E-invoices are more than just an electronic — or digital — version of a payment request. They offer an opportunity to drive efficiency, cut down on human error, accelerate the billing cycle, and so much more. And the best part is that they’re typically easier to manage than their paper counterparts.
This article will explore this essential tool for the modern digital economy in more detail, including how it works, who’s using it, and what benefits it can have on your business.
What is electronic invoicing (e-invoicing)?
In more detail, e-invoicing refers to creating, transmitting, and managing electronic billing requests expressed in a structured, digital format — for example, XML. These virtual records are readily exchanged between sellers and buyers, with the relevant sales, shipping, and transaction data exported or imported automatically from or to each party’s corresponding enterprise resource planning (ERP) platforms.
It’s important to note that a structured e-invoice will be expressed purely as machine-readable data, while a hybrid e-invoice may be presented in a format that a human can also read.
What’s the difference between an e-invoice and a “normal” invoice?
The key difference between an e-invoice and a traditional invoice lies in its electronic nature, but an e-invoice goes beyond being just a digital document. In particular, an e-invoice must present the relevant information in a structured format (be easily searched or analyzed). As such, a scanned version of a paper invoice stored as a JPG or PDF file doesn’t qualify as an e-invoice because its data can’t be readily searched or imported into applications.
How does e-invoicing work?
In many ways, e-invoicing follows the same general procedure as traditional invoicing. But instead of printing and mailing physical documents, this approach relies on a more digital exchange, looking something like:
- A buyer purchases a good or service from a seller.
- The seller creates an e-invoice for the purchase using software, automatically pulling all of the relevant data from their back-office systems into the record.
- The seller transmits this e-invoice to the buyer via an e-invoicing service provider or an electronic data interchange (EDI).
- The buyer’s ERP system imports the relevant purchase data from the digital document.
- After verifying and authorizing the charge, the buyer transmits the corresponding payment to the seller via an established method (e.g., wire transfer or credit card transaction), with the remittance information being sent back through the same access points as the e-invoice.
What are the benefits of e-invoicing?
The transition to an e-invoicing platform involves an up-front investment, typically purchasing software like our Accounts Receivable Automation platform. However, the value offered by this transition — at least if you choose the right solution — will quickly outweigh the initial expense and net a broad range of improvements, including:
Reduced costs
Printers, paper, ink, postage — traditional invoicing efforts require several physical resources. But when you all need a finely curated sequence of 0’s and 1’s to make your payment request, you avoid regularly purchasing those items. In addition, since most of these processes are automated with software, you can further negate some of your labor costs, reinvesting those hours and employees into more productive and profitable efforts.
Accelerated processes
Given the digital nature of these payment requests, e-invoices dramatically improve communication timelines, with records being transferred almost instantly. Relevant information is automatically extracted and imported from integrated systems. There are no transcription or processing delays — the document and its data just appear without any physical effort. Automating your invoice management and validation workflows can save time, removing unnecessary process delays.
Simplified tracking
Under this model, no questions are tied to when — or whether — a bill has been sent, reviewed, or paid. That information is readily available in the system and can be quickly produced for reports, audits, or at tax time. Further, if your A/R platform can accommodate e-invoicing, it can typically support related analytics, allowing you to monitor key performance indicators (KPIs) and process timelines. With this insight, you can more easily flag and address bottlenecks or other inefficiencies.
Improved cash flow
A downstream benefit of e-invoicing is improved access to working capital. When your customers receive payment requests almost instantly, you can accelerate the entire procure-to-pay cycle. At the same time, it reduces the opportunity for manual processes to introduce errors to your billing efforts, avoiding further interruptions to your incoming cash flow.
Standardized cross-border payments
With several established standards in place, global commerce has never been easier. These clear protocols help to encourage seamless invoicing and payment acceptance across borders, reducing risks like currency conversion errors, compliance issues, and delays. At Invoiced (a Flywire company) we’ve enhanced our platform to leverage Flywire’s global payment capabilities — allowing international buyers to use localized payment methods when settling their invoices, all while seamlessly integrating into existing A/R workflows.
Streamlined invoice creation
Most products, including our Accounts Receivable Automation solution, include templates that make it easy to configure the initial layout of your invoices. You can generate new payment requests with a simple mouse click through system integration.
