E-invoicing is the process of creating and providing an e-invoice to exchange data between a supplier and a buyer. When provided as structured data, an e-invoice allows the recipient to automatically insert the invoice data into their accounting or ERP system.
Governments around the world are requesting the use of e-invoicing for business activities. Increasingly, e-invoicing includes live tax reporting to tax authorities.
The main difference between e-invoicing and traditional invoicing is the method of invoice creation, delivery, and processing. Traditional invoicing involves the creation of paper-based invoices that are physically delivered to the customer. The customer then manually enters the invoice data into their accounting system. In contrast, e-invoicing involves the creation and delivery of electronic invoices, which are in structured formats and therefore can be automatically processed and integrated into the customer’s accounting system. This eliminates the need for manual data entry and reduces errors, leading to greater efficiency and cost savings. Contrary to popular belief, e-invoicing is not sending invoice data via email in a PDF, as the data in a PDF will still need to be entered manually into Accounts Payable systems.
B2B/B2G/B2C e-invoicing is the use of e-invoices when conducting business between two companies (B2B), between a company and a government agency (B2G), or between a company and a consumer (B2C).
In many countries, e-invoicing is mandatory for all three types of business relationship; some countries only require e-invoicing for one or two types.
Where B2C is concerned, e-invoicing typically includes live reporting and clearance of the invoice by the tax authority. The invoice is then sent the traditional way (paper or PDF) to the consumer recipient (as consumers cannot receive and read invoices in structured data formats).
Some mandates only specify the obligation to receive e-invoices, while others only specify the obligation to send them.
Avalara E-Invoicing and Live Reporting is a SaaS e-invoicing solution that can simplify compliance processes for companies operating internationally. It can be integrated into business systems via a single application programming interface (API), and is designed to adhere to evolving e-invoicing and live tax reporting requirements in different countries. This enables businesses to exchange e-invoices and report data in real time via tax authorities’ platforms and exchange networks.
Advanced e-invoicing systems are flexible and scalable and can be easily integrated into existing systems. To meet new and emerging requirements, businesses should seek out solutions that comply with e-invoicing rules wherever they operate, or plan to operate.
Businesses should adopt e-invoicing to stay compliant and to continue trading in countries where e-invoicing is mandated, to ensure their compliance in countries where they plan to begin trading, and to benefit from automated AP/AR processes as a part of a wider digital transformation strategy.
It’s recommended to implement an e-invoicing solution as soon as you have found a solution and provider that supports your ongoing e-invoicing requirements. Government agencies are disclosing their intentions in advance, so companies should plan ahead to ensure operations are not disrupted and practices are compliant with regulations.
In the U.K., as in other parts of Europe and beyond, more and more businesses are adopting e-invoicing solutions to streamline their invoicing processes and improve their bottom line. Here are some of the trends that are shaping the future of e-invoicing:
- Increased adoption: driven by factors such as government mandates, cost savings, and improved efficiency.
- Greater automation: to further streamline the e-invoicing process, reducing manual intervention and errors.
- Interoperability: The ability to exchange e-invoices across different systems and platforms is becoming increasingly important, as businesses seek to connect with a wider range of trading partners. The use of standards-based e-invoicing formats and open networks, such as Peppol, is expected to help improve interoperability and make it easier for businesses to exchange invoices.
Read more about the future of e-invoicing.
There is no universal minimum turnover for mandatory use of e-invoicing as it depends on the regulations in each country. For example, in Italy, e-invoicing is mandatory for all domestic invoices, regardless of turnover. It is essential to check local regulations to determine the minimum turnover threshold for mandatory e-invoicing.
When searching for e-invoicing solution providers, consider whether they offer:
- Certified e-invoicing processes within the territories you operate, or plan to operate
- The capability to convert invoice data into all formats you, local governments, or your business partners require
- Security and encryption services to prevent you and your business partners from possible misuse of invoicing data.
- Live tax reporting services, where needed, for B2G, B2B, and possibly B2C types of business
- Digital signatures and digital archiving
- Integration with your existing ERP or financial system
- Any additional value-added services supporting compliance activities with local tax authorities
- Support for your requirements concerning monitoring, data views, download options, and dashboards to help users effectively use the system
Also, consider if the solution provider is a certified provider of the Peppol Access Point (for countries where needed).
Government and tax
Mandatory e-invoicing refers to a regulatory requirement or mandate imposed by a government or authority that obligates businesses to generate, transmit, and receive electronic invoices in a specific structured format and typically through a designated electronic platform. It means paper-based or PDF-based invoicing methods are no longer accepted.
