What is e-invoicing?

E-invoicing, also known as electronic invoicing, is a form of billing that is presented to the buyer in an electronic format via a predefined structured data exchange. This electronic document exchange between buyer and seller can help streamline and automate portions of the accounts payable process.

Continue reading to learn more about e-invoicing, what it means, how it works, and the benefits for organizations.

What is an e-invoice?

An e-invoice is an electronically delivered invoice in a specified standardized format. Since the sending and receiving systems use the same standardized format, both systems can share and recognize data.

Additionally, because e-invoices contain invoice data in a structured form, they can be automatically imported into the buying organization’s accounts payable system.

Electronic invoices typically do not include a user-friendly visual presentation of the invoice data. However, they can be temporarily rendered during processing or transposed into visual formats.

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The definition of e-invoicing requires two key functions.

The e-invoice needs to be created with the correct structure.
The e-invoice needs to be transferred from the seller’s system to the buyer’s system.

What e-invoices are not:

  • Unstructured invoice data issued in pdf or Word formats.
  • Images of invoices such as jpg or tiff.
  • Unstructured HTML invoices on a web page or in an email.
  • OCR (Scanned paper invoices).
  • Paper invoices sent as images via fax machines.

Types of e-invoicing systems

AP Automation - XML Invoice screenshot
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There are two main categories of e-invoicing systems that a business might consider.

The first is a point-to-point connection between the buyer and seller, which is often the case when using EDI invoicing.

Electronic Data Interchange, or EDI, is the most common form of e-invoicing. It is a method of transferring highly standardized information in a predefined XML data file.

A dedicated and secure communication link is used. This provides for safe interchange between two systems and optimizes the data flow.

The other option is through a network connecting multiple buyers and sellers in one platform. The network model is where the growth of e-invoicing is expected to grow the most, thanks to its scalability and efficiency for all parties involved.

Because all users of the network model exchange e-invoices in the same format, every new adopter makes the exchange standard used that much more influential and useful.

How e-invoicing differs from traditional invoicing.

Traditional invoicing generally involves receiving a paper invoice in the mail, and the AP department must hand-enter the invoice details into the financial system.

A separate administrator must approve the payment of the invoice. If the approval system is separate from the invoicing one, it may require manual data entry a second time.

A check or other form of payment must be written or printed and then mailed to the vendor. If the payment system is electronic and does not integrate with the invoice or approval systems, the AP staff is tasked with entering data a third time.

Finally, a paper copy of the invoice must be filed for record-keeping.

This invoicing method is prone to errors and slowdowns at each step of the process. That is what makes e-invoicing such an attractive option for accounts payable departments.

Government regulations and compliance requirements for e-invoicing.

Although other countries have mandated e-invoicing, the US has no clear mandates at either the state or federal level.

The Business Payments Coalition (BPC) started an E-invoice Exchange Market Pilot in 2022 in the US. This framework aims to give businesses the ability to exchange e-invoices, leading to faster business-to-business communication and efficiency. The BPC says that 25% of invoices are sent electronically in the US market.

However, many of these can’t be considered true e-invoices because they are little more than PDF files attached to emails. The data is not structured and must still be printed or hand-entered into destination financial systems to be processed.

BPC is partnering with organizations to create a global standard so invoicing can be fully digital. Some of the key benefits of this standardization are:

  • Lower costs
  • Reduced manual work
  • Better cash management
  • Error reduction
  • Risk mitigation
  • Increased transparency
  • Improved efficiency

The growth of e-invoicing

The idea of e-invoicing has been introduced previously. Electronic invoices have been around for 30 years, using electronic data interchange (EDI) and XML formats.

More recently, the main driver behind e-invoicing adoption has come from the government level.

In Europe – the world's most active region concerning e-invoicing – a series of legislation has been created to promote the uptake of e-invoicing across the entire European Union.

In fact, as of April 2020, EU countries must integrate the European Union’s eInvoicing Directive into their national laws and comply with its associated standards.

Benefits of e-invoicing.

Significant cost and time savings can be achieved by removing paper and manual processing from your invoicing. But the real benefits of e-invoicing come with the level of integration you can achieve, not only with your trading partners but also between your invoicing software and other business systems. For accounts payable in particular, integrating e-invoices directly into the AP automation solution further drives touchless invoice processing - which frees up time and resources for more value-adding and strategic tasks.

Starting to send and receive e-invoices can be an excellent first step of your organization’s digital transformation journey, and a critical step in ensuring that your business operations are efficient and scalable to support future growth.

High cost and time savings can be achieved by removing paper and manual processing from your invoicing.

According to a study by the European Commission, e-invoicing can lead to cost savings of up to 80% compared to traditional invoicing methods. As identified in a study by PwC, e-invoicing is projected to increase the GDP of the European Union by up to 0.5%.

 In the US, it is estimated that e-invoicing can save businesses $13 billion annually.

