An In-depth Guide to E-Invoicing Automation
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Invoices are both crucial and inevitable to businesses. Invoice processing is a major responsibility of the Accounts Payable department. Manual processing of invoices is tedious, time-consuming, and prone to errors. One of the most effective solutions that seem to be a gamechanger is e-invoicing.
Electronic Invoicing or E-invoicing helps organizations to ease AP functions and streamline them. It reduces invoice processing time, takes over repetitive tasks, and enables smooth functioning between the business and its customers.
This article provides a deep insight into what e-invoicing is all about, how automation can help e-invoicing, the benefits and challenges, and more.
What is E-Invoicing?
E-invoicing, a form of electronic billing, refers to the automated process of generating invoices. Sent from a supplier to a buyer for the goods or services delivered, this electronic document exchange is a legally approved document used for trading between a company and its customers/ partners.
Compared to invoices that are sent through emails as PDF attachments, the transmission, receipt, processing, and payment handling in electronic invoicing is completely digital.
Electronic invoicing is an ideal replacement for paper invoicing and helps eliminate issues that arise during manual invoicing processes.
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Importance of E-Invoicing
The concept of electronic invoicing is not new to businesses. From the time the European Union adopted e-invoicing as a standard and issued a directive in 2014, many countries including Hong Kong, Japan, South America, Asia, and more have followed suit.
The 2012 Global E-Invoicing Study was conducted by Basware, a leader in cloud-based e-invoicing and purchase-to-pay solutions in conjunction with The Institute of Financial Operations, a recognized authority and educator for financial operation, and details how electronic invoicing is expanding worldwide. According to the study, ‘increased adoption and use of e-invoicing were seen with 73% of respondents using electronic invoicing to some degree in 2012, which was a good 14% increase from 2011. Similarly, supplier resistance to e-invoicing has significantly decreased from 46% in 2011 to 26% in 2012’.
Electronic invoicing is a gamechanger for many organizations that deal with multiple customers or buyers and have to deal with numerous invoices on a daily basis. Since they are legally acceptable in businesses, they also serve compliance purposes without any hassles.
Electronic invoicing helps to formalize the processing of invoices, improves workflow, and streamlines the payment process. Automation tools used in e-invoicing make the process smooth, safe, error-free, and efficient.
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What is E-Invoicing Automation?
E-invoicing automation refers to the deployment of software designed to make the invoicing process electronic or computerized for ease of use. These e-invoicing solutions are capable of automating the entire process from data being read for invoice capture to routing it from the seller’s to the buyer’s accounts payable system, regardless of the invoice format, for payment processing.
E-invoicing solutions can be an important part of accounts payable automation. It enables smoother workflows such as supporting the integration of systems, automating tasks such as invoice matching and approvals, and handling repetitive tasks that are necessary to complete the invoice payment process.
How Does E-Invoicing Automation Work?
E-invoicing solutions generate an invoice document file which gets imported into the system, automatically. EDI (electronic data interchange), XML (extensible markup language), or CSV (comma-separated values) are a few of the regular data formats that are used to export files in electronic invoicing.
Technological advancements have enabled the use of artificial intelligence (AI) and machine learning (ML) technologies to automatically capture data and eliminate even the remote possibility of errors.
Automated e-invoicing solutions are designed to perform all validations with preset rules to verify that the invoices raised and sent to their customers are accurate and easily readable. The data from e-invoicing solutions is mostly stored in a centralized cloud-based platform that suppliers and buyers can use to manage the invoice data.
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Role of Automation in E-Invoicing
E-invoicing is a boon for many small and medium-scale businesses that depend on regular payments to run and sustain their companies. Automation makes electronic invoicing a breeze.
Capturing relevant data and preventing any unauthorized changes, it ensures an error-free process. There is no room for over-invoicing or duplicate payments as pre-set rules validate the data before payment processing takes place.
Automation enables e-invoicing solutions to integrate with existing systems. Invoices can be raised, sent, and routed to the appropriate person by setting appropriate levels of access and security to safeguard data from misuse or loss.
E-invoicing solutions optimize the payment process, reduce employee workloads, enable compliance and audit trails, and provide more visibility into the accounts payable process for analysis and decision-making.