Governments are mandating e-invoices to increase efficiency in the economy, to make it easier to conduct international business, to reduce fraud, to help to protect the environment by reducing paper usage, to optimise tax collection processes, and to close the VAT gap.
The VAT gap is the difference between the VAT revenue a government expects to collect and the amount actually collected. The gap can be caused by mistakes in VAT reporting, inefficient tax collection processes, and tax fraud.
E-invoicing can help U.K. businesses comply with legal and tax regulations, help ensure the integrity of the invoicing process, and prevent fraud through embedded controls and the use of digital signatures to verify the authenticity and integrity of the invoice.
As e-invoicing often involves real-time reporting of tax-relevant information to tax authorities, governments are able to view each transaction and, in many countries, can even see both sides of the transaction and match the supplier’s invoice and the customer’s input tax deduction. This gives tax authorities continuous insight into business operations (Continuous Transaction Control) which is not possible with summary tax reports.
E-invoicing can — and sometimes must — be used for government procurement processes. Many governments around the world mandate the use of e-invoicing for their procurement processes to streamline their invoicing processes. At the same time, this step provides them with the opportunity to introduce e-invoicing processes to businesses in their country. Introducing e-invoicing for public procurement processes can also mean that governments are seen to be leading by example, and a motivation for businesses to start using e-invoicing.
E-invoicing was first mandated in Brazil over a decade ago, followed shortly thereafter by most countries within the Latin America (LATAM) region. Italy was the first European country to mandate e-invoicing for B2G transactions (in 2014), as well as B2B and B2C transactions (in 2019). The introduction of mandatory e-invoicing varies depending on the country and the type of transactions involved.
Penalties for failing to comply with e-invoicing requirements vary depending on the country and the specific regulations in place. In some cases, businesses may face fines or penalties for failing to adopt e-invoicing or for not complying with specific technical requirements or deadlines. In other cases, noncompliance may result in the rejection of invoices, the rejection of VAT refunds, or the inability to participate in government procurement processes. It’s important for businesses to carefully review the regulations and requirements in their country to ensure they are compliant.
In response to mandatory e-invoicing requirements, businesses are proactively adopting e-invoicing to achieve compliance in all the territories where they operate, as well as in those they plan to enter. On top of staying compliant with local tax rules, businesses benefit from increased efficiency and automation in their finance departments when implementing e-invoicing. In countries where e-invoicing is not yet mandated, drivers for adoption are government reward programs for companies using e-invoicing, and large corporations implementing e-invoicing which influences their vendors and/or customers to do the same.
E-invoicing mandates have been introduced in various countries worldwide. The scope and details of the mandates vary by country and may depend on numerous factors, such as business sector, transaction value, or company size.
E-invoicing is mandatory in France for B2G transactions for suppliers of goods and services to the French public sector. These suppliers are required to submit electronic invoices in a specific format through the Chorus Pro platform (the government’s central platform for electronic invoicing).
B2B e-invoicing is not currently mandatory in France, but the French government has announced plans to introduce mandatory e-invoicing for businesses starting July 2024. This mandate will require companies to issue and transmit electronic invoices to their customers in a specified format, using a government-approved platform.
The KSeF in Poland — Krajowy System e-Faktur — is the National e-Invoicing System. It was introduced by the Polish Ministry of Finance to enable businesses to send and receive invoices electronically in a standardised format. The KSeF system is based on the European standard for electronic invoicing and uses the Universal Business Language (UBL) format.
E-invoicing is not currently mandatory for businesses in Australia and New Zealand, but is being promoted by the respective governments as part of their Digital Business Plan to support the adoption of digital technologies by businesses.
The Australian Taxation Office (ATO) and New Zealand government have launched a national e-invoicing framework which enables businesses in the region to send and receive invoices electronically using a common standard called the Peppol e-invoicing standard. The use of the framework is voluntary and aims to encourage businesses to use e-invoicing by providing a range of benefits, such as faster payments, reduced errors and costs, and improved cash flow management.
E-invoicing is mandatory in Italy, and has been for B2G transactions since 2014, and for B2B and B2C transactions since January 2019. All invoices must be issued and transmitted electronically in XML or FatturaPA format and sent to the Italian Revenue Agency via the Sistema di Interscambio (SdI). It is mandatory for all businesses, and failure to comply can result in fines and other penalties.
