Invoicing is one of the most important aspects of running a business or working as a freelancer. Good invoicing means keeping you paid, which means keeping your business running and growing the way you want it to. One of the easiest and most common ways to do invoicing today is electronic invoicing, or E-invoicing.
Electronic invoicing, more commonly referred to as e-invoicing, is a form of automated invoicing whereby you present to your client an exchange of payment regarding services or sales, in the form of an electronic document.
This is opposed to regular invoicing, in which the exchange is physical, usually presented on paper.
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How does e-invoicing work?
There are two ways to conduct an e-invoice exchange:
- Between buyer and seller: this is a point to point connection and the most common way e-invoicing is done. It basically refers to the buyer and seller exchanging an invoice before or after the transaction has been made or services performed.
- Buyer and seller network: this refers to a network connecting buyers and sellers, and is where e-invoicing is expected to grow due to its potential for efficiency for more buyers and sellers.
E-invoicing generally has a three-stage process:
Before receiving the invoice, the merchant and client determine the format and communication terms. Many merchants will have a standard that all their clients adhere to, and it’s ideal to determine these things ahead of payment. The sender must then make sure their data is converted into whichever system the receiver of the invoice uses.
Now that the converted invoice can be received, the sender sends it via the previously established communication channel. It will then be transferred into the receiver’s system.
The e-invoice software being used by both sender and receiver will now automate the process. Through what is called EDI-mapping (Electronic Digital Invoice mapping), all data is converted into one file. Any further needed communication can be made through the EDI interface during this process.
What are the advantages of e-invoicing?
Electronic invoicing is growing in business transactions all over the world. There are many reasons companies and individuals are adopting this method of invoicing. Let’s go over a few of the major benefits.
Streamlining and efficiency
Especially with point to point connection e-invoicing, this method streamlines the payment process for both client and merchant. Image-based invoicing, previously much more complex and more of a hassle with physical invoices, can be easily managed between you and your clients, because the technology allows for much more seamless data transfer.
Businesses can sync different devices to transfer invoices, meaning clients can send invoices on the go from their phones, and you can access them at home immediately from your main device. All of this reduces the effort required, and minimizes the possibility of human error.
Visibility and transparency
Both parties have more visibility on invoices with e-invoicing. Audit trails are easily traceable, and all functionalities are available through the app interfaces.
E-invoicing improves accuracy by employing the use of advanced, high quality software with end-to-end tracking capabilities. You can track invoice validation, as well as view approvals and payment in real-time. This reduces the possibility of late payments and overpayments, because the data is tracked so precisely.
The transparency and accurate automation afforded by e-invoicing means for more security and less risk. When there is so much of the human effort removed from the process, there is much less room for the kinds of things that happen accidentally or deliberately.
Eliminating the paper trail has obvious positive ramifications for the eco-friendliness in finance and payments. This reduces both waste and cost associated with paper-based invoices.
Digital invoicing for outgoing invoices
The process of digital invoicing for outgoing invoices works like this:
- You create the invoice using your chosen software, a process which is automated
- You process the invoice
- The invoice is then converted to an agreed format
- The invoice is then dispatched through the software, again automated
Digital invoicing with outgoing invoices is simple and streamlined, making it a preferred process for many businesses these days.
Digital invoicing for incoming invoices
For incoming invoices, the process works like this:
- Invoice receipt
- The invoice is automatically assigned to the right account
- The invoice is recorded and released
- The invoice is paid (this step can also be automated)
Which legal requirements apply to e-invoices?
Since e-invoices are now almost indispensable for modern businesses, it’s important to understand the legal requirements.
In Germany, as of April 16 2014, laws have been imposed on the submission and receipt of electronic invoices. Most of these laws come down to the formats of invoices. In Germany they are the following:
- UN/CEFACT: Cross industry XML message
- UBL: For invoices and credit notes
- ZUGFeRD: B2B and B2G E-invoicing standard