Traditional invoicing is extremely time consuming because most accounting professionals have to input the data manually. Invoicing should be streamlined as to not require so much extra time or effort. Thus, incorporating an electronic invoicing (e-invoicing) system can save a company valuable time and money.
The term e-invoice refers to machine-readable data files that have been developed and optimized for automated invoice processing. E-invoicing has become progressively more crucial over the last few years. Before making the switch from traditional to electronic invoicing, there are some key things a company should know.
E-Invoicing Benefits
If a company is ready to transition to e-invoicing, it should do its due diligence to learn about the benefits of switching from PDF or scanned paper documents to e-invoicing.
Some of the benefits include having the content immediately transferred into the proper fields of your enterprise resource planning (ERP) system. You also get to skip the data extraction stage where optical character recognition (OCR) technology, which is never 100% accurate, is used to capture a document’s content.
Other benefits include faster payment cycles, reduced costs in materials, and better storage protection. Paper copies can be hard to keep track of and have a better chance of getting lost or damaged. It is easier to store and to track e-invoices. Businesses that make this switch can also save money by reducing or eliminating costs for paper, printing, and postage.
The e-invoicing process is much more efficient, which allows businesses to focus on more important things while invoices are automated.
Of course, the mandates for e-invoicing in other countries is yet another reason organizations should consider making the switch.
Embracing E-Invoicing Globally
The process of e-invoicing has roots dating back to 1965 when trading partners developed the first electronic data interchange (EDI). Ten years later, the process known as File Transfer Protocol (FTP) was introduced. But technological advances between the early 1980s and the early 2000s fostered the growth of paperless invoicing.
In 2001, voluntary e-invoicing was introduced in Chile and became increasingly common throughout Latin America. In 2014, as many European nations were mandating the use of e-invoicing, the European Parliament issued a directive to adopt a common standard among EU member states. Since then, e-invoicing has grown in popularity, with more than 55 countries—a majority in Europe—adopting e-invoicing mandates.
For example, Italy which mandated e-invoicing for B2G (business-to-government) nearly a decade ago, also made it mandatory for all domestic transactions in 2019. Italy decided to implement e-invoicing due to value-added tax (VAT) evasion, and has had a lot of success with this process. It has made things run much smoother, with the data arriving in a digital, machine-readable format. This helps speed-up the process and decreases the manual labor that it takes to create all the invoices manually.
Singapore has also become a prime example for other countries. They highly encourage the use of the Peppol framework, and are motivating businesses to transition to e-invoicing through the country’s InvoiceNow network. Singapore even gives grants of up to 150,000 in Singapore dollars ($110,000) for financial support for large companies that are implementing e-invoicing IT projects.
Other countries, such as Australia and New Zealand, began hopping on the bandwagon in 2022. These two countries will require B2G and B2B (business-to-business) invoices to be e-invoices. The payment deadline in Australia will be five business days, and in New Zealand will be 10. This is to ensure that cash flow—and prompt payments—improve.
Recently, France announced it will mandate large companies to use e-invoicing for tax reporting starting in July 2024. All other companies in France, no matter the size, will be required starting in January 2026.
In India and China, all invoice data is transmitted to a central portal. This portal uses data to generate a barcode on the outgoing invoice with all relevant information. China also uses the Golden Tax System, also known as e-invoicing. All companies doing business in China are required to use this system. A new document format was created in 2023 and will be mandatory—along with the Golden Tax System—for all businesses in China.
If businesses want to save time and money and meet government regulations, then e-invoicing is the best route to go, especially for companies that operate globally. Businesses that conduct business solely in the United States shouldn’t ignore the concept of e-invoicing, and instead need to be able to adapt and adjust their processes to other countries to comply with their laws. Even though it may be some time—if ever— before e-invoicing is required in the United States, the sooner a corporation can adapt to this new method, the better.
Preparing for the Transition
Some industries are unfamiliar with e-invoicing practices, so suppliers need to educate their customers on what should be expected from this new system.
A supplier may need to provide proper training to their customers. They can do this by providing a walkthrough of how e-invoicing systems operate and function, allowing customers to feel prepared and confident in their decision. Businesses that are looking to transition to e-invoicing must literally be “on the same page” as the people they work with. If they are switching from paper to digital, there may be some suppliers who are uncomfortable with the electronic format. The best advice is to ask why they are hesitant and try to educate and reassure them that e-invoicing is just as safe—if not safer than—traditional invoicing.
After educating a business on the key benefits and preparing for the transition to e-invoicing, a timeline for budgeting and implementation must be created. A business should define the software features they are looking for and create a realistic budget to find the company that is the best fit. This helps them determine the expected cost of the software and return on investment (ROI).
It is also important for businesses to create a timeline with goals of when they want to begin implementing e-invoicing. The transition can take time to adjust to for suppliers and their clients.
Finding the Right Provider
Once a business has determined its timeline and budget, it can then start searching for the right provider. There are many different vendors out there, so it’s important to find the one that is the best fit to meet the company’s needs and goals. Each company should factor in which features are most important to them to accurately find the best provider. They should consider a software company that operates in other countries, along with their own, since different rules and regulations depend on location. They also should look for a provider that can handle a variety of different documents.
Finding the right provider also depends on whether a company is looking for a customizable system or a more standard system. Businesses should choose the provider that is constantly updating and improving its system. With technology constantly evolving, it’s important to work with a software vendor that can adapt to the changing times.
You also need support with frequent updates and training which can take the weight off a business’s shoulders.
Reviewing Software Effectiveness
Businesses must ensure that the e-invoicing software is effective. They should take notes and keep track of any issues so that the provider can continue to improve. Why not find a software solution that can automate the invoice process and save businesses time and money?
Unfortunately, PDF invoicing cannot do what e-invoicing can. If businesses are not adapting to this new system, then they are missing out on an opportunity to spend less time on invoicing and more time doing important things to grow their business.
Getting an early start to e-invoicing gives businesses an advantage so they can adapt to this new process. Even if it is not yet a requirement, it soon may be, so it is best to prepare and stay on top of new practices.