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What is e-invoicing?

What is e-invoicing?

We are reaching a new frontier for invoicing, as governments and tax agencies progress through digital transformation. Electronic invoicing is here, and rules are spreading across the globe. Learn everything you need to know about e-invoicing: the benefits, requirements, formats, implementation tips, and more for your online business.

What is e-invoicing?

E-invoicing, short for electronic invoicing, is the process of sending and receiving invoices in a specific and legally mandated digital format. Instead of dealing with paper invoices or PDFs that need to be printed, e-invoicing involves creating invoices in a structured digital format that can be automatically processed by the recipient's system.

This modern approach streamlines invoicing, reduces errors, and speeds up payment cycles, making life easier for both businesses and their customers. It also makes life easier for governments, who can trace and analyze invoicing data in one centralized place to ensure all transactions and tax compliance are above board.

Are e-invoices and digital invoices the same thing?

While they might sound similar, e-invoices and digital invoices aren't quite the same. A digital invoice is simply any invoice that's created and sent electronically, such as a PDF or an email. An e-invoice, on the other hand, is a specific type of digital invoice that's created in a structured format like XML or JSON, allowing for automatic processing by software systems. Electronic invoices take digital invoicing to the next level by enabling seamless data exchange and integration with accounting systems.

How does e-invoicing work?

Invoicing is a key part of the procure-to-pay (P2P) cycle. It kicks off once you've received a purchase order, and the invoice might be sent later, depending on when the goods or services are delivered. The purchase order is crucial because it lays out the terms of the deal, including cost, delivery, and payment method. This clarity is what keeps the transaction on track.

After delivering the product or providing the service, you can raise and send an e-invoice digitally. Most invoices are set with a net 30 payment term, giving customers 30 days to pay, though this can vary based on your agreement with your trading partners.

With an electronic invoicing system, everything from issuing and transmitting to receiving, processing, and storing invoices is done electronically using structured formats. This makes the whole process smoother and more efficient.

That said, there are some specific ways electronic invoices can function, depending on the type of transaction:

  • Customer invoicing (outgoing)
  • Supplier invoicing (incoming)
  • B2G (Business to Government)
  • B2B (Business to Business)
  • B2C (Business to Consumer)

Customer invoicing (outgoing)

When you send an e-invoice to a customer, your invoicing software creates an invoice in a structured digital format. This invoice is then sent to the customer’s invoicing system, which can automatically process the information, verify it, and schedule payment. This eliminates the need for manual data entry, reducing errors and speeding up the invoicing process.

Supplier invoicing (incoming)

Receiving e-invoices from your suppliers works in a similar way. The supplier sends an e-invoice to your system, which automatically captures and processes the invoice details. This streamlines your accounts payable process, ensures accuracy, and helps you keep track of your expenses more efficiently.

B2G (Business to Government)

In B2G transactions, businesses send e-invoices to government agencies. Many governments require electronic invoicing for public procurement to enhance transparency and efficiency.

B2B (Business to Business)

B2B e-invoicing involves transactions between businesses. This is the most common scenario and helps businesses manage their finances more effectively by automating invoicing and payment processes.

B2C (Business to Consumer)

While less common for now, B2C involves businesses sending electronic invoices directly to consumers. This can simplify payment processes for both businesses and customers, especially for subscription-based services or regular billing.

Where is e-invoicing mandatory?

Electronic invoicing is mandatory in many countries around the world, and dozens of others are working to finalize their e-invoicing legislation to make it mandatory in the next few years.

Some places are far ahead, such as Mexico which introduced e-invoicing in 2011 and Turkey in 2014! Countries like Spain, Portugal, and France are rolling out comprehensive e-invoicing mandates for B2G and/or B2B transactions.

These rules are usually implemented on a national level. In the case of the European Union, the EU’s VAT in the Digital Age (ViDA) plan wants to see e-invoicing and digital reporting spread across Europe, but each member state is allowed to craft its own specific policies. The EU has also set regulations requiring e-invoicing for cross-border public procurement.

Check your local regulations to see if electronic invoicing is required for your business already or if there is a timeline in place for new regulations.

What are e-invoicing requirements?

The specific requirements for electronic invoices vary by country and industry, but generally include:

  • Use a standardized format for e-invoices (e.g., XML, JSON)
  • Ensure the authenticity and integrity of the invoice
  • Include specific data fields such as tax details, payment terms, and unique invoice identifiers
  • Comply with local tax authority regulations for e-invoice submission and archiving
  • Digitally report the status of e-invoices. (More on this below!)

What are some common e-invoicing formats and standards?

JSON (JavaScript Object Notation)

JSON is a lightweight data-interchange format that's easy for humans to read and write and easy for machines to parse and generate. It's commonly used in web applications and is gaining popularity in e-invoicing for its simplicity and flexibility.