The Sistema di Interscambio (SdI) platform is the e-invoicing system used by the Italian government to process and exchange electronic invoices between businesses and public administrations. It is an electronic data interchange platform that is designed to enable the creation, transmission, and receipt of electronic invoices in XML or FatturaPA format.
E-invoicing is mandatory in public procurement of the state authorities. Since November 2020, the receiving of e-invoices by state authorities is mandatory to all public contracting authorities on the state level (Länder). Mandatory B2B e-invoicing in Germany is currently expected for 2025.
The Kingdom of Saudi Arabia (KSA) has rolled out the second phase of their e-invoicing mandate, Fatoora. From 2021, businesses with a taxable revenue of SAR 500 million and above need to meet the technical requirements to issue and receive e-invoices, and connect their ERPs via e-invoicing systems to the General Authority for Zakat, Tax, and Customs Authority (ZATCA)’s platform for preclearance of e-invoices.
E-invoicing is not currently mandatory for businesses in the UK. It is however recommended in order to reduce administrative burdens, improve cash flow management, and increase efficiency. Businesses that adopt e-invoicing can benefit from faster payment processing, reduced errors and disputes, and improved supplier relationships.
E-invoicing is mandatory in Spain for B2G transactions. It will become mandatory for B2B transactions as of July 2024.
B2B e-invoicing is not currently mandatory for all business transactions in Slovakia. However, central, regional, and local authorities are obliged to receive and process e-invoices (B2G). The government is implementing a central national electronic invoicing system to allow businesses to send e-invoices in a structured data format to the tax authority. This is primarily to meet the new European Union (EU) obligation to introduce electronic invoicing for B2G supplies but will also be scaled for B2B use in the future.
E-invoicing for B2G transactions is mandatory in Belgium for all central, regional, and local contracting authorities and entities. Economic operators within the regional government of Flanders and the regional government of the capital city of Brussels must submit e-invoices for B2G transactions (all other economic subjects can do so on a voluntary basis).
E-invoicing for B2B transactions is not currently mandatory in Belgium. However, the Belgian government has implemented a national e-invoicing platform called the Belgian e-Invoicing Platform (BEP), which enables businesses to create, send, and receive invoices electronically. The BEP supports a range of e-invoicing standards, including Peppol, and the government has launched initiatives to promote e-invoicing. Belgium intends to widen the obligation of e-invoicing and will likely introduce mandatory e-invoicing for B2B in 2024.
E-invoicing is not mandatory in Portugal for the B2C and B2B sectors. However, e-invoicing became mandatory in the B2G sector in 2021. The Portuguese government has implemented a national e-invoicing platform called the Sistema de Faturação Eletrónica (SFE), which enables businesses to create, send, and receive invoices electronically. The SFE supports a range of e-invoicing standards, including Peppol. For Portuguese B2B e-invoices, taxpayers must apply for a unique series of invoice numbers from the government in advance of issuance. They must then use certified software to produce a QR code on each invoice including this unique document code (ATCUD). QR codes and ATCUD codes must be on all invoices (PDF, paper, e-invoices) and tax-relevant documents.
The Portuguese government has made QR codes mandatory on all invoices — both printed and electronic. This is to provide invoice information in a structured format that can be captured and processed by IT systems. The QR code on Portuguese invoices contains invoice data that must be mapped to the Portugal SAF-T fields. Other countries such as Saudi Arabia, India, and Turkey also require use of QR codes on e-invoices.
Learn more about e-invoicing in Portugal.
Romania has launched a new national system of electronic invoicing — the RO e-Factura. Since July 1, 2022, it’s been mandatory to issue e-invoices via RO e-Factura for B2G transactions. In addition, since 2022, e-invoicing is also mandatory for certain B2B supplies of ‘high-risk’ products. The e-invoicing mandate is likely to be extended to all B2B businesses in Romania in 2024. This will require approval from the European Commission.
While there’s no tax-driven mandate for e-invoicing in the United States, e-invoicing is on the way. The Business Payments Coalition (BPC) ran a B2B e-invoicing pilot in 2022 and its results are being used to establish a B2B e-invoicing framework for the U.S. market in 2023.
E-invoicing is not mandatory for all businesses in Canada. However, the Canadian government is encouraging businesses to adopt e-invoicing as part of its efforts to modernise and streamline the invoicing process.
The government has also introduced measures to facilitate the use of e-invoicing, such as the adoption of the Pan-Canadian Public Procurement Portal (PSPC) for electronic invoicing for government contracts.
