What is e-invoicing? Definition of an electronic invoicing
E-invoicing, short for electronic invoicing, is a digitalised approach to the entire invoicing process. From the creation of the invoice, to the exchange, to the processing, to the archive. Every step of the invoicing journey is digitalised, making it easier for both suppliers and buyers to accelerate their invoicing processes.
What is an e-invoice?
An e-invoice saves on paper and eliminates manual processing, as the process is entirely digital it’s lifestyle.
Using an e-invoicing tool, an e-invoice is created in a structured electronic format. The format of the e-invoice can vary between many different standards – from XML to EDITFACT to CSV. The reason for using structured formats? So that the invoice can easily be exchanged and then processed into ERP and accounting systems. All processes to make it easier for Accounts Payable (AP) and Accounts receivable (AR) teams to work.
What e-invoicing is not
It can be easy to slip into the thinking that e-invoicing is just any invoice sent electronically, e.g. an invoice sent as a PDF, however this is not the case.
In the example of the PDF, this is what’s classed as unstructured invoice data and not an e-invoice as the receiver typically cannot automatically process the PDF file, nor can the sender fully track the file.
Paper invoices or OCR scanned paper invoices for example, have not been created using structured data. However, some leading e-invoicing providers can work with both structured and unstructured data to turn them into e-invoices.
This format allows the invoice to be processed automatically from one company to another without any manual checks.
Why are the benefits of e-invoicing?
E-invoicing, like traditional invoicing, is a key part of any buyer and supplier relationship. It represents a modern approach for Accounts Payable (AP) and Accounts Receivable (AR) teams to benefit from process automation, implementing measures that enhance overall efficiency and enable many cost savings.
The benefits don't stop there:
- Simplifies procedures and saves time - Whereas traditional invoicing processes are heavily paper-based, manual, time-consuming and prone to human error, e-invoicing simplifies the procedure and saves significant time. This streamlining of the process is valuable to businesses, with the ability to save on costs. For example, according to IOFM (Institute of Finance & Management), invoice processing costs can vary between $1 and $21.
- Full visibility - Leading e-invoicing providers are able to track when an invoice has been sent, received, opened, viewed and even paid. The importance of this function is not to be underestimated when selecting a provider as it allows businesses to have a 360° view of their process.
- Faster payments - E-invoicing is automatic, accurate and instant with no need for physical print and post. With less steps in the journey and less data to input, businesses can enjoy faster and more accurate payment cycles. Plus, certain e-invoicing tools allow you to add a digital payment button to your invoice, making it even easier for your recipient to pay.
- Mean meaningful work - For employees, significantly fewer mistakes happen, and employees can enjoy an innovative way of working without having to key in data and match financial documents – everything is done via one journey, instead of individual steps.
- Enhanced security - When it comes to security, encrypted file transfers and secure networks help the e-invoicing process become a safer one when compared to its manual counterpart.
Take a look at even more electronic invoicing benefits, for both small and large businesses, here.
How does e-invoicing work?
E-invoicing may sound complicated, but it is actually quite simple to use. Its simplicity means that businesses of all shapes and sizes can utilise and benefit from e-invoicing processes.
How to create an e-invoice
To create your e-invoice, start by using tools such as your ERP system or dedicated e-invoicing software. Leading e-invoicing software is extremely simple to use. All you need to do is enter a few invoicing fields, which often can be pre-populated depending on your e-invoicing provider.
How to send an e-invoice
E-invoices are generally sent in two different ways. The first is through a point-to-point connection between the sender and receiver to exchange the documents - often known as electronic data interchange (EDI).
Secondly, and becoming more popular in recent times, is a network model such as Unifiedpost Group’s Crossnet. Crossnet connects multiple buyers and sellers and allows different e-invoicing formats to be converted and exchanged. In our view, the only way forward for the modern network economy.
For either solution, you only three things to send your invoice to your recipient.
- Recipient address - Just like you would require the recipient's address for a paper invoice, sending an electronic invoice also requires an address. When using electronic invoices, you typically use an identifier like a VAT number or a GLN. Some networks, such as the Peppol network, offer centralised address lookups. Here, you can easily search for your recipient and exchange your invoice with just a few clicks.
- Invoice format - As mentioned earlier, electronic invoices come in various formats, such as XML and EDI. These structured formats can be seamlessly processed and converted by top e-invoicing providers. For example, a business may choose to generate and send an XML e-invoice, but the recipient can choose to receive the e-invoice in the format of their preference. This conversion process makes the exchange of e-invoices even simpler for each business involved.
- Infrastructure - For electronic documents to be transmitted through e-invoicing providers, both the sender and receiver must have compatible systems. This compatibility can be as straightforward as having an email mailbox for the seamless exchange of documents.
There are an increasing number of e-invoicing legal requirements around the globe. Many governments are proactively aiming to close their VAP gap. By introducing mandatory electronic invoicing, governments can prove the validity of every invoice.
Different governments will have different rules and different e-invoicing standards within their mandates e.g. which businesses have to comply, which e-invoicing formats and models they must use etc. To keep up-to-date, Unifiedpost Group has developed a tax compliance guide detailing which countries currently have e-invoicing mandates in place.
How to get started with electronic invoicing
Explore your options and learn more about automating your invoicing processes by using Unifiedpost Group’s invoicing solution.
- For small businesses electronic invoicing is available through Banqup
- For large buyers wanting to digitalise their incoming document processes, opt for Collect
- And for large sellers, aiming to also be tax compliant opt for Channel.
Explore the best solution to suit your business' needs.