How can E-Invoicing be Used?
E-invoicing is a complete process and a few basic requirements should be in place for it to be used effectively.
- An ERP (enterprise resource planning) or accounting system should be present to view the transactions involved.
- Rules must be predefined and routing must be set after discussing inputs from accounts payable, information technology (IT), and procurement teams.
- Validation rules for invoice exceptions, 3-way invoice matching, and sending notifications when invoices are approved or rejected.
- Pilot testing to see how the systems and the process works
- Implement the automated process in real-time
Types of E-Invoicing
The prevalence of e-invoicing is expanding in many countries. Though some countries do not have e-invoicing compliance regulations, it is still carried out as it promotes better efficiency of the invoice payment process. In that sense, e-invoicing is classified into 2 types - e-invoicing without compliance and e-invoicing with compliance.
E-invoicing without compliance
In this type, the e-invoice adheres only to the data format agreed to by the buyer and the seller and does not conform to electronic invoicing regulations of the country. The processes followed are:
- The parties involved i.e. the buyer and the supplier decide and agree on the data and format of the invoice.
- The invoice will have structured data using either EDI technology or simple web forms
- An e-invoice is created and sent by the supplier either from their accounts receivable system or through a web-based form.
- The e-invoice is received in a format that can be processed immediately by the buyer’s trade payable system.
E-invoicing with compliance
Countries vary in their rules and regulations for e-invoicing. E-invoices that adhere to compliance follow a similar process with the exceptions being:
- The invoice format is bound by the legislation and regulations of the countries of the trading parties
- Specific guidelines by the government regarding content validation, security, etc. are followed during electronic invoicing.
- Invoices can be used for audit and value-added tax (VAT) purposes
- No paper involved
E-Invoicing with compliance is a better method since it facilitates audit trails. Depending on the territories where the trading transactions take place, it is wise to follow that type of e-invoicing for greater business benefits.
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Benefits of Using E-Invoicing Automation
Automation using e-invoicing solutions can ease accounts payable functions and bring huge benefits to trading partners and their businesses. Some of the biggest pros of using automated electronic invoicing solutions are:
Ideal replacement for paper invoices
The creation and processing of paper invoices are cumbersome, error-prone, and require time and effort from both sellers and buyers. Where many transactions or multiple buyers are involved, the process becomes painstakingly difficult. E-invoicing solutions can eliminate such problems as the invoice in a data form and needs no paper.
Streamlined processes and reduced turnaround time
E-invoicing solutions aid in optimizing the invoice processing cycle and help reduce time and effort spent at various stages including tracking, approving, and processing payments. Elimination of the need for paper invoices, validating and matching related documents, and automation of repetitive tasks can all lower the processing time and result in a faster turnaround time.
Improved relationships
E-invoicing solutions act as a bridge to sustain good relationships between business partners. Since everything is automated, suppliers can track the status of their invoices without having to call or mail repeatedly for confirmation. Even errors are rectified faster and approvals are set to enable faster processing of invoices. Overall, this contributes to improved relationships and smooth functioning.
Promotes visibility and transparency
Electronic invoicing can enhance visibility into the entire invoicing process. Automated e-invoicing solutions track invoices, validations, and approval processes, and enable detailed audit trails. Real-time transactional data provides increased visibility into commitments thus improving forecast accuracy.
Lowered costs
Electronic invoicing can bring big savings to businesses. Electronic invoicing assures increased cash flow as invoices are delivered immediately for processing. Conversion to e-invoicing can bring down paper costs, processing costs by nearly 70%. Using e-invoicing solutions, stakeholders can track payments, analyze the spending trends, and find more opportunities to save costs. While prompt payments benefit suppliers, early-payment discounts benefit buyers leading to cost savings for both parties.
Higher Compliance
Compliance is one of the biggest advantages of using e-invoicing solutions. These solutions are designed to handle compliance. E-invoicing eliminates paper trails and stores invoice data and all other related documents centrally stored to facilitate easy compliance with VAT laws. It maintains the authenticity of the invoice data and prevents it from being altered easily.
