Understanding
e-invoicing

Invoicing is an integral process of business financial operations. However, paper-based invoicing is labor-intensive and prone to human error. Today, e-invoicing has taken over from the traditional invoicing process.

E-invoicing offers significant benefits to businesses, including cost savings, efficiency, improved cash flow, regulatory compliance, and environmental sustainability. 

Many countries are now mandating the use of e-invoicing as a way to improve tax compliance and reduce fraud. Companies with a global presence must consider these evolving regulations to continue their business in regions that they have a local presence.

In this guide we’ll cover everything you need to know about e-invoicing, including:

What is e-invoicing?

Types of e-invoicing

Electronic invoice system

Benefits of e-invoicing

Common formats of e-invoicing

Challenges of e-invoicing

E-invoicing and regulatory compliance

Choosing the best e-invoicing solution

E-invoicing solutions for different business sizes

Other e-invoicing considerations

Streamline your e-invoicing process with Zuora

E-invoicing FAQs

What is e-invoicing?

E-invoicing, or electronic invoicing, is the process of sending and receiving invoices in an electronic format, rather than on paper. This involves the exchange of invoice data in a structured, machine-readable format that enterprise resource planning (ERP) systems can efficiently process, such as XML or JSON, instead of sending a PDF or a physical paper invoice. 

E-invoicing can be done through various methods, such as using a web portal, email, or an electronic data interchange (EDI) system. It can also involve the use of software or platforms that automate the creation and processing of invoices.

Businesses are adopting e-invoicing as a way to become more competitive, streamline their operations, reduce their carbon footprint, and maintain regulatory compliance.

Types of e-invoicing

Let’s take a look at three types of e-invoicing that businesses use.

Unstructured

Unstructured e-invoicing is similar to traditional paper-based invoicing used for keeping records. This type of e-invoicing retains the visual appearance of an e-invoice without an embedded file connection or structured data. Meanwhile, you sometimes need to manually extract and input the data into the recipient’s system.

Structured

Structured invoicing is a format of e-invoicing where the data doesn’t have any form of visual representation. There is no graphical layout. Instead, its focus is on the structured data required for processing by the system. 

Some structured formats, such as XML, can be read and processed by automated systems without issues.

Hybrid

The hybrid e-invoicing format combines the superpowers of structured and unstructured formats into one system. This gives the system a differentiating edge by having a visual representation of the invoice while also including an embedded file that allows the invoice to be processed by machines. This type of e-invoicing is highly recommended if you use a software-based invoicing system.

The electronic invoice system

Financial operations become seamless when the seller and buyer adopt e-invoicing. The systematic management of accounts occurs within a digital environment. These are the steps involved in the e-invoicing process for the seller and the buyer.

Seller

1. Prepare invoice:
   

   The invoice is created within the e-invoicing platform to bill the buyer for purchased goods or services. This is the starting point of managing the accounts receivable system.

2. Issue invoice:
   

   In this stage, the operator fills in every essential detail for inclusion in the invoice using the structured data format and the secure software solution. This can consist of invoice numbers and specific unique information for tracking and reporting.

3. Send invoice:
   

   During this stage, the e-invoice is validated by the system. This automated validation ensures the invoice complies with the region’s existing rules and standards.

4. Confirmation and acknowledgement:
   

   At this point, the buyer must have already made the payment. The seller then goes ahead to confirm and acknowledge the payment. This enhances the level of transparency within the system. The acknowledged e-invoice is then dispatched to the buyer for recording.

5. Reporting and analysis:
   

   Through record-keeping, the seller holds a copy of the paid invoice within their integrated system. This enables seamless financial analysis and auditing when needed.

Buyer

1. Receive invoice:
   

   Receiving the e-invoice activates the account payable management system. Here, you receive the e-invoice from the supplier through your financial integrated system or ERP.

2. Invoice validation:
   

   During this process, the system reads the e-invoice presented in a structured format and prepares it for review and validation by the buyer. This leads to a smooth integration and data flow.

3. Book into account:
   

   In this step, the system further automates the review of the e-invoice to ensure it complies with the existing rules and standards. This ensures accuracy and transparency for the transactions taking place. Then, the invoice is passed to be paid.

4. Schedule payment:
   

   This step involves the buyer authorizing the payment through their account and executing the transaction through their financial system.

