E-invoicing

E-invoicing stands for sending and receiving invoices in the form of an e-invoice. An e-invoice is a data file in the form of XML. Where paper and PDF invoices must be entered into an invoice processing application or accounting program, this step of electronic invoicing can be skipped. Solutions such as the Basware Network make it easy for both suppliers and customers to make the switch to e-invoicing.

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What is e-invoicing

E-invoicing, electronic invoicing or e-invoicing, is the exchange of the invoice document between a supplier and a buyer in an electronic format containing regular invoice data. In an e-invoice, the required data are in a fixed place with a specific encoding.

The emergence of e-invoicing

Like any paper-based process, the traditional method of invoice processing is manually intensive and prone to human error. For these reasons, people have been looking to automate the invoicing process. The first e-invoices were sent more than 30 years ago using electronic data interchange (EDI).

Initially, adoption of this took place from the corporate sector. Especially with the larger procurement organizations that required e-invoices from their suppliers. In theory, electronic invoicing requires no more than two parties; a supplier who sends the invoice for goods or services delivered and the customer who purchases and pays the invoice.

This model has varying degrees of success and requires maintenance of platforms, which in practice cannot be made profitable relative to what invoice processing should cost. There is a major drawback to sending and receiving invoices directly. Some suppliers provide invoices in PDF and others in some data format. The same goes for the customer; some think paper invoices are fine and others prefer them in an XML file. Moreover, e-invoices often had a format unique to the purchasing organization.

Since then, the use of e-invoicing has continued to evolve at a slow but steady pace. The rise of the Internet and data-related technology, have provided new opportunities for invoice automation and invoice processing that are affordable from the smallest to medium and large organizations. For example, the Internet has made it possible to create Web forms and Web billing so that electronic invoice data can even be entered online.

Digital billing

When people talk about digital or automated invoice processing, they frequently refer to a scan-and-recognition or Optical Character Recognition (OCR) solution. This can convert information from scanned paper invoices or from PDF invoices to data. So this is not the same as e-invoicing, because invoices are not delivered directly as data files. OCR requires the receiving party to perform an additional operation. While this operation is faster than manually transcribing into a system, it is still an operation that requires labor and can lead to additional errors.

E-invoicing lacks the conversion of the form in which invoice information is communicated, and invoice information is fed directly from the supplier to the buyer's back office system, without the need for manual intervention by the buyer. E-invoices can also include mechanisms - such as digital signatures - that ensure their authenticity and integrity. They arrive at the buyer in a format that can be integrated into their ERP and then archived for the legally required period without being altered in any way.

Thus, invoice reception with an OCR solution is partly manual; with an e-invoicing solution, invoice reception is automatic. However, the result is identical; invoice information is processed as data and stored with invoice processing software.

E-invoicing and e-billing

The electronic billing process is sometimes called e-invoicing and sometimes e-billing. The difference between these two terms is in the perspective. From the perspective of the buying company and the management of incoming invoices by accounts payable, the electronic billing process, like procurement, is part of the purchase to pay process. We speak of e-invoicing or e-invoicing if incoming invoices are received as data files.

From the perspective of the selling company, which sends invoices to customers through accounts receivable, the electronic billing process is part of the order-to-cash process. We speak of e-billing when invoices are sent as data files. In both situations, invoices are processed, but the perspective changes the name of the process to e-invoicing or e-billing.

Why e-invoicing

E-invoicing allows a company to automate the receipt of incoming invoices. So with an OCR solution, this is not the case. Both the purchasing party and the supplier gain a number of operational and strategic benefits as a result:

• There is compelling evidence that e-invoicing saves money for your business. Research shows that a paper invoice costs about 30 euros compared to less than 5 euros to process an e-invoice.
• Moreover, cost savings are accompanied by revenue-generating potential and cash flow potential.
• A growing number of national governments are forcing suppliers to use e-invoicing in their public sector invoicing. This will be a major driver of e-invoicing adoption in the near term.

