E-Invoicing Explained: Save Time with Automation

E-invoicing or electronic invoicing automatically sends standard invoice data from vendor systems to customer systems. E-invoicing can transform and automate accounts payable functions, substantially increasing efficiency. With compatible standardisation, cross-border transactions can work well with e-invoicing and subsequent global mass payments. 

In the digital age, AP functions include receiving and processing vendor invoices related to procurement, three-way matching, obtaining approvals, making vendor payments, and generating reports. 

This article defines the e-invoicing meaning and e-invoicing process, lists problems with paper invoicing, and describes automated e-invoicing solutions. 

What is Electronic Invoicing (E-Invoicing)?

Electronic Invoicing, or E-invoicing, is the automated process of vendors generating electronic invoices and sending them to customers to process data elements in a standard format that ensures system interoperability. E-invoicing enables accounts payable workflow automation integrated with ERP or accounting software processing instead of inefficient manual data entry of paper invoices. 

Standard computer data formats for e-invoicing include EDI (electronic data interchange), XML (extensible markup language), or CSV (comma-separated values) for exporting files. E-invoicing solutions include automatic validation against rules as part of the invoicing process to ensure that invoice data is correct before being sent to the customer’s system. 

How Do Businesses Create an Electronic Invoice?

Vendors create electronic invoices (e-invoices) sent directly to their customers’ software systems for payment using the invoicing features of their ERP or accounting software, like QuickBooks. Some payment apps or add-ons include e-invoicing with pay now buttons. 

If customers receive paper invoices, they can digitise them using advanced OCR software that may be part of fully functional, add-on AP automation software integrated with ERP or accounting software. Scanning and converting paper invoices received to digital invoices may not be considered e-invoicing because the customer’s business takes intervening steps to get the invoices into its system. 

Standard E-Invoicing Format Used in the EU

The European standard for electronic invoicing is based on the e-invoicing directive called the EN 16931 standard. This rule was developed by the European Committee for Standardisation (CEN) as part of Directive 2014/55/EU.

The EN 16931 standard for e-invoicing is mandatory for public sector procurement. This ensures cross-border compatibility, accuracy, and efficiency in EU invoice processing. Here’s a breakdown of the standard and its format:

Here’s a breakdown of the EN16931 standard and its format:

Core Specifications

The e-invoice must have specific data fields. This section defines a minimum set of mandatory and optional data fields that must be present. These sections include:

• Supplier and buyer data
• Invoice number
• Tax details
• Payment terms
• Line-item descriptions

The e-invoice should also specify data categories that accommodate different tax rates, payment conditions, and discounts. The system used should also support multiple languages and currencies to enable cross-border transactions.

XML Syntax

The EU format uses the UBL 2.1 (Universal Business Language) and UN/CEFACT CII (Cross Industry Invoice). UBL 2.1 is a globally recognised XML-based format that is highly compatible with the EN16931 standard. UN/CEFACT is used in cases where UBL may not fully meet the invoice requirements.

PEPPOL Network for Interoperability

PEPPOL (stands for the Pan-European Public Procurement Online) is a secure and standardised e-invoicing network that connects businesses with public entities and helps to facilitate cross-border B2B transactions.

PEPPOL’s e-invoicing format (PEPPOL BIS Billing 3.0) fully aligns with the EN 16931 standard. When a company sends an invoice via Peppol, the business’s PAP transports the invoice to the recipient’s PAP, which then forwards it to the recipient.

Compliance

The EU directive 2014/55/EU is a legal requirements that mandates public administrations (and those in the public sector) in EU member states must accept e-invoices based on EN 16931.

E-invoicing solutions like Tipalti enhance your audit controls by delivering a clear, digital trail of all processed invoices. This enables easier compliance with local archiving regulations, while simultaneously reducing the risk of fraud.

Country-Specific Implementations

While EN 16931 is the standard format for Europe, some countries have added specifications or use additional networks for private sector compliance. Examples of this include Italy’s FatturaPA, France’s Chorus Pro, and Germany’s XRechnung for B2G transactions.

By setting a uniform standard for an electronic format, EN 16931 has laid the foundation for efficient, consistent e-invoicing practises across the EU. This works to eliminate manual processing and enhances the reliability of cross-border transactions within the region.

Look for a B2B e-invoicing platform and service provider like Tipalti. The Peppol Access Point (PAP) offers an e-invoicing solution that seamlessly connects to global networks and ensures compliance with the central government, tax authorities, and regional formats like ZUGFeRD in Germany. 

What Manual Invoicing Problems Does E-Invoicing Solve?

If a company’s AP staff or finance departments operate manually, here are some of the most profound cash flow benefits and resources you can expect: 

• Incorrect data entry from human error.
• Lost time and company resources due to fixing those errors.
• Wasted time and human productivity from manual invoice approval.
• Duplicate manual entries leading to duplicate payments.
• Dramatically heightened risk of fraudulent invoices.