E-invoicing is mandatory for certain transactions in Japan such as those between companies and government agencies, as well as for transactions between businesses in certain industries.
Japan will implement a new Qualified Tax Invoices system for Japanese Consumption Tax (JCT), effective October 1, 2023. In addition, Japan has also recently implemented Peppol under the new JP PINT standard and launched the Japan-UK Digital Partnership, a framework to strengthen digital cooperation between the two countries.
E-invoicing is mandatory for all businesses that supply goods and services to the Singapore government. It is not mandatory for B2B transactions. However, e-invoicing is encouraged for all other business transactions. The government has implemented InvoiceNow — a system that allows direct transmission of invoices in a structured digital format from one finance system to another using the Nationwide E-delivery Network, which is based on Peppol.
B2B e-invoicing is not currently mandatory in Croatia. However, the Croatian Ministry of Finance has announced a new project called Fiscalization 2.0. This involves the implementation of a system for cashless payment via new eAccounts and mandatory e-invoicing with integrated e-archiving and advanced online bookkeeping. The e-invoicing mandate and platform is proposed to go live January 1, 2025, covering both B2B and B2G supplies.
E-invoicing is mandatory in Hungary for public procurement (B2G) — businesses must issue e-invoices, and all central, regional, and local contracting authorities must be able to accept and process e-invoices.
It is not mandatory to use e-invoicing in Hungary for businesses engaged in B2B or B2C transactions. However, it is required to report data from invoices regardless of their format (e-invoices, PDFs, and paper invoices) for B2B and B2C transactions to the Hungarian tax administration in real time (Real-Time Invoice Reporting — RTIR) in XML format using the Hungarian NAV Online platform. Under this system, every invoice must be reported to the tax authority within 24 hours of issuance.
A new service provided by the NAV Online platform to economic operators allows for the XML file submitted by the vendor to the NAV Online platform to report invoice information to be used to provide an e-invoice to the customer. If the vendor wants to use this service, they must insert all invoice data into the XML file for RTIR, and indicate that this is an e-invoice. The invoice data must be encrypted as a hash value, and this hash value must be included in the XML file.
When you are required — or decide on your own — to use e-invoicing, contact the provider of your ERP or other business systems you use for billing operations. As e-invoicing is required in more and more countries around the world, it’s likely the vendor of your system provides e-invoicing capabilities out of the box or as an add-on. Oracle offers Avalara’s e-invoicing capabilities in Oracle ERP Cloud via their marketplace. Deploying e-invoicing yourself can be difficult. It requires significant resources, upfront investments, and legal as well as technical capabilities. Maintaining and updating your own solution over years to come can be challenging.
A good alternative is leveraging an e-invoicing provider. You would connect your system to their e-invoicing service and pay for the transactions. The service provider is responsible for the maintenance of the solution over the life cycle. If you need e-invoicing in several countries, you can decide between using one global provider that will cover all countries you require, or using several local providers.
There are several benefits of e-invoicing for European businesses, including:
- Cost savings: E-invoicing greatly reduces the cost of paper, printing, postage, and manual processing.
- Faster processing: There is no need for manual data entry or paper handling. This can result in faster payment cycles and improved cash flow.
- Reduced errors: E-invoicing reduces the risk of errors that can occur in manual data entry or processing, resulting in more accurate invoices and fewer disputes.
- Improved efficiency: E-invoicing streamlines the invoicing process, reducing the time and effort required to create and send invoices. This can free up resources to focus on other areas of the business.
The ROI for e-invoicing varies, as it’s heavily dependent on the number of invoices created or received — as well as the cost of materials, transport, and human labour. According to Avalara estimates, using e-invoicing can typically pay off within a period of 6–18 months.
The use of e-invoicing allows the establishment of automated invoice processing. According to the Billentis study, compared to conventional paper invoice processing, e-invoicing will result in cost savings of 60–80% in most cases.
E-invoicing is the replacement of paper-based invoice documents with electronic alternatives. PDF invoices may seem like e-invoices in that they are electronic documents. However, generating PDFs, emailing them to the recipient, and processing them still requires human intervention. In contrast, e-invoicing uses data in structured formats that can be read and processed by computers to allow automated processes across the entire invoicing life cycle, from issuance to archiving. To deploy e-invoicing, you need an e-invoicing system that’s able to retrieve data from your ERP or other business systems, transform them into the required structured data formats, and transmit them to the required end point. Depending on your needs or local legal requirements, this end point might be directly to your business partner, the local tax authority, or an invoice exchange network.