Enhanced scalability
Shifting to digital record-keeping reduces the labor involved in A/R processes, making it easier to scale support during seasonal sales peaks or periods of rapid growth. Instead of hiring additional staff to manage the increased workload, the software handles the burden by automating routine tasks, requiring only more processing power or data bandwidth.
Hardened security
Standardizing your invoices to a digital format exchanged via encrypted channels directly between your ERP system and your customers’ systems significantly reduces the risk of fraud. It becomes much more complicated for fraudsters to introduce false records and billing or payment discrepancies are detected almost immediately. Additionally, most platforms offer role-based access control, ensuring only authorized personnel can create or modify customer profiles, invoices, and account details.
Electronic invoicing standards to be aware of
As it stands, no universal protocol exists to manage e-invoices. However, a handful of standards have risen to prominence, of which national governments mandate some. The most popular include:
- American National Standards Institute (ANSI) X12: A standard optimized for EDI that features specialized rule subsets for targeted industries.
- Electronic Data Interchange for Administration, Commerce, and Transport (EDIFACT): A globally relevant collection of document exchange protocols developed by the United Nations.
- FatturaPA: A mandated protocol for public sector transactions in Italy.
- Peppol: A secure electronic document exchange network that is popular in Europe.
- Universal Business Language (UBL): An open library of XML-based business documents backed by the International Organization for Standardization (ISO).
- Zentraler User Guide des Forums elektronische Rechnung Deutschland (ZUGFeRD): A German standard that combines PDF/A-3 invoices with embedded XML.
When is e-invoicing required?
Depending on where you do business, regulations may mandate e-invoicing, particularly for transactions with a public agency or government office. In addition, some locales require e-invoicing for business-to-business (B2B) transactions to encourage tax compliance.
- Africa: Only Egypt and South Africa have mandates in place.
- Asia: Legislation related to e-invoicing is sparse throughout the continent. Both Japan and China have voluntary programs, and South Korea only mandates it for businesses over a certain size.
- Europe: Since 2019, member nations of the European Union (EU) have mandated e-invoicing for suppliers dealing with public entities. In addition, several countries — including Italy, Luxembourg, Germany, Poland, and France—have or are implementing mandates for all B2B transactions.
- North America: While mandated in Mexico, e-invoicing is not currently required in Canada or the United States, but both governments encourage the process.
- South America: Most nations have some form of mandate related to B2B transactions.
E-invoicing regulations can change, so this list should not be considered exhaustive or official. Instead, you should routinely check with regional tax authorities and related government bodies to verify that you comply with established ordinances.
What is the new ViDA law, and what does it mean for e-invoicing?
As previously noted, many national governments have embraced some form of e-invoicing requirements to help improve compliance and reduce fraud tied to value-added taxes (VATs). In 2028, the VAT in the Digital Age (ViDA) initiative will take effect, mandating e-invoicing standards for all B2B transactions occurring within EU member nations.
How e-invoicing works at Invoiced
With the vast array of benefits associated with e-invoicing and the growing global interest in electronic solutions, now is an opportune time to consider implementing e-invoicing for your business — especially if you engage in international commerce. The value derived from e-invoicing can vary significantly based on the platform you select, making it essential to choose a solution that aligns with your needs.
At Invoiced, our software simplifies establishing an e-invoice exchange framework, creating a network of businesses you frequently trade with. Once a customer or vendor is registered in your network, our platform enables you to transfer invoice records back and forth seamlessly.
A key advantage of this framework is its ability to facilitate straight-through processing — the fully automated exchange of invoice, payment, and remittance data from start to finish. This streamlined approach enhances efficiency, minimizes errors, and accelerates the payment cycle, ultimately improving cash flow and strengthening business relationships.
Handle all of your digital invoicing needs with Invoiced
When done correctly, e-invoicing can be a game changer for managing your billing and payments. With our Accounts Receivable Automation software, you can streamline the creation and management of your payment requests with little investment. Beyond the initial drafting, our platform can automate your dunning efforts, encouraging consistent communication and compensation. Further, our integrated Cash Application feature ensures that incoming funds are accurately allocated to the correct accounts, enhancing your financial oversight.
With such powerful capabilities available on a single platform, why wait? Schedule a demo today to see how we can streamline your operations.