5. Record keeping:
   

   The system records the invoice and payment history within the financial system. This is to ensure transparency and accountability when due. Likewise, the seller has access to an e-copy of the paid invoice.

6. Reporting and analysis:
   

   The buyer receives a comprehensive report of the transaction executed within their integrated system and files it for financial analysis at the end of the day, week, month, or year.

What are the benefits of using e-invoicing?

The continuous adoption and use of e-invoicing produces many benefits for businesses, including helping them optimize their operations, improve compliance, and reduce costs. 

Reduced data entry errors

E-invoicing reduces the risk of errors that can occur with manual data entry or paper-based invoicing. This can help to improve accuracy and reduce disputes and delays.

Faster invoice processing and accelerated payments

Because e-invoicing is part of a more automated process, businesses can receive payments faster and more efficiently, which can improve cash flow management. A 2024 global e-invoicing and tax compliance report found that using automated systems resulted in 33% of transactions being paid on time, compared to 24% of paper-based invoices paid on time. 

Enhanced visibility and tracking

With integrated e-invoicing systems, issued e-invoices are made readily available to the parties involved, and tracking is more seamless than with traditional invoicing systems. This enhances the level of transparency between both parties while conducting business.

Cost savings

A paper-based invoice involves high maintenance, management, and manual processing. This leads to higher costs and use of resources. Companies that switch from traditional invoicing methods to e-invoicing can save as much as 80% on costs, according to the Institute of Finance and Management (IOFM). 

Improved security

Using unique and unrepeatable seals and certificates issued with e-invoices makes it difficult to commit fraud or document forgery. The system provides security against fraud and forgery, common with paper-based or printed invoices.

Increased productivity

Enhanced productivity is one of the significant benefits of using e-invoicing, thanks to the level of integration that can occur across team members and with your business partners. This opens up a channel that saves time and resources while allowing you to focus on other essential business operations. 

Automated matching and validation

E-invoicing makes it easy to process invoices quickly because of automated matching and validation. The system reads the invoice, validates it, and processes it for payment, saving valuable time for other business tasks.

Efficient audit trail and record-keeping

Auditing can be difficult if you need to sift through a stockpile of papers to review payment history. E-invoicing makes auditing easier and more efficient. It also presents your team with an efficient filing system that enables them to maintain the records electronically.

Common formats of e-invoicing

E-invoicing depends on standardized formats to establish consistent structure and invoice content, and ensures easy data exchange between different e-invoicing systems. Below are some e-invoicing standards:

UBL (Universal Business Language)

E-invoice processes using UBL are executed using a standardized XML format. These e-invoices have seamless interoperability across various applications and systems. This format is widely used for e-invoicing.

JSON (JavaScript Object Notation)

JSON is a data interchange format that humans and machines can easily read. JSON is a newer format, similar to XML, that is becoming popular in digital and e-commerce due to its simplicity, straightforward implementation, and compatibility with new programming languages. 

XML (eXtensible Markup Language)

XML is a flexible and extensive e-invoicing format that allows you to define the structure and data content of an e-invoice in a human-readable format. It is a highly customizable and easily automated format. Interpretation and processing of information using XML is easy because each data element has a descriptive label tag.

ISO 20022

ISO 20022 is regarded as an open universal standard for processing financial information. This standard enables you to have consistently detailed and structured data for e-invoicing for all business financial transactions.

Peppol BIS

Peppol stands for Pan-European Public Procurement Online. Peppol BIS is a standard e-invoicing format used to create electronic documents needed for procurement activities within the Peppol network. This includes an e-invoicing format used by the European government and public sector.

EDIFACT (Electronic Data Interchange for Administration, Commerce, and Transport)

EDIFACT remains a global standard for businesses and customers to conduct electronic data interchange (EDI) across various industries. After its successful implementation in the traditional system for paperless exchange, it is now being used for modern e-invoicing.

Factur-X

Factur-X is an e-invoicing format created in 2017 in France and Germany. With this standardized format, businesses can fulfill the European semantic standard EN16931 established by the European Committee for Standardization (CEN). This is often regarded as a hybrid format, having XML files incorporated into a PDF file.

What are the challenges of e-invoicing?