XML (eXtensible Markup Language)

XML is a widely-used format that defines rules for encoding documents in a format that is both human-readable and machine-readable. It's a standard in e-invoicing due to its ability to structure complex data efficiently.

Peppol BIS

Peppol BIS (Business Interoperability Specifications) is a set of standards designed to facilitate cross-border electronic procurement in Europe. It ensures that e-invoices are compatible with different systems and comply with EU regulations.

EDIFACT (Electronic Data Interchange for Administration, Commerce, and Transport)

EDIFACT is an international standard for electronic data interchange, developed by the United Nations. It's used for exchanging a wide range of business documents, including invoices, and is particularly common in industries with high transaction volumes.

Electronic invoicing and digital reporting go hand in hand. E-invoicing provides a reliable and structured way to capture transaction data, which can then be easily reported to tax authorities. Many countries with e-invoicing mandates also require businesses to submit regular digital reports of their transactions.

In some places, such as the European Union, digital reporting requirements are rolling out already, ahead of e-invoicing policies! Read on about how EU digital reporting requirements have become widespread and how your business can comply.

What are the benefits of switching to e-invoicing for businesses?

The benefits of switching to e-invoicing reach almost every aspect of your business operations, including:

  • Ensure legal compliance
  • Time savings
  • Accuracy and efficiency
  • Real-time invoice delivery and processing
  • Improved cash flow management
  • High-quality data
  • Makes digital reporting a breeze
  • Environmentally friendly

Switching to e-invoicing helps businesses comply with local and international invoicing regulations, avoiding penalties and ensuring smooth operations.

Time savings

Automating invoicing processes saves time by eliminating manual data entry and reducing administrative tasks.

Accuracy and efficiency

E-invoicing reduces errors associated with manual processing, ensuring that invoices are accurate and processed quickly.

Real-time delivery and processing

E-invoices are delivered and processed in real-time, speeding up the payment cycle and improving cash flow.

Improved cash flow management

With faster invoice processing and payments, businesses can better manage their cash flow and maintain healthier financial stability.

High-quality data

Structured e-invoices provide high-quality data that's easy to analyze, helping businesses make informed decisions.

Makes digital reporting a breeze

E-invoicing simplifies digital reporting by ensuring that all transaction data is accurate and readily available for submission to tax authorities. It’s simply a matter of making the transfer.

Environmentally friendly

By reducing paper usage, electronic invoicing contributes to environmental sustainability.

How to implement e-invoicing in your business

Implementing e-invoicing will look different for different businesses, depending on your size, the locations where you operate, and other factors. But across the board, e-invoice implementation involves a few key steps:

  1. Choose e-invoicing software that suits your business needs and cooperates with the national electronic invoicing system where you are located.
  2. Integrate the software with your existing accounting or ERP systems.
  3. Train your staff on how to use the new system.
  4. Notify your customers and suppliers about the switch to e-invoicing.
  5. Start generating and sending e-invoices, and monitor the process to ensure everything runs smoothly.

What to look for in e-invoicing software

If you’re looking for the right e-invoicing software for your business, be sure to consider the following features and functions:

  • Integration with existing systems
  • Covers both outgoing and incoming invoices
  • Supports multiple invoice formats
  • Network reach
  • Archiving service
  • Ensure long-term legal compliance
  • Additional tax compliance
  • Technical support

Integration with existing systems

Ensure the software can seamlessly integrate with your current accounting, ERP, and other business systems. In fact, see if the tool offers an e-invoice API that you could connect to your business!

Covers both outgoing and incoming invoices

Choose software that can handle both the sending and receiving of e-invoices to streamline your entire invoicing process.

Supports multiple invoice formats

Opt for software that supports various e-invoicing formats like XML, JSON, and EDIFACT to ensure compatibility with different systems. This is especially important if you are obligated to send e-invoices in multiple countries that each use a different format.

Network reach

Select a solution with a broad network reach to connect easily with your trading partners, regardless of their electronic invoicing systems.

Archiving service

Look for software that offers secure archiving of e-invoices to meet legal storage requirements and ensure easy retrieval of records.

Choose an e-invoice solution that stays up-to-date with evolving regulations to ensure ongoing compliance. The software should be dynamic and updated according to policies.

Additional tax compliance

Opt for e-invoicing software that helps with tax compliance by automatically calculating taxes and generating necessary tax reports.

Technical support

Ensure that the software provider offers reliable customer support to assist with any issues or questions you may have. No one expects you to be a tech expert!

Switching to e-invoicing might seem like a big step, but with the right information and e-invoice solution, you can make the transition smooth and beneficial for your business. Happy invoicing!

Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the tax authorities.