E-invoicing saves businesses time and money by streamlining and automating the invoicing process. By reducing paper-based processes and manual data entry, businesses can save on time and costs associated with invoice creation, delivery, and processing.
E-invoicing can help improve reconciliation and reporting for U.K. businesses by providing real-time access to invoice data and automating the matching of invoices and payments. This can reduce the need for manual reconciliation processes and improves accuracy and timeliness of reporting. E-invoicing can also contribute to faster payments and improve cash collection processes, allowing businesses to better manage their financial resources.
E-invoicing helps improve supplier relationships for U.K. and European businesses by simplifying the invoicing process, reducing the likelihood of errors and delays, and providing suppliers with faster cash collection processing. Customers on the other side benefit from reducing the time needed for internal invoice processing. With faster invoice processing, they are able to pay invoices faster and benefit from early payment discounts. Use of e-invoicing can lead to improved cash flow for suppliers as well as buyers.
E-invoicing can improve efficiency for U.K. and European businesses by reducing manual labour, errors, and providing real-time visibility into invoicing processes. It can also help businesses save time and money, improve cash flow, and enhance their ability to plan for future growth.
E-invoicing offers a more environmentally friendly option for businesses by reducing paper waste and energy consumption associated with paper-based invoicing.
Businesses can deploy e-invoicing using international networks such as Peppol that can support their cross-border transactions by providing a standardised format, multilingual capabilities, and fast and secure invoice delivery to recipients in all Peppol member countries. For compliance with local regulations in individual countries in Europe, LATAM, and other regions, local, government-owned platforms often must be used.
E-invoicing can help U.K. businesses improve cash flow management by facilitating faster payment processing, reducing payment delays, improving accuracy and transparency, lowering transaction costs, and providing better financial planning capabilities.
E-invoicing can help U.K. and European businesses reduce the risk of late payments by improving speed, accuracy, and providing better insights into the Accounts Payable process. By reducing the amount of time it takes to process invoices in Accounts Payable, businesses can pay them faster, improve their cash flow and reduce the risk of financial fees caused by late payments.
E-invoicing can help streamline the payment process for U.K. businesses because e-invoices can be created, sent, and received in less time than paper-based or PDF invoices, reducing the time between invoice issuance and payment. E-invoicing can also reduce errors and disputes by removing manual data entry and thus narrowing room for mistakes. Additionally, e-invoicing can be integrated with accounting and payment systems, enabling automatic invoice matching and payment processing, further reducing the time and effort required to manage payments.
E-invoicing can be more secure for U.K. and European businesses than traditional invoicing methods due to reduced risk of fraud, increased privacy, enhanced data protection, automated invoice processing, and an audit trail of activities. As e-invoices are delivered directly into your system, there is reduced risk of invoices being misplaced or opened by an unauthorised person. Automated validation of data or data verification performed by the local tax authorities on e-invoices further increase the security of the invoice transmission processes.
The key features of a robust e-invoicing solution include the creation of electronic invoices and their transmission to the requested end point. To be compliant in the relevant country, the system you use must support all local requirements, such as support for digital signatures, digital archiving within the country’s borders, or QR code creation.
As billing and invoice processes involve business-critical and sensitive information, data security and encryption should also be considered.
Fast deployment and flawless user experience, invoice tracking, seamless integration with other systems, customisation, reporting and analytics, supplier onboarding processes, and other convenient tools can improve the efficiency in your finance department and increase the ROI of e-invoicing implementation.
E-invoicing plays an important role in procurement and supply chain management by automating the invoicing process, reducing errors and delays, and improving visibility and transparency throughout the supply chain. E-invoicing also enables better tracking and analysis of invoicing data, which can be used to identify trends, optimise procurement processes, and improve overall supply chain efficiency.
Formats and features
Here are some of the most common e-invoicing formats (each has advantages and disadvantages):
- EDI standards: EDI (Electronic Data Interchange) is the technical basis for transmission of data (different types of business data — invoices can be one of them) between two business entities that is widely used in B2B transactions. EDI invoices are transmitted directly between the sender’s and receiver’s systems, without the need for human intervention. There are several formats used for e-invoicing, such as EDIFACT, TRADACOMS, ODETTE, ANSI ASC X12, and others.