It’s common to see AP staff using OCR software in a non-automated environment to quickly transcribe and record physically mailed invoices or emailed PDF invoices.

Once the software records the invoices, an employee has to manually verify the information, resulting in as much wasted time and resources as with a fully manual operation. E-invoicing also uses OCR in a fully automated manner

E-Invoicing Rules in the EU

The e-invoicing rules for the EU are based on a standard framework that is designed to streamline business-to-business invoicing processes across member states.

These rules primarily apply to public sector transactions and are governed by contracting authorities and the Directive 2014/55/EU. This rule mandates the use of standardised electronic invoicing in public procurement.

The core rules and principles include:

Mandatory E-Invoicing for Public Procurement

• B2G E-Invoicing and Transactions: Public sector entities across Europe must process invoices electronically for government and public procurement transactions.
• Directive 2014/55/EU: All EU member states must accept e-invoices for public procurement based on a common the European standard.

E-Invoicing Format Requirements

• Required Formats: EN 16931 provides a standard e-invoicing format that will ensure consistency, interoperability, and compliance across borders. This requirement includes mandatory fields for e-reporting, like supplier and buyer details, invoice references, tax information, line items, digital signature, and payment terms.
• XML Formats: The e-invoices are generally structured in XML using UBL or UN/CEFACT CII syntaxes.

Using of PEPPOL

• PEPPOL: Many European countries use PEPPOL. This network facilitates secure cross-border e-invoicing and connects companies with government entities. PEPPOL supports the BIS Billing 3.0 standard, which fully complies with EN 16931.
• Access Points: To use PEPPOL, organisations must use a certified access point. This creates a secure network for digital transformation and the exchange of e-invoices.

Data Privacy and Security Compliance

• GDPR Compliance: To protect personal data associated with invoices (in English or any other language), e-invoicing data must be handled in accordance with the EU’s General Data Protection Regulation (GDPR).
• Secure Networks: All cross-border transactions require secure transmission via a trusted network like PEPPOL to ensure data security and integrity.

What are E-Invoicing Solutions?

E-invoicing software is a solution for operating in the world of AP. The distinguishing factors of e-invoicing are its use of compatible vendor system to customer system data standards and possibly field mapping for interoperability and strategic centrality. All key data around the invoicing is sent to a centrally accessible cloud storage database.

E-invoicing supports AP automation to streamline workflows in real-time, including supplier portal integration and document storage, automated invoice matching and approvals, global mass payments processing and automatic reconciliation, and robotic process automation (RPA) of routine tasks. These automated solutions are benefits of e-invoicing. 

(If e-invoicing isn’t used, vendors can also upload their electronic invoices into a customer’s integrated supplier portal for centralised vendor management, status, and payment by the customer.)

This means that multiple individuals from different departments can access the same body of general info but pull the individual bits and pieces from it that are relevant to their department and its operations. E-invoice processing totally eliminates the time and resource burden of employees running between departments daily to cross-check their info, verify approval, and so on. The total annual resource savings in terms of actual employee productivity from this aspect alone are considerable.

Fraud prevention is another benefit of invoice automation combined with e-invoicing generating massive year-over-year savings for a business. Here’s the thing about fraudulent invoices…it only takes the fraudster one successful attempt on average to establish a deceptive (but lucrative) tie to a company’s AP department. Manual AP staff lack a centralised list of pre-approved and verified vendors.

So when a fraudulent invoice comes through, the odds of it “falling through the cracks” and getting paid are extremely high. And what do companies tend to do with their suppliers? Keep paying them with each monthly invoice, of course. They are, after all, providing a highly valuable service to the business.

The short- and long-term problems here should be glaringly apparent. But these risks are hugely alleviated with invoice automation. E-invoicing solutions allow a business to set up a verified list of approved suppliers and instantly check each invoice against that list. An invoice from a supplier not present on the list will immediately be flagged for further inspection and possible fraud so that it can be traced and verified one way or the other.

Automation gives you the opportunity to improve relationships with your genuine suppliers. E-invoicing software usually comes equipped with a supplier portal, so your suppliers can check the status of their invoices, and early payment arrangements can even be made if desired. This saves time in the long run in the form of calls and emails from suppliers enquiring about their invoice status.

As an all-important point in today’s world of rampant cybercrime, automation keeps all data entries and fields completely digitally secure. From a company’s vital info to its suppliers’ private information and beyond, consider the heightened risk factor of stolen or misappropriated info from a physical invoice getting lost or compromised.

Summing Up

This article provides an e-invoicing definition, explains how businesses create electronic invoices (e-invoices), discusses OCR for the digitisation of invoices, describes manual invoicing problems, and covers e-invoicing solutions as part of your automated system.

The world is experiencing a sea of change in how AP departments survive and thrive in the coming decades. But, as with all matters of technological adoption, e-invoicing is a rising tide that businesses must choose as part of their software automation solutions.