E-invoicing offers significant benefits in automating the payment process and keeping financial records safe for future reference. But it also comes with its challenges. Let’s discuss some you might face while adopting it.

Workflow changes

Adopting and implementing e-invoicing will disrupt the workflow within a company, at least at first. This will create a new workstream to process and deliver bills into the supply chain system, which takes time and effort and can be labor-intensive.

Customer resistance

It can be difficult to shift away from the traditional method of invoicing. Customers may prefer paper invoices through habit or due to a lack of skills. Businesses, employees, and customers need to understand how the new process works and the value it brings to business operations to have a successful implementation of e-invoicing. 

Initial implementation costs

Deciding to adopt e-invoicing comes with a price. Sometimes, companies are discouraged from adopting e-invoicing due to the implementation costs. This includes purchasing new software or hardware, its integration, and the training costs required to implement e-invoicing.

Integration with existing systems

Integrating e-invoicing software solutions with existing financial and operational systems can be challenging. This is because there is a need to organize the complex system to support different e-invoicing protocols based on the countries, industries, and kinds of customers the business serves. If not done correctly, it might lead to compliance issues while also causing data loss.

Variability in legal and regulatory frameworks

Regulatory rules in different jurisdictions and sectors require businesses to comply with regulations for e-invoicing across regions. Companies should implement an e-invoicing solution that complies with their main markets.

E-invoicing and regulatory compliance

E-invoicing regulations will vary, depending on where you live, so it’s important to do your research to ensure your business is remaining compliant. Failure to do so can mean heavy fines, legal problems, and potential criminal charges.

Here are different regional examples of compliance requirements for e-invoicing: 

United States: The U.S. doesn’t require e-invoicing for B2B transactions due to tax complexities and a lack of central authority. Taxes vary from state to state, so implementing e-invoicing nationwide would be difficult. Groups like the Business Payments Coalition are trying to create standard formats so businesses can easily share e-invoices.

European Union: EU public sector organizations are required to accept e-invoices. E-invoices must follow certain regulations including those around data and e-signatures. There are some variations in rules between different EU countries.

Asia-Pacific: Countries like Singapore, Hong Kong, Taiwan, and South Korea are leading the way when it comes to e-invoicing. South Korea has a mandatory e-invoicing system for taxable individuals and corporations exceeding certain revenue thresholds. In Singapore, e-invoicing is mandatory for all government authorities.

Choosing the best e-invoicing solution

Deciding which e-invoicing solution to use is critical for your business. Here’s what to consider when deciding which e-invoicing solution to adopt.

Cloud-based vs. on-premises

When selecting an e-invoicing solution, consider the kind of buyers or customers you serve. If your buyers are located within your region and not outside of it, you can choose on-premise e-invoicing. However, cloud-based e-invoicing is the best for your business if you serve international clients or your market goes beyond borders.

Integrated accounting software

The e-invoicing solution you choose must integrate efficiently with your existing financial systems, such as accounting software. This ensures a seamless invoicing process that eliminates systematic errors such as double entries. Your e-invoicing software will also need to integrate with other existing finance workflows.

Industry-specific solutions

Another critical factor to consider while choosing an e-invoicing solution is its capacity to solve invoicing problems within your industry. This gives you a competitive advantage to maximize the full benefits of e-invoicing instead of using a non-specific solution that requires manipulation to suit your industry.

Compliance and security features

Ensure that the e-invoicing solution you choose has the infrastructure necessary to comply with e-invoicing requirements. Data security is also essential to prevent you from being penalized for breaching regulatory parameters. 

Scalability

Your invoicing needs may change as your business grows. Selecting an e-invoicing solution that adapts to your changing requirements is essential.

Upgrades and future development

The dynamics of businesses will keep changing, as will how business is conducted. It’s vital to use an e-invoicing solution that upgrades its infrastructure to meet the developments happening within your sector. 

Tax expertise

With the continuous changes in e-invoicing regulations worldwide, you must update your e-invoicing solution to comply with local laws and tax rules. 

Data quality service

The e-invoicing solution you choose should have the infrastructure to perform optimized invoice validation by checking data before the invoice is sent to the buyer. This helps you save time and resources that might go into tasks such as research, matching, and others.

E-invoicing solutions for different business sizes

An e-invoicing solution can benefit businesses of all sizes, but there are certain features that may make a bigger impact on one business size over another. 