- XML (Extensible Markup Language): is a flexible, structured data format that is widely used in e-invoicing. XML invoices can be easily exchanged between different systems and platforms, and they can be customised to meet specific business needs.
- UBL (Universal Business Language): is an open XML-based standard with a predefined scheme for e-invoicing. It is widely used in Europe and is being adopted across the world. UBL invoices are structured and standardised, making them easy to process and integrate with other business systems.
- Peppol (Pan-European Public Procurement Online): is a European e-procurement network that facilitates international electronic document exchange for many document types, including e-invoices. It is widely used across Europe and is being adopted in other countries, such as New Zealand, Australia, Japan, and Singapore. Peppol invoices are based on the Peppol BIS Billing 3.0 format which uses the UBL format. E-invoices are exchanged through a secure network of access points. A country can adopt Peppol by providing an Access Point. To exchange e-invoices via the Peppol network, you need a Peppol Access Point provider that will transmit invoices to the recipient in the Peppol format used in the specific country.
- PDF (Portable Document Format): Although they are in a digital format, standard PDFs do not contain structured data for automated processing and therefore do not qualify as e-invoices. PDFs created in the PDF/A-3 format according to the ZUGFeRD or Factur-X standard can contain structured data and are the only PDFs that qualify as e-invoices.
The choice of e-invoicing format will depend on a variety of factors, including the needs of the business, the requirements of trading partners and regulatory bodies, and the available technical resources.
While provided in electronic format, standard PDF invoices do not qualify as e-invoices in terms of e-invoicing as defined by numerous governments and international public authorities. Although invoices sent in PDF format via email are digitally created, transmitted, and received, their processing requires manual entry of invoice data on the buyer’s side. This limits the possibilities for the automation of Accounts Payable processes. Exceptions are PDFs created according to the ZUGFeRD standard in Germany and the Factur-X standard in France. These PDFs are so called ‘hybrid’ PDFs: their visual representation can be read by people, while the incorporated invoice data in XML format can be read by machines and therefore used for automated processing of invoices.
E-invoicing and electronic data interchange (EDI) are not the same but share similarities. E-invoicing is the process of issuing and receiving invoices electronically, in a structured format such as XML or PDF/A-3 with XML data, while EDI is a more comprehensive electronic exchange of business documents in a standardised format that can include purchase orders, invoices, and other business documents. E-invoicing is a subset of EDI and focuses specifically on electronic invoicing. However, the two terms are sometimes used interchangeably.
Real-time reporting or live reporting is a requirement for a vendor to transmit VAT data or other invoice data directly to tax authorities immediately, at the point of the transaction. Unlike with traditional, periodical data reporting (such as summary VAT reporting), when using real-time reporting, each individual transaction (and the respective indirect tax data) gets reported to the tax authority immediately. Real-time reporting allows tax authorities to gain detailed insights into business activities and collect tax relevant data continuously.
UBL — Universal Business Language — is a structured format that’s an open, royalty-free, XML-based standard for exchanging business documents, such as invoices, purchase orders, and shipping notices, between organisations electronically. When used for e-invoicing, the UBL file would contain the information otherwise provided on paper or a PDF — but in a defined XML structure that can be read by algorithms. This allows for automated data processing.
Continuous Transaction Control (CTC) is a type of tax compliance system used in some countries by tax authorities to monitor and control business transactions in real time. It requires businesses to report their transactions as they occur (Real-Time Reporting or RTR), rather than only submitting periodic tax returns. Simply put, Continuous Transaction Control on the tax authority’s side is the other part of the Real-Time Reporting obligation on the company’s side.
The CTC system is designed to reduce tax evasion, increase transparency, and improve tax revenue collection.
Peppol (Pan-European Public Procurement Online) is a document exchange network using a set of standards and specifications for the exchange of e-invoices and other electronic business documents. It is designed to simplify cross-border e-procurement processes.
Peppol uses a standardised set of message formats and protocols, which enable different systems to communicate with each other. It also uses a common participant identifier, known as the Peppol ID, which can be used to identify and validate participants in the Peppol network.
Peppol has been adopted by many countries within Europe and is also being used by other countries, such as Singapore, Japan, Australia and New Zealand. It has become an important standard for e-invoicing and e-procurement, and is expected to play a key role in the ongoing digitization of public procurement processes. Peppol enables e-invoicing under the four-corner model.
