E-invoicing is the "not-so-new" hot topic in the world of corporate payments. Many times in the past, new methods of digitalization have appeared in the industry. And while some have enabled higher levels of automation and convenience, to date, e-invoicing has failed to achieve the widespread adoption and benefits once promised. However, new regulations mandating the implementation of e-invoicing are set to have a significant impact on the adoption of these technologies for most businesses, particularly in Europe. The e-invoicing era is here and according to the European Commission, it will lead to significant economic benefits and increases in business competitiveness.
E-invoicing is becoming the norm and a requirement in many countries. While it covers a multitude of variants and is a constantly evolving subject, this guide will outline what you need to know for your business when it comes to e-invoicing.
What is e-invoicing?
Before we dive deeper into e-invoicing as a whole, let’s define what an e-invoice is. Just like a regular invoice, it’s a commercial document containing transaction data. The information included on an e-invoice varies from country to country, but generally must contain the following:
- The date of issuance
- Names and addresses of both parties
- VAT registration and information
- Services rendered
- The amount charged
An e-invoice is different from a regular invoice in both its format and the way it’s processed – an e-invoice is issued, transmitted, and received electronically, and comes in a structured data format.
Simply put, e-invoicing is the digital exchange of invoices between two parties – a supplier and a buyer. More specifically, it’s a form of billing that is presented to the buyer in an electronic format via a predefined data structure. An e-invoice should contain data from the supplier in a machine-readable format, that can be automatically imported into the buyer's Accounts Payable (AP) system without requiring manual data entry.
While there are many accepted e-invoice formats, not all digital invoices are e-invoices. Let’s quickly touch on what e-invoicing is not:
- Unstructured invoice data in PDF or Microsoft Word formats
- Images of invoices in JPG or PNG formats
- Unstructured HTML invoices on a web page or in an email
- Scanned paper invoices
PDF invoices, typically sent by email, are not e-invoices. Standard PDF invoices are not sent in a structured format and therefore cannot be processed automatically through a company’s system. Paper invoices, even if they are converted from or to a digital format, are also not e-invoices because they were not issued electronically.
What file structures are used for e-invoicing?
The earliest systems date back over 40 years and were largely built using EDI (Electronic Data Interchange). While EDI is an older standard, it is still widely used in some industries because it is highly secure and reliable.
However, since EDI requires specific formatting and a dedicated network, it does not offer the same flexibility as XML (Extensible Markup Language). XML is a widely used format for electronic invoicing. It's a flexible and open standard that can be customized to suit different business needs. XML invoices contain structured data, making them machine-readable and easy to process, regardless of the system in use.
What standards are used for e-invoicing?
E-invoicing standards are a set of specifications that define various invoice types, formats, and syntax. Their primary objective is to facilitate the seamless exchange and automated processing of invoices and other business documents between organizations and systems. Numerous e-invoicing standards are available, and here are some of the most widely used ones:
PEPPOL (Pan-European Public Procurement On-Line) is a standardized electronic document exchange network that enables businesses to exchange documents electronically with their trading partners across Europe. It was initially developed to support e-procurement in the public sector, but it has since been adopted by businesses across various industries.
UBL (Universal Business Language): UBL is an XML-based standard for electronic invoicing that's gaining popularity in some industries. UBL invoices are highly structured and can be customized to meet different business needs. UBL invoices can be used for both domestic and international invoicing. The Federal Reserve announced a pilot project for e-invoicing in the United States in early 2023, with the goal of developing a solution similar to PEPPOL. More than 80 organizations are currently taking part in the pilot.
American National Standards Institute (ANSI) X12 is a set of standards developed by the ANSI Accredited Standards Committee (ASC) X12 for electronic data interchange (EDI) in the United States. The X12 standards define a set of standardized formats and protocols for the exchange of various types of electronic documents, such as invoices, purchase orders, and shipment notices, between different organizations. The standards cover a wide range of industries, including healthcare, finance, transportation, and retail.
EDIFACT (Electronic Data Interchange for Administration, Commerce, and Transport) is an international standard for electronic data interchange (EDI) developed by the United Nations Economic Commission for Europe (UNECE). The EDIFACT standard defines a set of standardized formats and protocols for the exchange of various types of electronic documents, such as invoices, purchase orders, and shipment notices, between different organizations. The standard covers a wide range of industries, including healthcare, finance, transportation, and retail.
