What is e-Invoicing?
In its Directive 2014/55/EU, the European Commission defines an e-invoice as an invoice that has been issued, transmitted and received in a structured electronic format which, allows for its automatic and electronic processing – i.e. without manual intervention. The Commission also defined mandatory ‘core elements’ for electronic invoices. These include process identifier, invoice period, seller information, buyer information, payee information and seller’s tax representative information, contract reference, delivery details, payment instructions, allowance or charge information, invoice line item information, invoice totals and a VAT breakdown.
In addition, the European Committee for Standardisation (CEN) has defined a framework for structured e-invoices via the e-invoicing standard EN16931, which allows each EU member state to adopt its own specification – known as a Core Invoice Usage Specification (CIUS):
- ZUGFeRD and XRechnung in Germany
- Factur-X in France
- XML format according to the Tax and Customs Authority (NAV) in Hungary
- FatturaPA in Italy
- Facturae in Spain
How is E-Invoicing implemented?
So invoicing information can be exchanged regardless of the technology used; it needs to be interoperable, i.e., the contents (semantics), format (syntax) and transmission method of the electronic invoice must be compatible.
A document is semantically interoperable if it includes the aforementioned core elements and the meaning and content of the invoice are accurately interpreted and understood – regardless of how it is physically represented or transmitted. Syntactic interoperability is achieved when the invoice data is presented in a predefined, standard format that can be exchanged and processed by the sender and the recipient’s systems without requiring manual intervention or customisations. This is made possible either by using a common syntax or – increasingly – by technically assigning (mapping) the different syntax types. Hybrid formats – i.e. when the invoicing process combines elements of both human-readable and machine-readable formats – are also widely used.
B2G transmission channels for Germany are:
- Online submission: invoices are created manually from within the federal government’s invoice submission portal (ZRE and OZG-RE)
- E-invoices are uploaded to federal platforms from external systems
- PEPPOL (non-profit Pan-European Public Procurement Online network): a standardised framework for exchanging procurement-related documents. PEPPOL is particularly suitable for transmitting bulk invoices but can also be used by smaller companies
- Externally generated e-invoices are emailed to the federal government’s platforms
E-Invoicing Considerations.
Governments generally have a positive attitude towards e-invoicing. Not only is it becoming the standard for public procurement (B2G), but it is also popular in the B2B and B2C sectors, where it is progressively being formalised with new legislation. If you are looking to introduce e-invoicing in your business, you should consider the following factors:
Industry-specific formats
When it comes to electronic data interchange (EDI), some industries often prefer certain formats. Invoices can be sent and received using a myriad of EDI standards such as EDIFACT, VDA, UBL 2.1, UN/CEFACT CII (Cross Industry Invoice) or ANSI.X12 and their subsets. Additionally, seemingly identical formats can also be used as different versions. It is, therefore, best practice to agree on a common format with business partners in advance or to use suitable EDI software.
Restrictions due to existing ERP systems
Not all ERP systems an process electronic invoices or associated files (e.g. PDF/A-3). To enable e-invoicing, ERP systems should, for example, be able to check the outgoing digital document to ensure it contains the necessary core elements and automatically add the missing data if necessary. When receiving incoming invoices, they should also be able to generate a document that no longer requires manual input.
Compliance
A growing number of countries are introducing electronic invoicing standards, requiring invoice senders and recipients to design digital invoices that comply with certain mandatory core elements (see above), formats, encryption and signature specifications, for example. Additional specifications can stipulate the invoice submission platforms to be used, which private platform providers are certified, what certificates must be attached, and what transmission paths must be selected. The right software and consultants are imperative to ensure compliance with these changing laws.
Digital invoicing in the EU
Italy (FatturaPA) is the EU’s frontrunner when it comes to e-invoicing, closely followed by Hungary, Poland, and France. Companies looking to do business internationally, should, therefore be well-versed in the individual national requirements. This is becoming all the more important as the EU moves from a post-audit to a clearance e-invoicing model – a move that is making the use of EDI-based solutions indispensable.
The benefits of E-Invoicing.
E-invoicing streamlines the invoicing process by automatically checking and processing all outgoing and incoming invoices. This offers the following benefits:
Significant savings potential
E-invoicing simplifies the invoicing process from receipt to approval. Digital invoices can be stored and managed centrally, significantly reducing the costs associated with printing, mailing, and processing paper documents. Digitally generated invoices are also less error-prone, meaning fewer feedback loops, faster processing times, and enhanced personnel productivity.
Higher data quality
Electronic invoices foster transparent payment transactions. The quality of the data improves as it is data is processed and validated automatically – enhancing the company’s credibility both vis-à-vis (tax) authorities and business partners. Liabilities can be calculated reliably, making for better financial analyses. Companies using the PEPPOL service, for example, also receive an acknowledgement of receipt when the document has been received correctly – unlike when issuing it by email, for example.
Improved cash flow
Tracking the status of individual invoices in real time improves cash flows and liquidity. Accounts payable can be delayed until the due date, instant payments can be released if terms are favourable, and outstanding balances can be collected more quickly, thanks to automation. What’s more, specialist software, optimised processes, and employee training usually pay for themselves in less than a year.