The four-corner model in e-invoicing defines the roles and responsibilities of the different parties involved in the invoicing process. In this model, the invoice issuer and the invoice recipient each use a different e-invoicing service provider. The four corners are: the issuer, the recipient, the service provider of the issuer, and the service provider of the recipient.
The issuer is the party that creates and sends the invoice, the recipient is the party that receives and processes the invoice, and their service providers are the third- and fourth-party providers that facilitate the exchange of electronic invoices. The four-corner model helps ensure that e-invoicing processes are standardised and transparent across different industries and countries.
In a post audit model, the invoice is sent from the invoice issuer to the invoice recipient directly, possibly via an e-invoicing provider — but without prior involvement of the local tax authority. The tax authority still has the possibility to gain insight into the e-invoice, but only after this invoice was provided to the customer (‘post’), typically upon request, during the auditing process (‘audit’). With other models, as with the clearance model, the local tax authority gets information only after the transaction has been completed. The business must guarantee the authenticity and integrity of the invoice, and archive the document for a given period of time to satisfy requests for audit.
The post audit model however is still open to the potential of fraud and is rapidly giving way to the clearance model which can reduce fraud by providing real-time transparency and insight into business transactions.
The clearance model in e-invoicing means that a tax authority is involved in the invoice data exchange between the vendor and the customer as a third party. In many countries, the clearance model is mandatory with e-invoicing as it allows the tax authorities nearly real-time insight into business transactions. In this system, the e-invoice must be approved by the appropriate tax authority before being sent to the recipient. This typically takes place in real time and allows the government’s tax administration to gain the information about the amount of VAT to be collected. There are different types of clearance models — in some countries, invoice data is delivered to the tax authority and the tax authority creates the final invoice for the recipient. In other countries, the tax authorities provide a confirmation, or ‘green light’, back to the invoice issuers and they subsequently issue an invoice for their customer (this can be e-invoice in B2B or a paper-based invoice in B2C).
A QR code is a two-dimensional individual code that allows the storing of information in a machine-readable format on a compact graphics element. With e-invoicing, the QR code is used to provide information related to a particular invoice. As the QR code can contain information about the invoice and payment modalities, it is increasingly popular as a time-effective instrument to initiate payment and serves to prevent possible tampering of the invoice. Usage of QR codes allows governments to track invoices and motivate buyers to easily report received invoices to tax authorities. Using QR codes is mandatory, for example, in Portugal, Saudi Arabia, and many LATAM countries.
The ZUGFeRD* standard is an e-invoice format established in Germany. Usage of the ZUGFeRD standard allows companies to create invoices in a hybrid format (human-readable and machine-readable) and exchange them digitally with their business partners or for public procurement. The ZUGFeRD invoice format is now the most widely used form of e-invoice in Germany.
ZUGFeRD invoices are based on the PDF/A-3 standard that allows visual interpretation as a PDF (human-readable format) and at the same time contains structured invoice format data embedded as an XML file (readable for algorithms that can extract the information).
*ZUGFeRD stands for the acronym of the German title Zentraler User Guide des Forum elektronische Rechnung Deutschland.
SAF-T stands for Standard Audit File for Tax. The SAF-T standard was developed by the OECD in 2005 to enable electronic reporting of accounting data from businesses to national tax authorities and auditors. The SAF-T format is a structured data format based on XML. While SAF-T is an international standard to allow cross-border data exchange and audit automation, it allows room for country-specific fields to accommodate the local needs in audit and taxation systems. This is the reason why individual countries might use adjusted, local standards, such as SAF-T (PT) in Portugal. The aim is to ensure some uniformity of standards around digitally based reporting. SAF-T is currently used in Portugal, Hungary, Poland, Norway, Lithuania, Luxembourg, Romania, France and Austria.
E-invoicing models differ based on the technology and infrastructure used to exchange electronic invoices. E-invoicing models can also differ in terms of the standards and formats used for invoice data exchange, as well as the regulatory and legal requirements in different countries.
When introducing mandatory use of e-invoicing, it is the government’s task to decide which model is suitable for the country. This mainly depends on their aims and how much they plan to be involved in the billing process. The relatively simple four-corner model, for example, facilitates invoice exchange among companies and increases efficiency. However, since the tax authority is not involved, tax relevant data cannot be collected. In the more advanced models that include clearance or invoice issuance from the tax authority, the tax authority is becoming part of the billing process. This model provides tax authorities with the possibility to collect tax data continuously (Continuous Transaction Control). At the same time, it requires much higher involvement and investment on the government side.