One of the real benefits of e-invoicing comes with the level of integration you can achieve with your trading partners and between your invoicing software and other business systems.

Two accounting systems that can communicate directly from buyer to seller limit the potential for data entry tasks in ERP systems.

Accuracy is increased when there is less need for data entry. Human error is the largest cause of potential mistakes and duplicate payments.

E-invoicing allows for automatic matching and validation against three types of documents – purchase orders, invoices, and shipping receipts.

For accounts payable, integrating e-invoices directly into the AP automation solution further drives touchless invoice processing.

You can free up time and resources for more value-adding and strategic tasks in the accounts payable team.

A study by the International Data Corporation (IDC) found that businesses that adopted e-invoicing saw a reduction in the invoice processing time of up to 50%.

Keeping your suppliers happy is an important task. One key to improving vendor relationships is providing quick payment for services or supplies.

A study by the Hackett Group found that e-invoicing can improve supplier relationships by reducing disputes and increasing transparency.

Some suppliers may also offer discounts with fast payment. A streamlined and automated payment system helps capture these deals and benefits both parties.

According to the Purchasing Manager's Index (PMI), businesses that use e-invoicing have a higher level of supplier satisfaction than traditional invoicing methods.

Accounts payable teams have a better filing system when invoices are maintained electronically.

AP staff also save time when they do not have to search through filing cabinets of paper records to review past payment history.

ERP systems can become data silos – repositories of data controlled by one department and isolated from the rest of the business.

When invoices are held electronically, the data can easily be integrated into other company systems.

This can allow organizations to make informed decisions on current financial data.

Another benefit of e-invoices is that the invoice information is more efficiently shared with auditors to maintain compliance.

Associated with this, when invoicing is handled electronically and through an automated system, there is less opportunity for fraud.

Starting to send and receive e-invoices can be an excellent first step in your organization's digital transformation journey.

It is critical to ensure that your business operations are efficient and scalable to support future growth while having a smaller environmental impact with less paper and ink usage.

Best practices for security and data privacy in e-invoicing.

Invoices can be sent more securely when an electronic invoicing presentation and payment platform are used. This method does not send an invoice directly through an unsecured email.

Rather, a notification is sent via email, and users can sign into the platform to view invoice data.

This sidesteps some of the inherent risks of email invoicing:

  • Receipt by an incorrect person or email bounce-back due to human error
  • Risk of interception or payment redirection
  • Spear Phishing attacks using false payment requests

This may allow for such security features as two-factor authentication and rule-based access so that only authorized users can view and manage invoice information.

How to get started with e-invoicing.

The basic steps of onboarding the e-invoicing features of an AP system are outlined below. The details of e-invoice creation may vary depending on the software you choose.

Inform Suppliers and Vendors
The first step in getting started with e-invoicing is to communicate with your business partners. Confirm that they are willing to receive invoices in this manner. Verify the contact information for each supplier and double-check this against your invoicing software.

Set Up e-Invoicing
Ensure that the e-invoice format you have chosen includes all necessary information. Invoices should include, at the minimum:

  • Transaction details
  • Buyer and seller identity
  • Acceptable payment methods
  • Applicable taxes and discounts

Generate e-Invoices
Because manual steps and manual data entry are eliminated or reduced, the entire AP process becomes exponentially more efficient than manual invoice processing. According to a study by the Hackett Group, organizations that automate their invoice processing can see a 30% reduction in the number of invoices requiring manual intervention.

Send invoices through the agreed-upon method. This might be via email or a secure website.

Learn how to choose the best e-invoicing software and streamline your accounts payable workflow from the experts at Medius.

How to choose an e-invoicing solution.

Deciding on a specific e-invoicing solution is a big decision. You want to select a product that will address the pain points facing your accounts payable team and can grow with your business.

Look for a system that can integrate with business software you already use or intend to use. As an example, ERP software solutions can generate e-invoices directly from sales orders.

Find a solution that meets your document storage requirements and auditing standards. The system you select should also be able to:

  • Calculate taxes for your region and apply discounts for a volume purchase or early payment
  • Allow for digital signatures if these are required
  • Have multiple languages and currency support for international sales

Medius recommends the following blog post for more information on how to choose the best e-invoicing software available today.

Learn more about e-invoicing and accounts payable automation.

Do you need some help with the accounts payable jargon in this article? Explore more definitions in this helpful blog post that identifies key terms for AP professionals.

AP automation can potentially eliminate the tired, manual processing that lowers accounts payable department efficiency. Read this article to get the facts about AP automation.

There are many benefits to e-invoicing, but there are real challenges to adopting this method of AP processing. How can companies discover the pros and avoid the cons of touchless processing?

What features should you look for in an e-invoicing solution? There are positives to choosing the right system for your business.

Artificial intelligence and machine learning are two technologies taking the world by storm. Learn how these two breakthrough technologies influence accounts payable.

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