Automation

Automating invoice receipt and invoice processing provides some strong benefits to reduce operational costs:

• Lower error rate
  In the retail industry, up to 40 percent of paper invoices contain data errors related to price or trade promotions. Errors require action. It is then necessary to work with suppliers to investigate how these errors could have occurred. E-invoicing eliminates errors by ensuring that data is correct upon receipt and remains unchanged during processing.
• Better invoice processing
  An e-invoice can be instantly and automatically scanned with data validation for duplicates or fraudulent invoices. This allows the invoice data to be safeguarded. Then, with invoice processing, the e-invoices can be easily linked to purchase order and goods receipt data to identify any mismatch or payment tolerance issues.
• Fewer phone calls and disputes with suppliers
  Ensuring the data quality of your invoice implies that suppliers no longer have to spend a lot of time tracking payment status or payment errors. Moreover, with the help of an online invoice status portal, suppliers can see for themselves the status of the invoices they have sent. The accounts payable department needs to spend much less time handling supplier calls.
• More room for added value
  Manual and corrective measures keep employees from adding real value, such as identifying opportunities to reduce expenses or performing invoice checks that allow purchasing organizations to identify billing errors and off-contract purchases. Relatively low-cost automation frees up more space for relatively high-cost employees to perform work that adds more value to a business.
• Better visibility on invoice flows
  Following on from the above, analytics support employees in their work with visibility into the invoice receipt and processing process as well as into invoices and supplier performance. Moreover, thanks to the speed of e-invoicing, all obligations become visible almost immediately after receipt of the invoice, improving forecast accuracy.
• Meeting VAT audit requirements
  E-invoices are very easy to store and search, making retrieval for audit a much simpler process.

Cash management

When customers buy on credit, the supplier assumes all credit risk. Small and medium-sized enterprises (SMEs) often face increased days outstanding (DSO) due to long payment terms and this can be exacerbated by late payment. Large companies are also under pressure to improve working capital by extending their days outstanding (DPO) and reducing debtor days on their own outstanding payments. This increasing tension between reducing DSO and extending DPO implies that more companies, regardless of size, are concerned about cash flow and liquidity. E-invoicing is helping considerably to ease this tension:

• Discount early payment
  E-invoicing is an effective cash management tool. Suppliers are burdened with buyers extending their days outstanding payables (DPO), increasing the number of days outstanding sales (DSO) of suppliers. With e-invoicing, the process from invoice receipt to payment is greatly accelerated. The prompt payment of invoices obviously benefits suppliers. Companies can therefore negotiate various discounts with these suppliers in exchange for early payment. Prioritized invoices can be approved and settled quickly, allowing buyers to take advantage of any contractual discounts or supply chain financing initiatives.
• Instant visibility of invoices
  Paper or PDF invoices take longer to become visible in the invoice processing process. And if these invoices are also submitted in the same form to budget holders for approval, further delays occur and sometimes it is not clear where an invoice is located. A large invoice that is not discovered by treasury until shortly before payment can result in a significant cash shortfall compared to the forecast. As a result, a company may even have to borrow money at a high premium at the last minute. Simultaneously, suppliers may cancel orders due to non-payment or late payment of invoices. In addition, fraudulent invoices enter the system more easily and are much more difficult to identify. By processing invoices electronically, all upcoming payments become visible to treasury almost immediately upon receipt of the invoice which improves forecast accuracy.
• Better spend management
  A critical analysis on spend management, including indirect spend, can lead to a more efficient purchase-to-pay process and better cash management. With which suppliers is the invoice turnaround slow? Are similar goods being purchased from multiple suppliers for no reason? In categories such as travel, legal, utilities and telecommunications costs, spend management can provide insights that reduce costs by 2-10 percent. Working more with preferred suppliers can also help negotiate agreements with favorable terms.

CSR

E-invoicing is in line with the trend to dematerialize, replacing physical processes with electronic ones, in order to reduce CO2 emissions from businesses in general. An estimated 12 million trees are needed to create the 30 billion invoices sent each year in Europe. Removing these paper invoices, the EU argues, will remove three million tons of CO2 from the environment.