Digital signatures are required to ensure authenticity and integrity of documents. A digital signature should not be mistaken for a common electronic signature that identifies the signing person. Digital signatures in e-invoicing are cryptographic procedures that should ensure authenticity and integrity of e-invoices by creating electronic records that assure no tampering happened after invoice issuance. A digital signature therefore is a kind of ‘electronic lock’ on the invoice.
Some countries strictly enforce the signing of e-invoices digitally, while others consider e-invoices valid even without a digital signature. Within a country, the regulations might change over time.
Digital archiving is a crucial component of e-invoicing as it provides a secure and efficient way to store and manage e-invoices. Digital archiving improves the security of invoices by ensuring that they are stored in a secure and tamper-proof format. In addition, digital archiving helps ensure that electronic invoices are stored in compliance with legal and regulatory requirements, providing peace of mind to organisations and their customers. As such, digital archiving is a key component of e-invoicing. The regulations vary from country to country. A country’s government defines how and where the e-invoices must be stored, and for how many years. Saudi Arabia, for example, strictly requires storing e-invoices within the country, while other countries allow more flexibility.
Digital Accounts Payable (AP) is the digitisation and automation of AP processes. Within these processes, the invoice data is received in a structured electronic format via various communication protocols and transferred directly into the customer’s ERP system.
Digital Accounts Receivable (AR) is the digitisation and automation of AR processes. Within these processes, the invoice data created in the ERP system is transformed into standardised structured electronic formats, electronically signed or otherwise validated, and sent to the recipient.
Advanced e-invoicing solutions offer broad integration options which allow businesses to integrate e-invoicing capabilities into their existing ERP system, often avoiding the need to overhaul their existing legacy infrastructure.
Delayed e-invoicing implementation can be hugely disruptive to a business, cause unexpected audits and fees, and stall growth. If businesses act reactively, resolving e-invoicing mandates only as they occur, they might miss the benefits of a strategic, proactive e-invoicing approach. Being proactive can help a business to effectively plan, prepare, and implement an e-invoicing solution to meet upcoming compliance requirements.
The common challenges associated with implementing e-invoicing include resistance to change, technical issues, cost, compliance requirements, supplier adoption, data quality, impact to legacy processes, and training and awareness. However, these challenges can be overcome with proper planning and execution.
The implementation costs of e-invoicing to U.K. and European businesses can vary depending on the specific requirements of the organisation and the chosen solution. Key factors that can impact the cost of implementing e-invoicing are software licence costs and investment associated with integrating with other systems such as ERPs, billing, or procurement systems. When trading in several countries, such costs might multiply with each local project. Organisations should also consider costs associated with change management, such as training and supplier onboarding.
Selecting a vendor that can provide e-invoicing in multiple countries can help to limit the overall cost for international companies by limiting the need for parallel projects and parallel maintenance of several solutions. The benefits of e-invoicing, such as reduced invoice processing times, increased accuracy, and improved cash flow, can outweigh the implementation costs.
Yes, e-invoicing can be integrated with other software systems. In fact, one of the key advantages of e-invoicing is its ability to integrate with other software systems to automate and streamline the invoicing process.
E-invoicing software can be integrated with accounting software, enterprise resource planning (ERP) systems, customer relationship management (CRM) software, point-of-sale (POS) systems and other business systems. This integration allows for seamless data transfer between systems, reducing manual data entry and increasing efficiency.
See What is Avalara E-Invoicing and Live Reporting in this FAQ
The process for U.K. businesses transitioning from traditional invoicing to e-invoicing typically involves assessing your invoicing needs in all the countries you operate in (where e-invoicing is mandatory for your type of business activities or where there is an upcoming mandate), evaluating and selecting an e-invoicing solution, and setting up the e-invoicing system in the platform you use. It might be necessary to audit your existing business system in advance to determine if it delivers all data required by the mandate in the right formats. Once your e-invoicing system is up and running, the next steps include informing suppliers and customers of the transition, conducting tests, rolling out e-invoicing to all suppliers and customers, and monitoring the system. This involves careful planning, staff training, and stakeholder communications to ensure a smooth transition.
Advanced e-invoicing solutions offer broad integration options which allow businesses to integrate e-invoicing capabilities into their existing ERP system, often avoiding the need to overhaul their existing legacy infrastructure.
E-invoicing and other tax rules and regulations change frequently. Although we hope you'll find this information helpful, this FAQ is for informational purposes only and does not provide legal or tax advice.