Lowered Risks
With e-invoicing solutions, various risks are lowered or eliminated. Duplication of invoices and excess invoicing that are common with manual invoices are out of the question in e-invoicing as validation rules take care of them. Secure encryption protocols check every e-invoice, flag fraudulent invoices, and prevent data misuse or data loss of business information.
Green initiative
Switching to e-invoicing eliminates the need for maintaining paper invoices. Apart from helping with the green initiative for a better global environment, e-invoicing solutions also make businesses cost-effective and energy-efficient. Some of the biggest benefits on this front are:
- Removing the need for paper in the invoicing process
- Lowered printing and transportation
- Lesser need for human labour
- Lower wastage
- Lesser physical storage
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Top Use Cases for E-Invoicing Automation
E-invoicing increases visibility into a company’s financial situation and serves as an indispensable forecasting tool. E-invoicing solutions can also enable collaborative customer relationships which in turn supports timely invoice payments. A common portal for e-invoicing between the vendor and clients allows access to relevant documents for both parties, which can reduce disputes and misunderstandings and thus promote better customer relationships. Nanonets have been used for the digitization of invoices by many clients. Find below some successful use cases of e-invoicing automation using Nanonets:
- ACM services: ACM Services is a full-service environmental remediation contractor based in Maryland, USA. The use of Nanonets AI has helped ACM Services automate Invoice Extraction, saving 90% time for the Accounts Payable team.
- In2 Project Management, an Australian urban water corporation used Nanonets Pre-trained Invoice Extractor to capture invoice information in real-time and routed this information to In2 Project Management’s SQL Database. The extracted information was validated against the client's spend management system. The updated database was plugged into Power BI, which emailed insightful visualizations.
- Augeo, a virtual accounting firm in the United States, used Nanonets’ Ai-driven data processing platform for the digitization of invoices and uploading of the e-invoice data into an accounting program for further processing and workflow.
- Happy Jewelers, a family-owned business in the US, uses NanoNets to digitize and organize invoices coming in as emails, run it through the Invoice model to capture key invoice information like seller name, invoice amount, invoice date, due date, etc., and save the invoices on the cloud in folders structured by seller names. NanoNets deployed the custom workflow for Happy Jewelers in < 7 days from the contract signing date. This directly impacted the finance team, who could now process 50% more invoices at the same time without hiring more people.
Challenges in using E-Invoicing and E-Invoicing automation systems
Just as there are many benefits to using e-invoicing, so are there a few challenges in adopting e-invoicing. They are:
Choosing an e-invoicing solution
The foremost challenge is to decide whether to go in for an e-invoicing solution by making use of available resources or to use an e-invoicing service provider. Implementing an e-invoicing solution means investment in cost, resources, time, and skills. Getting required licenses, onboarding partners at different locations with varying technical capabilities, maintaining updates, and accommodating changes are the different challenges in choosing an in-house e-invoicing solution. Using a service provider can be a much easier and feasible option but organizations must ensure that they support B2B standards, provide integration options, have multi-language support, provide cloud-based access, and can ramp up to changing regulations.
Highly Technical and Complex Process
Implementing e-invoicing can be a difficult task. It needs the consensus and effort of both internal teams such as IT, procurement, finance teams, and possibly some tax consultants as well to help with country regulations. The availability of necessary resources and technical know-how to set up smooth functioning of the systems at both ends is a major challenge that needs to be resolved.
System integration
Integration is one of the biggest challenges faced during e-invoicing execution. Automated solutions need to ensure that all systems including accounts payable, accounts receivable, and ERP systems for enabling a smooth invoicing payment process. The integration carried out should support the exchange of the document whatever the format may be, allow validations, and be compliant with country regulations.
Customer reluctance
Electronic invoicing will work only if there is acceptance to make changes from a manual to a digital process from the customer’s side. Many customers might prefer the old-school process of maintaining manual invoices, especially if there is no country law that mandates them to follow e-invoicing. Convincing customers by discussing the benefits beforehand and even providing training to handle the digital process can ease e-invoicing challenges.