Small and medium-sized businesses

Web-based e-invoicing portals exist online and manage the exchange of invoices between businesses. Users can manage their invoices through a web platform, making it an ideal platform for small and medium-sized businesses.

Enterprises

An electronic data interchange (EDI) system involves the organized exchange of data between businesses using certain formats. This is a highly automated system that is great for large enterprises with elaborate supply chains.

Various business sizes

Invoice service providers offer end-to-end e-invoicing solutions, managing the whole process for businesses, including the creation, sharing, and validation of invoices.

For stronger security, some businesses may choose a blockchain-based system. Blocks of data are distributed, each with a record of a transaction. The data is stored in a decentralized blockchain network, making it a safe option for many businesses.

There are many different e-invoicing solutions available today — assess where your business could implement more efficiency and choose the right solution for your individual business.

Other e-invoicing considerations

Transforming accounts receivable and accounts payable functions

E-invoicing grants accounts receivable and accounts payable a new set of functions that allows an automated invoicing life cycle. This means the entire invoicing life cycle — from issuance to archiving — is automated when e-invoicing is adopted. As a result, businesses run more efficiently while minimizing errors and complying with regulations.

Growing need for tax technology

With e-invoicing, the need for efficient tax technology is on the rise. This is because e-invoicing is now a powerful tool that has helped businesses reduce the rate of tax fraud and have more control over their taxes. Automated infrastructure and real-time sales data lead to a consistent demand for tax technology as businesses grow and advance.

Strategically prepare your business

Before you adopt and implement e-invoicing, you must understand the cost benefits it will bring to your business, assess your implementation approach, review the technical requirements of adopting e-invoicing, and ensure the solution complies with existing regulatory rules.

Streamline your e-invoicing process with Zuora

The global value of the e-invoicing market is expected to grow by an average of 28% per year between 2024 and 2028, increasing the level of adoption and implementation, as well as the need for an effective e-invoicing solution.

From creating e-invoicing service providers to defining e-invoice file templates, Zuora provides a comprehensive guide that seamlessly adapts to diverse e-invoicing regulations.

Zuora streamlines the entire e-invoice file generation process. Through an intuitive UI or flexible REST API operations, you can effortlessly trigger automatic processes when billing documents reach the posted status. Real-time monitoring and error tracking ensure transparency, minimizing the risk of delays and errors.

Due to different and diverse e-invoicing configurations and regulations, Zuora simplifies the configuration landscape by offering a user-friendly platform for common and country-specific setups.

Seamless integration with service providers

Integrating with third-party e-invoicing service providers often involves intricate processes, authentication key management, and potential compatibility issues. Zuora eliminates the hassle by providing a streamlined process for connecting with leading e-invoicing service providers like Sovos and Avalara. 

From obtaining authentication keys to setting up providers through the Zuora UI, the integration journey is secure, efficient, and user-friendly. Simplify your e-invoicing process today with Zuora.

E-invoicing FAQs

What is the difference between an invoice and an e-invoice?

The difference between an invoice and an e-invoice is that an invoice is a paper invoice compared to an e-invoice, which is an electronic invoice. This means an e-invoice is issued, sent, and received digitally or electronically in a structured format.

What is the difference between EDI and e-invoicing?

EDI (electronic data interchange) is a method of e-invoicing whereby the invoice contains more details about the business transaction than a normal e-invoice that might only contain basic information. You can also use EDI to send more message types than e-invoicing.

Is electronic invoicing mandatory in the US?

E-invoicing is not currently required in the US, though more initiatives are moving forward to encourage the use of it.

Is electronic invoicing mandatory in the UK?

E-invoicing in the UK is not required for B2B transactions, but it’s mandatory when working in the public sector.

Who needs to create an e-invoice?

The seller is responsible for making or issuing an e-invoice to the buyer. This contains information about the products sold or services rendered to the buyers or customers.

Who is eligible for e-invoicing?

Businesses with a turnover or revenue that exceeds the threshold limit are eligible for e-invoicing. This means the regulatory body has a stipulated turnover a business must reach before it can be eligible to adopt and implement e-invoicing.

Is there a tool to assess the compliance of my e-invoicing solution?

Some tools allow you to check how compliant your e-invoicing solution is regarding the standard regulatory syntax or rules.