E-invoicing | Everything you need to know and more
E-invoicing is in our blood here at Zervant. Its speed, cost and accuracy are just three of the reasons why e-invoicing will become the new standard for invoicing and why you should get on board now.
As a provider of free invoicing software, it can only be a good thing for our users that the future of e-invoicing is now being championed by dozens of countries and organisations.
EU members and the European Commission have been leading the way for the past decade, stating that its adoption is crucial for the highly competitive European social market economy in the 21st century, and will “help to reap the full economic and social benefits of a digital society.”
According to the 2019 Billentis Market Report for E-invoicing, 70% of all invoice processing globally is still paper based, so there is still a long way to go. However, in the business-to-business (B2B) field, e-invoicing in the EU has nearly doubled, from 4.8 billion electronic invoices sent in 2015 to 8 billion last year.
Further, the potential annual financial benefits of e-invoicing are predicted to be around EUR 40 billion across Europe in the B2B field alone, according to a report by French consultancy firm Capgemini.
What is e-invoicing?
E-invoicing is a type of invoicing where all the same information of a regular invoice is provided in a digital format, and paper is completely removed from the process, making it easier, cheaper and more efficient.
Your e-invoices are created, sent, received, processed and archived electronically, eliminating the traditional method of printing or scanning, posting or emailing, and then waiting for the recipient to handle them manually.
E-invoicing allows you to forget about:
- Sending payment reminders
Note: Do not confuse an email invoice with an e-invoice. While both are sent online, the difference is their destination:
- Email invoices are sent to your customer’s inbox with the invoice attached.
- E-invoices are sent to your customer’s invoice processing software.
Should I use e-invoicing?
While 42% of large enterprises say they already receive or send e-invoices, the adoption rate among SMEs is at a much lower rate, with the total just over one in five (22%). To put that into perspective, 99% of all businesses in Europe are small businesses and exchanging e-invoices is described by the EU as “still being too complex and costly for SMEs.”
At present, statistics show that:
- over 75% of companies still send paper invoices
- 8% send invoices via email
- 9% still send invoices by fax
- only 4.5% of small businesses in the UK have used e-invoicing
Despite the struggle these figures suggest, there is growth in the number of European e-invoices being processed. As we mentioned earlier, the total number of e-invoices sent nearly doubled from 2015 to 2019 and will only continue to grow due to increasing national legislation and changing invoicing standards.
What are the benefits of e-invoicing?
According to the EU website (https://ec.europa.eu/growth/single-market/public-procurement/digital/einvoicing_en), the main benefits include:
- faster retrieval of money from customers by reducing the time an invoice or payment is in the post
- reduced printing and postage costs
- quicker and cheaper processing as the information in electronic invoices can be fed directly into a company’s payment and accounting software, strengthening the supply chain
- lower storage costs
- reduced training and system development costs
Because the processing is fully automated, the pre-defined format of an e-invoice means it cannot be altered, thereby guaranteeing safety and authenticity, as well as reducing fraud and tax evasion.
Note: Do not confuse pre-defined format with PDFs, despite the similar names. PDFs, scanned invoices and email attachments are not considered to be e-invoicing.
E-invoicing not only reduces the risk of errors but will save you both time and money. A Billentis market report estimates that e-invoicing can save you, as the issuer, almost 60% per invoice in costs and the recipient about 65%.
In fact, the EU believes that most of the economic benefits will not come from savings in printing and postage costs, but from “full process automation and integration from order to payment” between trading partners.
As you can see, the Billentis case study considered costs ranging from printing and payment reminders to cash flow management and archiving. However, we wonder if they also factored in the direct expense of buying paper and the wider energy costs for transportation.
The reduction of both could generate reductions in CO2 emissions of a million tonnes per annum for the EU and annually save about 12 million trees, which are cut down to create paper invoices.
How does e-invoicing work?
While e-invoicing can seem confusing with its many different technical standards and acronyms, like EDIFACT, iDoc, UBL, TEAPPS and PEPPOL, you don’t need a background in finance, accounting or IT to use the service.
For entrepreneurs and small businesses, there are many invoicing software providers and ERP systems that allow users to create e-invoices easily and quickly. Of course, we would recommend checking out a firm called Zervant.
Using our service as an example, we employ a few simple steps when creating an e-invoice:
- After creating your invoice, add the e-invoicing address, which is a unique number sequence to identify a business—for example, a VAT number, Orgnr, GLN, DUNS, IBAN or SAP iDoc. You can obtain this address from your customer.
- After clicking send, your e-invoice arrives to our e-invoicing partner Basware, which transforms it into a machine-readable format.
- From there, Basware forwards it to your customer’s e-invoicing operator. The operator does a final e-invoice format check, after which it transfers it to your customer’s invoice processing software.
- After it arrives to your customer’s invoice processing system, they can pay it with the click of a button, allowing you to receive payment faster.
What different e-invoicing models are there?
