Everything you need to know about e-Invoicing for SMBs
While e-invoicing has been mandated for all B2B transactions in companies with an annual turnover of INR 500 crore, and more recently for all companies with an annual aggregate income of INR 100 crore, the decree is now set to extend to businesses with a much smaller annual turnover. In light of this new directive, all SMBs need to understand what e-Invoicing is and how the new mandate impacts them. It is also a good time for companies to assess whether they are technologically ready to embrace this change.
Over the last few years, technology has rampantly changed the way accounting is managed. With advanced software, digital accounting today has often made complex processes much more efficient, error-free, and end-user friendly. One of the common accounting processes to have recently gone digital is invoicing.
Invoices are a crucial aspect of business that helps companies keep track of their sales and manage their finances efficiently. Over the past few years, they too, have gone digital. More recently, though, e-Invoicing has proven to be a game-changer.
What is e-Invoicing?
Electronic invoicing or e-Invoicing involves the generation and exchange of a structured invoice document between a seller and a buyer in an electronic format such as Electronic Data Interchange (EDI), XML, or with the help of an internet-based web form.
But how is an e-Invoice different from a digital invoice?
An electronic invoice (e-invoice) essentially is a document from the supplier that contains data in a structured form that the buyer's financial system can read without any manual intervention from the accounting team.
While e-Invoicing has been standard practice in most B2B enterprises, it has recently been made a mandate under the GST system. This means that most B2B businesses now have to generate their invoices in an electronic format as per the defined standard. These also have to be electronically authenticated by GSTN.
What does the new mandate mean for SMBs?
The Central Board of Indirect Taxes & Customs (CBIC) has made e-Invoicing mandatory for all B2B businesses and is rolling out this mandate in a phase-wise manner based on the company’s revenue. So if you are a Small or Medium Business (SMB) in India, then as per the new e-invoicing system, all your invoices will get electronically generated and authenticated by GSTN.
The 3 phase mandate has been rolled out as follows:
- Phase 1: From October 01, 2020, e-invoicing is mandatory for all Business-to-Business (B2B) transactions in companies with a turnover of INR 500 crore or more.
- Phase 2: From January 01, 2021, every registered entity with an aggregated turnover, (i.e., the turnover of all GSTINs under a single PAN, across India) of over INR 100 crore in a year is required to adhere to the e-invoicing mandate for all B2B sales.
- Phase 3: Starting April 1, 2021, taxpayers with turnover above INR 50 crores will be required to generate e-invoices for B2B transactions. Currently, the government has also allowed sandbox testing for ERP integration. Also, QR Code for B2C business mandatorily for turnover more than ₹500 crores.
Although e-Invoicing is made mandatory, companies can continue to generate invoices on their respective ERP with the required tweaks made to the existing system to be compatible with the new standardized format. Now, invoices have to be sent in a standard digital format to the Invoice Registration Portal (IRP). Businesses can also use other modes such as a direct API (Application Programming Interface) that is integrated with the IRP.
The Steps Involved
So what are the steps involved in generating an e-Invoice?
- Firstly, the business generates an invoice in the standard format (JSON), sent to the Invoice Registration Portal (IRP).
- Next, a signed draft of the invoice is sent back by the portal to the business, along with a unique Invoice Reference Number (IRN).
- A QR code is assigned to each invoice and this is shared with the business by the portal automatically.
- Then the invoice along with the QR code is shared by the supplier with the consumer allowing them to check the particulars of the invoice with ease.
- The same information is sent to NIC and GSTN for adding additional information on e-way bills and return data as well to make sure all the 3 databases are in sync.
E-invoicing, although daunting at first, tends to present many advantages for SMBs. Some of the advantages of e-invoicing include the following:
- Faster invoice delivery time
- There will be less data duplication, data entry errors, and reconciliation issues by cutting down on manual entry.
- Assured GST compliance
- Make invoice data easily accessible to the consumer - Once an e-invoice is uploaded on the GST portal, a copy is shared with the consumer e-mail ID mentioned on the e-invoice
- Tracking invoices in real-time, in turn leading to faster availability of input tax credit (ITC)
- Facilitate the auto-generation of e-Way bills by just updating vehicle details and using the e-invoice data wherever required
- With the help of real-time data access, there will be a marked reduction in fraudulent GST invoices. Also, e-invoicing ensures that only genuine ITC is filed. This goes a long way in cutting down fraud and tax evasion.
- There is no need to mail or courier invoices to the buyer anymore. All the invoices are automatically generated and made available to the buyer in real-time
- Irrespective of what ERP software you use, e-invoices can be read and reconciled without any hassle, since e-invoicing is highly interoperable
- Taxpayers can automatically generate GST returns as there will be a full record of overall sales and purchase under the GST system
According to Mr. Chandrakant Salunkhe, founder and president of the SME Chamber of India, there are various pros that small businesses are set to gain. He said that “The system should work for them. e-Invoicing will eliminate several hassles small businesses face after supply is made to large companies as the details captured cannot be disputed. Recording the transaction details will also help small firms build transaction history and access trade financing. Besides, the government can keep track of the transaction value of domestic supplies vis a vis imports".
Challenges to note
So what are some of the challenges that SMBs should be aware of?
First and foremost, most SMBs face the challenge of being well-equipped in terms of technology. They may have to assess their current digital accounting systems to ensure that they are par with the new e-Invoicing requirements.
Additionally, some consumers may not be willing to embrace a technology-driven way of doing business. They may not like to receive e-Invoices and prefer hard copies of the document instead. This can prove to be a hurdle that companies will have to mitigate by communicating the changes and their benefits to the consumers well in advance.
Although SMBs may not have been very keen earlier on adopting technology to generate their invoices, with this new mandate under GST they have to take a good look at their digital accounting practices and invest in a technology-driven way of doing business.
Even though daunting at first, e-Invoicing brings more advantages to the table than challenges. By ensuring standardization and easy access to invoice data, the mandate not just helps the government but also the suppliers as well as their consumers.
Prepare your business for e-invoicing under GST
Discover how to meet all compliance requirements while integrating e-invoicing into your tax function.
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