Government

In addition, it is expected that e-invoicing will become mandatory from the government. In several parts of the world, the government is leading the way in e-invoicing adoption. The reason for this is twofold:

• The government itself receives invoices from business and wants to be able to process them efficiently.
• The invoice is an important document for taxes. To close the VAT gap, or the difference between tax revenue what you should expect and what was actually received, invoices between suppliers and customers will also have to be sent to the government. To handle the huge flow of invoices, e-invoicing is a requirement. In many South American and Asian countries, this is now a reality and the VAT deficit has been drastically reduced.

E-invoicing and government

A major catalyst for emergence of e-invoicing has been government regulations allowing companies to legally replace paper invoices with electronic equivalents as the basis for taxation and commercial activities. These new regulations originated in Europe beginning in 2001, but similar rules have since been introduced in Asia and Latin America.

Government adoption of e-invoicing is expected to accelerate. E-invoicing is on the agenda of G20 governments, particularly in Europe, Latin America and the United States. For many of these countries, cost-cutting is still a driving factor, and by implementing e-invoicing, their government agencies can realize back-office savings instead of cutting back on front-line services. The back-office efficiencies achieved through e-invoicing also enable government agencies to ensure that they pay suppliers on time or offer dynamic early payment discounts.

How e-invoicing works

No restrictions are imposed from the government on how the e-invoice should be created and sent. With that, an organization is free to use XSD tooling to create an XML invoice that conforms to a standard accepted by the receiving party. But in the situation where there are many suppliers and many customers, it is not easy to arrive at one standard.

The adoption gap

This takes work and often significant corrective work to keep invoice processing on track. To take this work off their hands, numerous service providers offer a role between supplier and customer, converting invoices between the parties into a format requested by the paying party. For example, a service provider customer sees invoices coming in in a specific XML format with a specific number of fields, after which the service provider converts all incoming invoices from all suppliers to the customer's desired specifications.

The huge advantage of this is the quick start-up for companies. They are no longer dependent on the cooperation of suppliers and can immediately receive invoices that can be further processed by an accounting program.

Peppol

The Pan-European Public Procurement On-Line network, better known as the Peppol network is a common global framework for the cross-border exchange of electronic business documents. This means that Peppol is not a platform on which business documents such as invoices are exchanged, but a network that connects many existing platforms, such as government platforms. Through this connection, the Peppol Network facilitates the exchange of business documents between different platforms. But even this description does not do Peppol full justice, because it is much more than just a network: Peppol is a whole set of rules and technical specifications to harmonize formats and transmission standards for electronic business documents.

In short, Peppol is not just a format for e-invoicing, nor a platform for e-invoicing: it is the complete package when it comes to seamless and efficient B2G and B2B connectivity. Ensuring this connectivity is a challenge for buyers and suppliers alike, regardless of organizational size. Already there are many local billing and procurement requirements and specifications around the world, and Peppol plays an important role in this. Many transnational organizations will sooner or later gain access to Peppol as a requirement:

• Many states rely on Peppol business validation rules for local billing mandates and rules.
• Peppol is also used in B2B connectivity and its importance will grow over the years.
• Although known to have a focus in Europe, Peppol has spread worldwide and is now actively used in Australia, New Zealand and Singapore.

Getting Started

Implementing an e-invoicing solution can be a complex process. It will involve several people from different parts of your organization, and your suppliers will also need to be hooked up. It also requires integration of different business systems. E-invoicing becomes really interesting when the e-invoices received can be processed automatically. In other words, if the e-invoice data is automatically validated and matched with data from POs, for example.

The business case

First, the scoping of the business case must be determined. To truly estimate the savings potential of e-invoicing, invoice processing will also need to be included. After all, an envelope containing a paper or printed invoice that is passed around by the organization from budget holder to budget holder for review must first be scoped.

To assess ROI and payback calculations, current invoice receipt costs will need to be calculated. Employees of accounts payable can be asked to record for a short period of time how much time they spend for different invoice carriers (paper, PDF, machine-readable PDFs and various e-invoices) to receive or retrieve them and enter them into the system.