Time and again, new examples of digitalization have appeared in the world of corporate payments. Whether it be the type of corporate card used or otherwise, these developments, often powered by structured data, have enabled new levels of automation and convenience that can lead to substantial savings for businesses.
And now there is a new hot topic on the horizon: e-invoicing.
Here at AirPlus, we already offer a structured data solution – namely our eBilling service. In its current form, our structured data solution supports customers in streamlining their accounting and payment reconciliation processes while also enabling the VAT process using the original invoice, usually a PDF.
The new e-invoicing topic combines this structured data process with the VAT process, more or less switching from PDFs to a structured data process.
As we’ve already developed an eBilling process at scale for our customers, we are in an ideal position to use help them take the next step into e-invoicing.
But for today, we’ll be taking a look at why this is important and how we are taking notice.
What is electronic invoicing?
Electronic invoicing or ‘e-invoicing’ is the exchange of electronic invoice documents between two parties – a supplier and a buyer. The key word here is electronic, as the whole point of e-invoicing is that the entire process happens digitally.
That brings us to our next question: What is an e-invoice?
As with regular invoices, their electrical counterparts contain information relating to a sale of products or services. The information included on an e-invoice varies from country to country but generally must contain the date of issuance, names and addresses of both parties, VAT registration and information, services rendered, and amount charged, amongst other things.
They also serve the same purpose: Invoices are a key way for governments to track and calculate VAT. When a product or service is sold, the seller will issue an invoice to the buyer which includes a VAT charge. It’s part of a wide range of digital reforms seen from the EU and other countries worldwide.
The differentiating factor is the format and the way it is processed.
The official wording from the EU Directive on electronic invoicing in public procurement (Directive 2014/55/EU) [1] , for example, provides a definition:
“‘Electronic invoice’ means an invoice that has been issued, transmitted and received in a structured electronic format which allows for its automatic and electronic processing”
While this ruling relates specifically to public procurement (B2G), it does set a precedent that appears to be making its way into the B2B sector. Data is the new oil after all, and so it plays a major role in the roll out.
Key features of e-invoices
The stand-out feature of e-invoices which differentiates them from invoices in any other form is that they use a structured data set. That means they are delivered in a specified and standardized format.
E-invoice formats
The most common formats that meet the definition of ‘structured data sets’ are EDI and XML. These are not readable by humans as they are designed to be processed by computers. More specifically, they are compatible with ERPs and accounting systems which can read the data and automatically extract it.
In terms of the EU Directive, a pictorial representation of the invoice (e.g. scanned JPG or PDF formats) does not meet the European Commission's requirements for an electronic invoice. However, some companies choose to include image-based or physical invoices alongside the electronic version for either ease of use or for archiving purposes.
E-invoice standards
On top of the formats used, there are many standards that need to be adhered to. This refers to both what needs to be included on the invoice and how it is delivered. There is no universal standard. Instead, each country has created their own – and they’re often not interoperable.
Examples of the (many) e-invoicing standards include XRechnung (Germany), Factur-X (France), ISDOC (Czechia) and PEPPOL BIS (various countries). This is far from an exhaustive list, but just goes to show how diverse the market is – and why the EU is determined to develop a universal standard for the bloc.
How e-invoices work
E-invoices work in the same way as their regular counterparts. We know that they need to be sent electronically and in a specified format, but ultimately serve the same purpose.
Here’s a general overview of the process:
The seller collects all the necessary details and data relating to the transaction and feeds it into a platform. The platform then takes this information and translates into a format that meets the e-invoicing standards. The invoice then follows the standard process of the business.
On the other end, the e-invoice will be fed into the financial platform which will read and present the details in a readable format.
Why it's important
So, we know that across the world, e-invoicing is becoming the norm. In fact, it is becoming a requirement in some countries. This has led to a ramp up of interest and attention in the topic and the available solutions.
And let’s not forget the benefits it offers over the more traditional invoicing practices.
Benefits of e-invoices
There are of course three different parties with a stake in the use of e-invoices: the buyer, the supplier, and the government. Each has something to benefit from:
Standardization
For all parties, there is one clear advantage: standardization. It doesn’t make sense to use a differently structured invoice which each and every supplier or even each individual order.
Reduced resource use
Like any other form of digitalization, you can immediately reduce your use of paper and other physical supplies. This can add up over time and is a great step towards taking a more sustainable approach with your business.
Cost savings
Savings on resources also helps your bottom line. If you don’t need to print invoices out, post them or archive them, you’ll be saving on costs and pocketing the money you would otherwise be spending. That’s not to mention the reduces time spend on admin.
Automatic
Standardization means that processes can be automated in way not possible with unstructured data. Integrations into existing systems, like those seen in our partnership with Coupa or the most relevant T&E systems worldwide, also enable massive savings in time and effort. In short, overall admin is reduced.
More secure
Thanks to strong security requirements and the use of private networks and protocols, E-invoices allow for a more secure exchange of data between all involved parties – especially so when compared to physical documents.
Trackable and traceable
Not only is it more secure, it is also more easy to track. The transaction history can be traced across its entire journey, offering piece of mind and a means of evidence.
Where is e-invoicing being used?
There are examples of e-invoicing throughout the world. As mentioned, the standards differ between regions and even individual countries.
One thing in particular that stands out is the difference in uptake and efficacy. Some countries are leading the charge when it comes to use of digitally issued invoices, while others are falling behind.
A total of 24 countries in the EU had implemented a B2G e-invoicing solution. This either meant they offer e-invoicing to suppliers or already require a B2G e-invoicing solution. [2]
Since typically 45% to 65% of all companies in a country are suppliers to the public sector, the aforementioned EU standard is predicted to be the driving force on e-invoicing. The public sector in particular is seeing a mandatory introduction of e-invoicing practices, but this is now starting to seep into the B2B world.
With all said, more than 60 countries worldwide have introduced e-invoicing regulations so far – many of these mandatory. And it’s safe to assume that more governments will start adopting this standard.
Where we come in
E-invoices are just one part of the wider trend of digitalization in corporate finance. Through this digitalization, new efficiencies can be achieved across your company, enabling savings in both cost and effort.
As mentioned, there is very little consensus on what form a standardized approach can take, and so localized solutions will need to be developed for each market.
We’ll be continuing to monitor the situation until then, in order to provide an optimal solution that enables businesses to meet the requirements set out by the regulations once that becomes clear.
But progress is being made. For example, we’re starting to work with our first pilot customers in the German public sector to deliver XRechnung-standard e-invoicing. Stay tuned to learn more.
Electronic invoicing are an interesting topic, but so too is electronic mailing. Subscribe now for our newsletter to get the latest blog posts and more to your inbox.
Banner photo by Christin Hume on Unsplash
[1] https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32014L0055
[2] https://www.seeburger.com/info/what-you-should-know-about-e-invoicing/
