What is e-invoicing?
Get a better understanding of electronic invoicing.
Electronic invoicing is a commerce shift that removes documents as mediums for exchanging accounting proofs of trade.
Do not get confused, e-invoicing and Electronic Document Management are not related, they are merely compatible with each other. When the trade is described in an electronic document like a PDF-based invoice, it is not an electronic invoicing system.
Let’s put it another way: if you need PDF invoices or emails at any point in your sales or procurement processes, you lose money, time and financial clarity. The systems which produce invoices and those which consume them (CRMs, ERPs) have similar logic but do not share standards. This requires considerable processing effort from the seller issuing a standard invoice to convert the trade logic into accounting logic, then into a printable format. The same efforts are needed reversely by the recipient, on the other side of the communication pipe. Things get worse during the negotiation phase or in case of mistakes.
Before thinking of evolving from traditional invoicing to E-invoicing, let’s get back to fundamentals and clarify the role of an invoice.
Invoicing serves a double purpose: asking for money and documenting all the details needed to accept and pay for the trade.
How do businesses digitize invoicing?
Improving the money requesting role of an invoice is quite simple with digital tools and solutions such as e-mails, payment processors or procurement platforms.
What about the need for documenting everything? Digitizing this role of the invoice is much more complex because for each trade two companies need to store exactly the same information in two different systems ( accounting software, ERPs..) which are not most of the time not interoperable. The complexity of both business and invoicing data requirements coupled with a highly manual bookkeeping process often turns into human mistakes. This complexity impacts directly companies’ operational efficiency and financial performance.
That’s the challenge e-invoicing is addressing!
PDF attachments were such a gain on postage constraints and costs that it made most businesses stop there. However, e-mail based invoicing still relies on both sides of the electronic pipe: it is not scalable enough.
To ease documentation of the same trade by two entities, e-invoicing solutions need the agreements of partners on the data format and the invoicing steps aka common standards and infrastructure.
When two business partners agree on the invoicing data format, it already reduces the time they need to process the information. On one side of the pipe, teams use a sales-focused product to describe the product or service, the payment conditions, fiscal and legal references. On the other side of the pipe, a procurement or accounting software transforms the information so it can be approved before payment and booked in accounting.
Such a scenario is quite efficient when two partners are used to each other, have a stable commerce framework and similar constraints.
But exchanging invoices is nothing like exchanging emails when it comes to scalability.
Sending and receiving an invoice is much more complicated than exchanging emails with each other, this process implies both business and financial workflows on each side of the pipe. The problematics addressed by electronic invoicing solutions are not only about format conventions but also about exchanging protocols.
Furthermore, invoicing digitization is shifting towards a global unification of both formats and protocols. This unification represents a great opportunity for businesses seeking for operational performance and efficiency gains because it reduces the time needed to formalize and validate a trade. Subtle verifications such as VAT compliance, identification or even price details, can be totally automated or abstracted. Sellers and buyers are connected more seamlessly, without intermediate accounting checks.
B2B companies are the first concerned
The main reason why companies should shift towards electronic invoicing is for the automation and scalability it can bring to their sales, accounts receivable and accounts payable processes.
Let’s compare a purely scalable business like an online shop with a typical B2B project-based relationship:
Why electronic invoicing brings traditional B2B closer to e-commerce as per their scalability
- Fast-sending: the invoice’s creation requires fewer validation steps. It typically becomes a sales’ job to verify the adequacy of the content with provided services or products.
- Fast-validating: with common languages and processes, businesses can adapt the way they “see” an invoice, making it closer to their internal context, without any translation need or integration phase. Accepting an invoice is fast, refusing it is also fast. There is no reason for invoices to be stuck in-between two departments.
- In essence, e-invoicing cuts the accounting costs by half: only the invoice’s senders have work to do. Not to mention the costs of human mistakes.
Electronic invoicing is not only a technological improvement. It is a framework that simplifies decisions.
E-invoicing makes commerce more efficient by decreasing the dependence on intermediate tools, processes and taxonomy.
Finance, audit, sales and procurement teams need less training when moving from company to company, or from software to software. They also require less legal training because more rules can be embedded in the system by its administrators.
B2G is still the main enabler
More and more states make electronic invoicing mandatory. It is a two-fold advantage: control and fluidity. States have a better live view over the VAT transactions, and they promote a fluid framework for their national commerce. Forget the tax declaration paperwork or the need for consolidation between accounting and fiscal reports. It is also a clear protection against the black market and VAT frauds.
In Europe, for example, the 2014/55/EU directive was created to make the public sector rely on e-billing. It is meant at unifying European public practices but it will certainly extend to other sectors as infrastructures and software get more and more mature.
- A first good step is to gather your sales, procurement and finance teams to kick-off the transition. For example, it might be because you want to contract with European public entities, or because you want to structure your own procurement. According to your situation, you should also check the compatibility of invoicing, accounting and procurement software, as well as your CRM.
- You then have to choose an electronic invoicing network. PEPPOL is a major one, probably the only international one, with access points in Europe, Singapore and the USA. The PEPPOL network is based on a four-corner model that we could qualify as a many-to-many architecture: choosing one access-point or another does not change anything, you are always connected to the same network. For the PEPPOL network, you can use this listing to find the access point that operates near you and select the platform that suits your situations and employees the most. This step is about choosing the door, and every door leads to the same corridor, so you just have to focus on the compatibility, user experience, level of service and pricing.