E-Invoicing and Your Business - What You Need to Know

In today's fast-paced business environment, efficiency and streamlining operations are key to success. One area where significant improvements can be made is in the invoicing process. Traditional paper-based invoicing can be cumbersome, time-consuming, and prone to errors, and that’s where electronic invoicing, or e-invoicing, comes in.

What is e-invoicing?

E-invoicing refers to the process of issuing, transmitting, and storing invoices in a purely electronic format. This digital version of traditional paper invoices encompasses not only the electronic delivery of the invoice but also its creation, processing, and integration into the accounting systems of both the sender and the receiver.

An e-invoice typically contains the same information as a traditional invoice, such as supplier details, customer details, date, invoice number, description of goods or services, amounts, VAT, and total due. However, it’s structured in a standardized electronic format that allows it to be easily processed by different accounting systems.

What does and doesn’t qualify as an e-invoice?

An e-invoice is a billing document sent and received in a structured digital format (such as XML), allowing for automatic and electronic processing. Anything that does not meet these criteria is not considered an electronic invoice. 

The following would not qualify as e-invoices:

Scanned copies of paper invoices: Even if a paper invoice is scanned and sent via email, it's still not an electronic invoice, as it's not in a structured format for automatic processing.

PDFs not suitable for automated processing: While they are digital, if they don't allow data to be automatically extracted and processed, they aren’t electronic invoices.

Email text: Invoices that are simply written as part of an email body without a structured, electronic format.

Photo images of invoices: Pictures taken of a paper invoice and sent digitally.

Word documents: Invoices created in word processing software and sent as document files, unless they're structured for automated processing.

Unstructured data files: Any digital file that contains invoice data but not in a structured format that allows for automated electronic processing.

The key aspect of an electronic invoice is its ability to be integrated into automated accounting systems, allowing for electronic data interchange without the need for manual entry.

Some of the most common e-invoicing formats include:

XML: Extensible Markup Language is a flexible, structured data format. XML is machine-readable and can be designed to fit various invoicing standards. It's commonly used in B2B transactions.

‍EDI (Electronic Data Interchange): EDI is a standard for exchanging data via any electronic means. It's a structured data format, used particularly in larger organizations and for complex supply chains.

Peppol BIS (Business Interoperability Specifications): Peppol BIS is a set of specifications developed by the Pan-European Public Procurement Online (PEPPOL) project. It's designed to standardize electronic transactions within the public procurement process, and its invoice specifications are widely used in Europe and other regions.

UBL (Universal Business Language): UBL is based on XML and is designed to be an open library of standard electronic XML business documents. It's increasingly used for government and international transactions.

cXML (Commerce XML): This is a standard specifically developed for the internet-based electronic commerce community. It's designed to streamline the process of electronic catalog updates and purchasing transactions.

JSON (JavaScript Object Notation): Although less common for e-invoicing, JSON is a lightweight data-interchange format that is easy for humans to read and write, and easy for machines to parse and generate.

Benefits of electronic invoicing

Electronic invoicing offers several key benefits for businesses:

Cost reduction: E-invoicing eliminates the need for paper-based processes, thereby reducing costs associated with paper, printing, postage, and storage. It also minimizes manual data entry and processing errors, further reducing operational costs.

Improved efficiency: Electronic invoices are processed and delivered instantly, speeding up the billing process. This leads to faster payment cycles and improved cash flow. Automation of invoicing processes reduces manual tasks, allowing staff to focus on more strategic activities.

Enhanced accuracy: E-invoicing reduces the likelihood of errors common in manual data entry. The use of standardized templates and automated systems ensures consistency and accuracy in billing.

Better tracking and management: Electronic invoices can be easily tracked and managed. Businesses can monitor the status of invoices in real-time, quickly identifying and addressing any issues or delays. This improves overall financial management and forecasting.

Environmental benefits: By reducing the need for paper, e-invoicing is more environmentally friendly. It contributes to a company’s sustainability efforts by lowering its carbon footprint.

Compliance and security: E-invoicing systems often come with enhanced security features and comply with legal and tax requirements across different jurisdictions. They can automatically update to accommodate changes in tax laws or business regulations, ensuring ongoing compliance.

Improved supplier and customer relationships: The efficiency and accuracy of e-invoicing can lead to better relationships with suppliers and customers. Clear, timely, and accurate billing processes increase trust and reduce disputes.

Data analysis and reporting: E-invoicing systems can provide valuable insights into financial transactions. They enable detailed data analysis, helping businesses to identify trends, manage expenditures, and make informed decisions.

Global reach: E-invoicing facilitates easier transactions across borders, dealing with different currencies and tax systems, thus supporting international trade.

Integration with other systems: E-invoicing can be integrated with other business systems such as accounting software and supply chain management systems, providing a unified view of financial transactions and aiding in comprehensive business management.

How e-invoicing works

Creation and format

E-invoices are generated in a standardized format, ensuring they can be easily processed and understood across different systems and borders. Formats like XML are commonly used, but specific standards can vary between countries.

Transmission and reception

Once an e-invoice is created, it’s transmitted electronically, often through a secure e-invoicing network or platform. The recipient's accounting system receives the invoice, where it is automatically processed and integrated.

Storage and compliance

E-invoices must be stored securely, maintaining their integrity and accessibility for legal and auditing purposes. The EU mandates specific storage durations and conditions to ensure compliance and facilitate VAT inspections.

E-invoicing in the EU

The European Union has long encouraged digitalization in financial transactions, seeing e-invoicing as a crucial component. This push towards e-invoicing is part of a broader effort to streamline and standardize financial processes across member states, enhancing efficiency, reducing fraud, and promoting a digital single market.

E-invoicing requirements in the EU began with Directive 2014/55/EU, which mandates the adoption of e-invoicing for public procurement contracts. This directive has aimed to standardize e-invoices across EU member states, ensuring cross-border compatibility and interoperability.

Since the adoption of the directive, EU member states have been integrating e-invoicing into their national systems, with varying degrees of implementation and additional mandates. Some countries have moved beyond public procurement and require e-invoicing for all business transactions, while others are still in the transition phase. France, for example, will begin implementing mandatory B2B e-invoicing from July 2024. 

Help with electronic invoicing

With the requirement to issue/receive electronic invoices now becoming commonplace, businesses must have a good understanding of e-invoicing and how it works. Businesses need to be able to keep up with the changing e-invoice regulations, as well as technology.

Our new e-invoicing software, SyncTax, has been designed to seamlessly integrate with your accounting system, effortlessly capturing invoice details and ensuring compliance with VAT regulations. The software not only converts and submits each invoice to the relevant authority, but also ensures your adherence to electronic archiving regulations.

To find out about our e-invoicing solution and SyncTax products, drop us an email at mycompliance@taxually.com.