Remember, e-invoicing is not just an electronic duplicate of a paper invoice. The use of e-invoicing requires these two key functions: the e-invoice needs to be created with the correct structure, and the e-invoice needs to be transferred from the seller’s system to the buyer’s system to support a transaction without human interaction.
Where is e-invoicing being mandated?
Many countries globally are implementing mandatory e-invoicing or digital reporting requirements. The requirements vary between countries, with different standards, formats, data fields, and processes relating to how the invoice and its data are shared with tax authorities and received by customers.
In 2017, a European standard was introduced for sending, paying and processing digital invoices. This standard aimed to simplify the sending and receiving of invoices within Europe so payments could take place faster and easier. Italy was the first country in the European Union to mandate e-invoicing for B2B transactions in 2019. However, the majority of EU countries are now moving forward with implementing mandatory e-invoicing, either for B2G or for B2B supplies, with some launching pilot programs and others bringing in new legislation to fully implement e-invoicing by 2024.
With the EU implementing mandatory e-invoicing, businesses will no longer be allowed to manually handle invoices. Software providers are quickly adjusting – ensuring that in the future, systems will easily enable buyers and sellers to transact even if they are using different software applications because the international standard allows these systems to ‘speak’ to each other.
The EU mandate follows the significant adoption of e-invoicing in South America over the past two decades. Brazil introduced mandatory e-invoicing systems in 2006 and requires companies to use electronic invoices for all B2B transactions. Chile implemented mandatory e-invoicing in 2014 and Peru followed suit in 2018 – both requiring companies to use the government's standardized electronic invoice system.
Whether you are a business owner, public service employee, accountant, or programmer, electronic invoicing concerns you. E-invoicing solutions help replace manual tasks with automated business rules and actions to increase efficiency, minimize error handling, and help businesses comply with e-invoicing legislation in their respective countries.
What kinds of invoices are sent via e-invoicing?
E-invoices can be used for various types of invoices, including but not limited to:
- Standard invoices: These are the most common type of e-invoice that businesses use to request payment from their customers.
- Credit notes: E-invoicing can also be used for credit notes, which are issued when a refund or adjustment is required for a previously issued invoice.
- Debit notes: Debit notes are issued when additional charges need to be applied to an existing invoice. E-invoicing can also be used for these types of invoices.
- Proforma invoices: Proforma invoices are preliminary invoices that are issued before the actual goods or services are delivered. E-invoicing can be used to issue proforma invoices as well.
- Electronic billing statements: Some businesses use e-invoicing to send electronic billing statements to their customers on a periodic basis, summarizing all the invoices and payments made during a specific time period.
Overall, e-invoicing can be used for various types of invoices, making the invoicing process more efficient and streamlined.
What are the benefits of e-invoicing?
1. Process automation
Traditional invoicing, like any paper-based process, is manually intensive and is prone to human error, resulting in increased costs and longer processing lifecycles for companies. Process automation gives companies a competitive edge. Because ERP systems deliver e-invoices automatically, employees don’t have to spend time manually entering data. By removing the mundane, time-consuming tasks of document handling and distribution employees can devote more time to higher-value tasks. In addition, the risk of human error is drastically reduced.
2. Cost savings
What business doesn’t love saving money? With paper invoices, you pay for printing and mailing each invoice. You also need to pay staff to enter data into your accounting system manually. Apart from reducing paper and shipping costs, some of the most significant cost savings from e-invoicing actually come from increasing efficiency and reducing the risk of human error – AR and AP teams focus on more value-generating tasks by removing the need for manual data entry and filing. This improved efficiency also means that you can increase invoice volumes without having to increase staff. Savings on these resources ultimately add to your bottom line.
3. Shorter invoice cycle time
E-invoicing has shorter invoice reception and payment times – resulting in improved cash flow. Shorter cycle times refer to reducing the number of days between when an invoice is issued and when it’s paid. When businesses make it easy for their customers to pay via e-invoicing, they get paid faster. For the seller, faster payments increase cash flow, while the buyer benefits from reduced late payment fees and the ability to get potential early payment discounts.
E-invoicing can significantly speed up B2B payments compared to traditional paper-based invoicing. The exact amount of time saved can vary depending on several factors, such as the size of the company and the complexity of the payment process. However, research has shown that e-invoicing can reduce payment times by up to 60%.