When reading about e-invoicing, it is likely that you will hear about 2-, 3- and 4-Corner models. While you don’t need to know the technical intricacies of each, it is useful to understand what they are.
E-invoicing began with the 2-Corner Model, a P2P (peer to peer) process in which e-documents were directly shared between the systems of the supplier and buyer using Electronic Data Interchange
(EDI) or XML formats.
However, that was supplanted by the 3-Corner Model that saw the supplier/buyer share the same third-party service provider to process e-documents, which works well as long as you don’t have more than two recipients for your e-invoices.
Today, the development of PEPPOL and other global networks has seen the arrival of the 4-Corner Model, which involves the supplier/buyer using different service providers for their e-documents. Since most entrepreneurs need to send invoices to several different companies, it is easier to use service providers that are connected to another, like a mobile network.
What is PEPPOL e-invoicing?
In 2014, the European Union issued a Directive mandating business-to-government (B2G) e-invoicing that also included wording that encouraged its members to write laws requiring electronic invoicing for areas.
Since then, 23 EU members have deployed B2G e-invoicing solutions, as well as the UK. Despite deciding to leave the EU, Britain did implement the Directive on e-invoicing in public sector procurement as of May 2019 and it became compulsory for local government and utilities from April 2020, the EU’s deadline.
The National Health Service (NHS) became the first area of the UK’s public procurement to trial electronic formats and comply with the EU’s technical e-invoicing standard via the PEPPOL network.
With the existing rules governing e-invoicing differing across Europe, PEPPOL, a 4-Corner Model, was launched. It enables cross-border eProcurement, allowing international companies to handle their communication in the procurement process electronically.
While it is not an e-Procurement platform, PEPPOL does provide technical specifications that can be implemented in existing eProcurement solutions and eBusiness exchange services, explains the project’s official website.
PEPPOL is in use across 28 countries in Europe plus Australia, Canada, New Zealand, Singapore and the USA, with more expected to follow. This year, India approved the introduction of voluntary e-invoicing for B2B reporting, while China is preparing to roll-out business to consumer (B2C) and B2B e-invoicing.
What is the status of B2B e-invoicing in the EU?
While the world’s two most populous countries are rolling out B2B e-invoicing mandates, it is still not mandatory across the EU. Italy became the first European country to require B2B electronic invoicing at the beginning of 2019, but elsewhere it has remained a voluntary practice.
B2B e-invoicing mandates are planned in Serbia starting in 2022 and France after 2023, with Spain also signalling it is ready to follow. However, interest from countries across the EU is increasing due to the growing VAT Gap – the difference between Value-Added Tax owed and that which is collected.
Mandatory electronic tax invoicing has been credited with lowering tax compliance costs and raising the transparency of business transactions. In fact, the Mexican government implemented a new model that dramatically increased tax collection, as well as reducing the shadow economy, according to Coupa.
In 2017, EU countries lost approximately EUR 137 billion in VAT revenues, according to a study released by the European Commission last year. While smaller than previous years, the amount remains remarkably high and highlights the ineffectiveness of the various members’ VAT enforcement and compliance measures, which could be solved with the application of e-invoicing.
What are the obstacles for e-invoicing?
Since e-invoicing is an emerging technology, it still faces technical obstacles, user difficulties and reluctance to change.
Here are some of the main issues:
- routing issues can occur between e-invoicing providers because there are a wide range of formats and different standards
- variation in national rules governing the validity and acceptability of e-invoices in legal, financial and administrative terms, making their use in cross-border transactions within the EU difficult
- many potential users still have concerns about the security of e-invoicing systems and the potential for misrepresentation in fraud
- mistakes can occur when entering the e-invoicing address, such as typos, or the invoice can have incorrect information
While some of these may seem serious, they all have solutions. For example, some vendors will disappear over time and others will consolidate; the EU is working to improve cross-border transactions; and digital signatures and encrypted transmission procedures are constantly being improved.
Despite these hurdles, over half the companies in a survey on e-invoicing said that to be successful, it is essential to require e-invoicing in contracts.
“…it is important not to get discouraged about the low volume of electronic invoices received, or lose patience because of the long road to success.”
What is the future of e-invoicing?
The long road to success is gradually being filled with forward-thinking companies driving toward the benefits that await them.
Christiaan van der Valk, VP of Strategy for the tax software provider Sovos, writes:
“It is interesting to look in the rear mirror and observe what has created a huge distance between the leaders and the laggards in the European e-invoicing market to date.“
Firms who have chosen to make e-invoicing compliance an integral part of their mission have a “competitive advantage that cannot be underestimated going forward,” he notes, adding that “VAT compliance remains an ever stronger driver behind e-invoicing growth”.
In the UK, across the EU and globally, the market is moving towards making e-invoicing the new standard. It is the future, which is why you should get on board now. If you have any questions about e-invoicing or our invoicing service, please get in touch and we can help you!