What is e-invoicing and how does it works?

What is meant by e-invoicing?

E-invoicing refers to the process of sending and receiving invoices via a dematerialization platform. Shortly, e-invoicing is a way of sending and receiving invoices electronically. It's an important tool for businesses to save money, reduce paperwork, improve productivity and drive compliance with corporate tax laws. Unlike other billing formats (paper, PDF, JPEG, PNG, etc.), e-invoicing necessarily includes a minimum base of data in structured form, which follows the EDI (electronic data interchange) standards. The objective is to deploy a completely dematerialized circuit between the supplier's and customer's accounts:

Scanning a paper invoice to send it by email is not enough to make it electronic. The "e" in "e-invoicing" implies that the entire life cycle of the invoice is dematerialized, without scanning, retouching or printing. The key or mandatory elements of the e-invoice are:

• Invoice date – The date when the invoice was created by the supplier (generally the date of delivery).
• Order number – The unique order number for this transaction. This is usually issued by the customer on receipt of goods or services.
• Amount due – The total amount payable for the transaction, including any taxes or subsidies that apply. Amounts due include discounts (from the supplier’s perspective) and discounts (from the customer’s perspective).
• Reference – A unique reference code that identifies this particular transaction between two parties (e.g., invoice number).
• Description - The description should include all relevant details about the goods or services being.

Who is eligible for e-invoice?

E-invoicing is already used by many countries in Europe by both companies and governments. The e-invoice market is governed by companies such as SAP or TNT.

If you are a business owner, you need to keep track of all the invoices that you have sent out and received. This can be a difficult task if you have too many invoices and keep them in different locations. You may also face problems when it comes to keeping track of all the payments that you have received from your customers.

Anyone who sends out invoices is eligible for e-invoicing. However, there are some requirements that you need to meet before you can use this electronic payment service:

• You must have a valid email address for each of your suppliers, customers and other parties involved in the transaction.
• You must provide accurate information about each party involved in the transaction — including name, address, tax identification number (TIN) and bank account details.
• Your company's trade accounts must be paid electronically through your financial institution or financing provider. This means that you must have an account with a financial institution or financing provider where payments can be deposited electronically after receiving an invoice through their website or software program.

E-invoicing software programs are not only limited to large corporations but they also provide benefits to small businesses who don’t have the resources available to invest heavily on IT infrastructure or software development costs. Today many small businesses are adopting these programs because they offer multiple benefits such as in cost savings, time saving and improved cash flow management.

How does e-invoicing work?

Electronic invoicing is a process of sending, receiving and approving invoices electronically. It eliminates the use of paper, which reduces expenses related to printing and mailing. For accounts payable, the process of e-invoicing has three steps:

• Step 1: A buyer sends an order to a seller. A purchase order is usually sent as an electronic document (PDF). The buyer defines what information needs to be included in the purchase order, such as item description, quantity, price and delivery date.
• Step 2: The seller generates an invoice based on the information provided in the purchase order. The invoice is sent back to the buyer with all the required details such as item description and price per unit.
• Step 3: The buyer approves payment for the received invoice after reviewing all the details included in it. The buyer can also send the invoice for approval or reject the invoice if it does not match the terms and conditions.

This process is also know as purchase-to-pay or procure-to-pay. e-Invoicing is designed to make invoicing faster, easier and more efficient for both the sender and recipient. This reduces errors and eliminates the need for manual processing.

E-invoicing regulations

E-invoicing in Europe

The EU has adopted a new directive on e-invoicing, which sets out to make it easier for companies to use digital documents as an alternative to paper when issuing invoices and other business documents. This directive comes into force on 1 January 2020 and will apply to all businesses that sell products or services within the EU.

Sending an e-Invoice requires creating an invoice document in an accepted format such as XML or EDI 1750, then submitting it to a network operator who routes it through their systems to reach its destination.

E-invoicing compliance

An electronic invoice meets the same legal and accounting requirements as a traditional invoice. That is, it guarantees the authenticity, completeness and legibility of its content. To meet these requirements, an e-invoice system is designed with features like:

• Audit trail
• Automated reconciliation
• Automated tax calculations
• Invoice e-signature

Kinds of e-invoicing software

There are two main types of e-invoicing software:

• Online e-invoicing software: This type of e-invoicing software is offered as a service by online payment providers like PayPal or WorldPay. The buyer and seller both have accounts with these companies and use their services for payment processing. This means that both parties have to have accounts with these companies in order for them to use their services.
• In-house e-invoicing software: This type of e-invoicing software could be purchased from a Cloud-based company and installed on your own server. You will then be able to control who can access your account and what information they can view about your business.

How to choose an e-invoicing solution?

Invoicing is a crucial part of business and financial operations. It defines the revenue, cost, profit and cash flow of the business. When choosing you e-invoicing system, keep in mind:

• Your line of business
• The number of your suppliers and their geographic dispersion
• Your data analysis and legal control needs
• The size of your organization and your accounting requirements
• Your current invoice handling processes.
• Your prospects for growth

To make accounting more fluid, it is best to choose a tool that is compatible with your accounting software to simplify the export of accounting data. Also, to save time in collecting invoices, opt for a solution that includes automatic invoice retrieval.