also reduces the chance of (human) error.

Compliance by design

In addition, automation makes it more difficult to deviate from desired procedures; after all, everything is predetermined and the processes are set up accordingly.

If it is determined in advance that supervisor X must approve a purchase order, then the automated process is (if all goes well) set up so that the purchase order cannot proceed until supervisor X has actually approved that purchase order. That while with a manual process, an employee might have disdain for that and go ahead with the purchase anyway. While, of course, that is exactly what you want to prevent.

In an automated process, compliance is already ingrained, or; there is compliance by design. An employee is automatically compliant, because there can be no deviation.