E-invoicing plays a significant role in digitalizing the business. Digitize invoicing process helps entrepreneurs to do maximum administrative tasks in less time & save costs up to 70% to 80% than paper invoicing. The advantages of shifting to e invoicing solutions are less processing times, reduced entry errors, and increased cash discounts.
“You never change things by fighting the existing reality.
To change something, build a new model that makes the existing model obsolete.”
― Buckminster Fuller
The question arises: what is e invoicing? What are the main challenges in E-Invoicing, Advantages & Disadvantages of Electronic Invoicing? Let’s continue with this blog for all your answers.
What Do You Mean by E-Invoicing?
Electronic invoicing is the transfer of the bill/Invoice between a seller and a buyer automatically. Earlier, invoicing was done with a heavily paper-based process and was manually time-consuming, costly, entry errors, and lots of calculation.
E-invoicing come in the following formats:
● Structured invoice file issued in EDI Or XML format
● Unstructured Invoice file published in PDF, JPEG, Word format, or e-mail text
● A hybrid invoice file comes in ZUGFeRD format.
However, By removing paper-based invoicing processes, companies are able to save lots of cost and time. The benefit of electronic invoicing is to develop better integration between the buyer and seller.
Note: Many businesses automate their Invoicing processes with the help of billing software like Invoicera, for smooth workflow and optimising business processes.
A Brief History of Electronic Billing
How many of you know that the idea of e-invoicing is not new? It was already used 30 years ago using electronic data interchange (EDI). Since then, the idea of eInvoicing has continued to evolve at a steady rate. Recently a new wave of interest has developed among corporate accounting companies and large/financial organizations.
In earlier days, Invoicing costs more due to the unavailability of resources like computers, Internet. The province of big companies could afford to invest in the technology and use it amongst trading partners.
The reasons such as adopting EDI, Internet connectivity, and cheap resources available to exchange data help eInvoicing become affordable for all small and large companies. The expandability of the Internet made e-invoicing easier for all types of business.
Government Promotes e-Invoicing
However, the new and primary directive of e-invoicing adoption has come from the governmental arena. In Europe — the most active e-invoicing region — several laws have been created to promote the adoption of e-invoicing across the European Union. Besides, many public sector organizations in Europe, such as Sweden, Norway, Spain, and Denmark, have announced mandatory e-invoicing programs. As a result, all general administration providers have to invest in e-invoicing technologies to carry out invoicing.
In response to the European Directive 2014/55/EU, the legislator defines the electronic invoice in the Law for the Promotion of Electronic Government as follows:
An invoice is electronic if:
1. it is issued, transmitted, and received in a structured electronic format and.
2. The format allows the invoice to be processed automatically and electronically.
Source (translated): §4a Paragraph 2 German EGovG
Source: VAT Gap Report of the European Commission 2019
Italy has taken on a pioneering role in the electronic exchange of invoices in Europe through a recent change in the Law: from January 1, 2019, at the latest, all domestic invoices in Italy must be issued in a defined electronic format and exchanged through an invoice portal managed by the state.
Advantages of e invoicing Process:
The main reason for adopting E-Invoicing due to its cost savings potential Solution brings to companies. E-invoices can be delivered faster with fewer entry errors.
● Low cost of processing: By switching to electronic invoicing, you eliminate 60–80% of your processing costs per invoice.
● Easy cash flow: Immediate delivery of invoices shortens the payment period, improving cash flow and the possibility of a cash discount.
● More Secure: Secure transmission of all invoices through an encrypted transfer method.
● Higher transparency: Integrated processing of incoming invoices with workflow-based clearance processes ensures complete transparency and faster processing of invoices.
Disadvantage:
The main objective of the introduction of e-invoicing is to cut tax evasion. But the new scheme only facilitates e-invoicing of B2B invoices and not B2C invoices. The highest number of frauds occur on B2C invoices, as there is no ITC involved. Therefore, a system should be put in place to allow customers to report non-compliant invoices and thus help to curb tax evasion at the source.
Types of e-invoicing:
Essentially, there are two types of e-invoicing to understand: compliance and without compliance e-invoicing. Let us briefly discuss each of these below.
Non-compliance e-invoicing
The non-compliant e-invoicing process involves:
● The buyer and vendor agree on the format to generate invoices and what information they should contain.
● The data organized correctly using technologies such as EDI or simple, smart forms for web invoicing
● The vendor generates and transmits an e-invoice directly using accounts receivable system
● The buyer receives an invoice now using an accounts payable system.
Compliance e-invoicing
The compliance e-invoicing involves similar as non-compliance, expect:
● The format of e-invoice data determined by the laws and regulations of the territories in which both parties trade.
● E-invoices comply with government-mandated guidelines for e-invoice data validation, security, non-repudiation, and archiving.
● Invoices are readily available for audit and VAT purposes.
It makes sense for an organization to adopt this approach, as it will facilitate its VAT obligations. However, there is no such standard regulation governing e-invoicing.
Compliance issue with e-invoicing
Governments receive up to 30% of their Gross Domestic Product (GDP) from VAT and sales tax revenues, and it is no wonder that tax collection is a serious concern. Directives from government-controlled systems to follow the guidelines, any company wishing to implement e-invoicing must realize that each country has its own set of rules. Maintaining compliance on an ongoing basis is one of the main challenges of invoicing.
Depending on the geographical location of the buyer or supplier, regulations may require any or all of the following:
● A government-issued invoice number
● A way to ensure authenticity & integrity of the invoice
● Electronic Data Interchange (EDI)
● Digitalized signatures
● Government used systems
● Minimum invoicing data fields
● Both VAT & commercial fields
● Long-term storage of the invoice
● Within a specific location
● Under data protection laws
Global e-invoicing Solution
Source: Billentis 2019
Due to government policy, internationally operating companies are increasingly compelled to generate and send their invoices electronically. Over 65 countries around the world now have corresponding global e-invoicing regulations, and their number is growing.
Many countries, with their regulations and local specialties, make international e-Invoicing very complicated. Over 65 countries where e-Invoicing rules already apply have slightly different data collection procedures, how this data must be collected, and what requirements the digital signature must satisfy. However, there are fundamentally two types of e-invoicing rules
1) Regulation of clearance
2) Post-Audit.
Regulation of clearance: Regulatory countries require that invoices to companies in the respective region are cleared through an intermediary regulatory authority so that, among other things, real-time controls are possible. These real-time controls usually include digital signatures. The settlement rule applies, for example, in Mexico, Italy, Brazil, Turkey, Portugal, Spain & Hungary.
Post audit: The country’s rules include a minimum period to keep invoices for further possible verification — the post-audit procedure used in the EU with some exceptions.
Conclusion
In this blog, we have discussed what an e-invoice is and why e-invoicing is essential today and in the coming years. There are also many business advantages, including cost savings, which make e-invoicing a beautiful opportunity.
The digitization of invoices increases the quality of processing because manual errors are avoided. According to the data, costs can reduce by up to 80% by using e-invoicing from as few as 10,000 incoming invoices per year, compared to manual invoice processing procedures.
