What is e-invoicing?

E-invoicing, short for electronic invoicing, is a form of billing presented to the buyer in an electronic format via a predefined exchange of structured data.

Traditional invoicing, which typically involves receiving a paper invoice in the post, is prone to errors and delays at each step in the invoicing process.

In this article, we’ll cover what e-invoicing is, how it works and the benefits of adopting e-invoicing. You’ll also find an overview of news on e-invoicing regulations across Europe – find your country from the list and learn how you’ll be impacted by these regulations.

What is an electronic invoice?

An electronic invoice – typically referred to as an e-invoice – is an electronically delivered invoice that, from issuance to archiving, remains entirely digital throughout its lifecycle.

E-invoices are issued, transmitted and received in a standardised structured data format (such as XML or JSON). Because e-invoices contain structured data, they can be automatically imported into the buyer’s accounts payable (AP) system, allowing for a seamless exchange of invoice information between a vendor and a buyer.

Want to learn more about invoicing? Here’s everything you need to know about invoice management.

How does e-invoicing work?

E-invoicing streamlines both incoming and outgoing invoicing. Here’s a step-by-step breakdown of both processes:

Incoming invoices

1. Invoice receipt: First, an electronic invoice from a vendor is received and integrated directly into the recipient’s financial system.
2. Integration and data processing: Next, the invoice data is processed in a structured format. At step, the data is prepared for further review and validation to ensure seamless integration and data flow.
3. Validation: The e-invoice undergoes automated validation to verify its compliance with established regulations and standards.
4. Registration: Once validated, the invoice data is automatically registered in the financial system, streamlining the payment process and marking the completion of the transaction.

Outgoing invoices

1. Invoice generation: First, an invoice is created within the invoicing solution to bill the customer for goods or services rendered.
2. Integration and data delivery: Next, the invoice is transmitted to the customer via an operator. To maintain the integrity and accuracy of the data, the invoice is transmitted in a structured data format through secure, integrated solutions.
3. Validation: Before the e-invoice is delivered to the customer, it’s automatically validated to ensure that it complies with the established regulations and standards.
4. Delivery: Finally, the validated e-invoice is dispatched to the customer in their preferred format. 

Benefits of e-invoicing

E-invoicing brings several advantages to buyers and vendors alike. Here’s an overview of some of the benefits of e-invoicing:

• Cost savings

E-invoicing reduces or even eliminates the need for paper invoices. This cuts down the costs associated with printing, posting and storing paper invoices.

• Increased efficiency

With automation, companies can create, deliver and process invoices fast and easy. This improves efficiency and leads to faster payment cycles. 

• Improved accuracy

Through automated processing, e-invoicing minimises manual data entry errors.

• Better cash flow management

Because e-invoices are processed faster and with fewer errors, e-invoicing can lead to quicker payments from buyers.

• Increased transparency and traceability

E-invoicing provides a clear record of all transactions. This makes it much easier to track and audit financial activities.

• Better buyer/vendor relationships

Standardised invoicing improves communication between buyers and vendors, reducing misunderstandings between parties.

• Regulatory compliance

E-invoicing makes it easier for companies to comply with local and international invoicing regulations.

• Improved sustainability

Automation of manual, traditionally paper-based processes like invoicing is an important first step for companies looking to reduce their environmental impact. 

E-invoicing and EU compliance

Since its adoption in 2014, the e-invoicing directive has promoted the uptake of electronic invoicing in both Europe and on an international level. However, simply digitising your invoicing process isn’t enough to be compliant within the EU.

In December 2022, the European Commission proposed a series of measures to modernise the EU’s Value-Added Tax (VAT) system.

The proposal is aimed at recovering more than €11 billion in VAT per year by disposing of paper-based records, promoting digital signatures and, in doing so, eliminating occurrences of tax evasion and fraud.

It’s safe to say most businesses are embracing the wave of digital transformation we’re seeing. Yet we still hear stories of finance teams who print out and handle practical paper copies of invoices – risking data leaks, duplicate work and a potential information black hole.

E-invoicing regulations are in place across much of mainland Europe, but the exact details vary. Find your country from the list below to learn how you’ll be impacted by the new regulations:

Getting started with e-invoicing: Here’s what you need to do

Receiving e-invoices

1. Assess your current invoicing process

The first thing you need to do is evaluate your current invoicing process. Identify areas that can be improved by switching to e-invoicing, such as time efficiency, cost and environmental impact.

2. Choose an e-invoicing solution

From standalone software to integrated systems with accounting platforms, there are many e-invoicing solutions on the market. Research different options to find one that fits your business needs and budget.

3. Register with e-invoicing networks

Many vendors use e-invoicing networks or platforms to send and receive e-invoices. Register your business with relevant networks to start receiving e-invoices from your vendors.

4. Inform your vendors

Once you’ve set up your solution and registered with relevant networks, make sure your vendors have your correct contact information, including your preferred e-mail address for receiving e-invoices.

Communicate your transition to e-invoices and provide your vendors with any necessary instructions.

5. Establish processes and procedures

Before you dive into e-invoicing, you should spend some time developing internal processes and procedures for handling e-invoices. This includes:

• Defining roles and responsibilities
• Establishing workflows for invoice approval and processing
• Setting up your chosen e-invoicing solution

6. Train your team

Your team should be equipped with the right knowledge to use your chosen e-invoicing solution. Provide them with the training they need to use the system effectively, and make sure they understand the new processes and procedures for receiving, reviewing and processing e-invoices.

7. Test and go live

Before you fully transition to e-invoices, make sure you thoroughly test your system to ensure that it works correctly and integrates seamlessly with your existing accounting software.

Once you’re confident in the system, it’s time to go live with e-invoicing.

Sending e-invoices

1. Assess your current invoicing process

Just like you would for receiving e-invoices, you should start by evaluating your current invoicing workflow and determining what areas you can improve by switching to e-invoices. Consider factors such as manual tasks, paper usage and processing times.

2. Choose an e-invoicing solution

Next, you want to find the right solution for your e-invoicing needs. Do your research and select a solution that aligns with your business needs and budget. Consider elements such as ease of use and integration potential, and choose a solution that gives you good value for money.

3. Set up your system

Once you’ve chosen a solution, set up your e-invoicing system. This may involve configuring settings, uploading your company logo and customising your invoice templates.

4. Inform your business partners

The first thing you need to do is to inform your vendors and vendors that you’re switching to electronic invoicing.

Once you’ve confirmed that your business partners are willing to receive invoices in this manner going forwards, you should verify the contact details of each of your vendors and ensure that they match the information in your invoicing solution.

5. Confirm your invoicing format

When everything is cleared with your vendors and vendors, you should double-check that your chosen e-invoicing format includes all necessary information.

At the minimum, electronic invoices should include:

• Transaction details
• Buyer and vendor identity
• Approved payment methods
• Applicable taxes and discounts

6. Generate and send e-invoices

Automatically generate e-invoices. Your chosen solution will organise and format the entered data according to your chosen template – and just like that, you’re saving valuable time and resources during the process.

7. Follow up and track payments

Once you’ve sent them off, it’s important to monitor the status of your e-invoices, track payments, and follow up on overdue invoices. Your e-invoicing solution should have features to help you automate and streamline these processes.