4. Data availability and quality
E-invoices require secure storage mechanisms, and the original signed documents are securely stored for the period established by relevant legislation. This diminishes storage costs and allows users to access past invoices online. Invoice data can also be transferred without loss of information or the risk of clerical errors, meaning you can increase the availability and accuracy of data in your systems. As a buyer, you reduce the risk of paying faulty invoices or entering the wrong details. As a supplier, you increase the invoice acceptance rate from the customer and reduce the time it takes to get paid.
5. Better security
E-invoices are sent through private networks or protocols and the origin and authenticity of e-invoices are guaranteed with electronic signature systems. Tightening up digital security is increasingly essential for all businesses, especially for those who handle personal or sensitive data. With the right service provider, e-invoices are encrypted throughout the entire distribution process, which is a safe move for your company along with your customers and suppliers.
6. Assists with ESG goals
Another beneficial aspect of e-invoicing is a smaller impact on the environment. It lessens the environmental impact of the invoicing process by doing away with paper, ink, envelopes, and emissions during transportation. Many companies are trying to reduce their environmental footprint as part of their ESG (environmental, social and governance) goals. Implementing an e-invoicing policy can help companies with certain ESG goals by reducing paper and the environmental footprint in transport and shipping.
7. Discounts from the supplier
Suppliers often provide discounts for prompt payments and may apply penalties for delayed payments. E-invoicing can simplify the payment process for customers, allowing them to promptly settle their invoices and take advantage of early-payment incentives offered by suppliers.
What are the difficulties presented by e-invoicing?
While e-invoicing has many benefits, there are also some challenges that businesses may face when implementing this technology. Some of the main challenges of e-invoicing include:
- Technical compatibility: E-invoicing requires businesses to have compatible systems and software to exchange invoices electronically. Ensuring technical compatibility can be a challenge, especially for small businesses that may not have the resources to invest in new technology.
- Standardization: There are various e-invoicing standards and formats used around the world, which can make it difficult for businesses to exchange invoices with international partners.
- Security and fraud: E-invoicing requires the exchange of sensitive financial information, which can be vulnerable to cyber-attacks and fraud. Businesses need to ensure that they have robust security measures in place to protect their financial data.
- Resistance to change: Some businesses may be resistant to adopting e-invoicing due to the perceived complexities and costs associated with implementing new technology.
- Legal compliance: E-invoicing regulations and standards vary by country, which can make it challenging for businesses operating in multiple jurisdictions to ensure compliance with all the relevant laws and regulations.
So, while e-invoicing offers many benefits, businesses need to carefully consider these challenges and take steps to address them when implementing this technology.
How to get started with e-invoicing.
Decision makers need to start looking into e-invoicing today – as it provides many internal benefits in the form of a streamlined process. As e-invoicing mandates are enforced in Europe and e-invoicing is implemented in more countries around the globe, businesses will be forced to adopt e-invoicing in order to remain competitive and to access these markets. It’s highly likely that in less than a decade, e-invoicing will become a standard solution. Here is what you should keep in when getting started:
Ensure a smooth transition and avoid common pitfalls by taking the time to understand the available options, learning best practices, and evaluating proper e-invoicing service providers. With many vendors providing new e-invoicing options, it is important to work with a vendor that understands the end-to-end process of connecting to your existing systems, generating properly formatted E-invoices and delivering them effectively.
2. Keep your customers in mind
By understanding what your customers need and want, you can tailor your e-invoicing solution to meet their specific requirements. You will strengthen or maintain customer satisfaction and you can also develop a better pricing strategy that meets their budget when you understand their needs.
3. Make sure you’re compliant
Depending on your country of operation, there may be different legal requirements for e-invoicing. Sending electronic invoices in line with regulatory requirements will help you get paid more quickly. With the right service provider, e-invoicing gives you a competitive edge and makes fulfilling taxation requirements more straightforward.
Say goodbye to paper invoices.
The world is moving towards e-invoicing. Less paper pushing and less human touch mean more visibility, more compliance, and more savings across businesses everywhere. If you’re ready to make a switch to a more digitalized future, now is the time to look into teaming up with a quality service provider. E-invoicing is quickly becoming the new business standard, so don’t wait too long to get on board.
If you need help getting started or the best recommendations for your business, get in touch with us here! We at Quadient are always willing and excited to help new businesses get on their feet. And with e-invoicing, we can ensure your process is as efficient as possible from day one.