Data storage
Choosing electronic invoicing may reduce the data storage required compared to paper invoices. That being so, government laws may mandate the storage of e-invoices for long periods. Even a medium-sized organization can deal with numerous invoices every day. Besides accompanying documents such as purchase orders, goods receipts, and contracts may need to be maintained for facilitating VAT and audit purposes. This accounts for a lot of data storage, which can prove to be increasingly difficult for organizations.
Errors and Delays
Small errors can lead to insurmountable delays. Delays can arise due to incompatible versions of e-invoicing solutions, missing or excess numbers in data fields, and mismatches of master data with those on supplier invoices. Though e-invoicing means touchless processing, these kinds of delays may require human involvement and re-doing the entire invoice process from scratch making it a huge challenge for the supplier to receive payments.
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How to Choose the Best Software as per the Requirements?
With the rise in demand for e-invoicing solutions, choosing a good one becomes a difficult task. Here are some important pointers that can be used to select the best e-invoicing solution for business needs:
Facilitates electronic document exchange
The e-invoicing solution must support the configuration of various invoice formats and multiple payment forms. It should enable the exchange of documents between the trading parties without regard to their size or technical capabilities. Other accompanying documents needed to process the invoice must be supported to make the process complete.
Easy system integration
Most companies would like to retain the functionalities of the enterprise resource planning (ERP) systems. An e-invoicing solution should have the capability to easily integrate with existing systems, and web forms, and enable straight-through processing (STP) with the buyer’s and seller’s systems.
Validation checks and compliance
Effective e-invoicing solutions should be able to perform good data quality checks. It should validate if mandatory fields are captured, data in the invoice matches those in associated documents such as purchase orders or contracts, and goods receipts, meet established trade rules, and keep up to compliance criteria set by respective countries.
Archiving and cloud storage
The archival of e-invoices for longer periods of time is laid down as a criterion by many countries. Hence the e-invoicing solution should be able to support it with adequate cloud storage requirements. Besides, cloud-based access is the preferred mode for storage and access during the processing of invoices and to facilitate easy audit trails.
Efficient support system
A good e-invoicing solution will likely offer good support to its customers in terms of features and possibly customization. It should support multi-languages and time zones to accommodate global partnerships and business transactions. It should also be capable of performing timely updates to keep up with any changes in rules or country VAT laws.
Takeaway
Electronic invoicing is currently a rising tide that many countries can utilize for achieving good business benefits. It is one of the best strategies that companies can adopt to enable invoice process digitization. Managing payment processes is necessary and crucial for all businesses to survive in a competitive world. Using automation in e-invoicing ensures that the invoice process can be speeded up, streamlined, made secure, compliant, and can guarantee good returns to not only the supplier and the buyer but to the countries that encourage it.
FAQs
What is e-invoicing and how does it work?
Electronic invoicing or e-invoicing in short refers to using digital methods to create and send invoices to buyers for payment processing, instead of using regular paper invoices.
Electronic invoicing works by using structured data formats that guarantee systems interoperability between the buyer and seller. Validation rules, compliance adherence, and cloud-based access make e-invoices a safe, secure, and legally valid digital document for business transactions.
Is e-invoicing mandatory?
Electronic invoicing is increasingly popular to the extent that it has become mandatory in many countries to avoid GST evasion and to increase tax collection, with Europe leading the way. While countries such as Mexico and Brazil use government-controlled systems to mandate e-invoicing, The US Department of Treasury has mandated e-invoicing for all its suppliers. Similarly, Norway and Denmark have mandated e-invoicing for their public sector transactions, and India has made e-invoicing mandatory for companies crossing a turnover of 20 crores to enable GST adherence. Countries such as the UK, Germany, France, and more are looking to make electronic invoicing compulsory for public sectors.
Who is eligible for e-invoice in GST?
Emerging digital globalization has made taxation complicated and governments all over the world are leveraging technology to enable methodical taxation. Many countries now require direct submission of electronic financial documents directly from a company’s ERP system during the filing of tax returns. Such automated digital submissions enable better auditing and enforcement by governments and taxation bodies. E-Invoicing is particularly useful in this regard. According to a report by the Accounts Payable Network, at least 56 countries adopted, or were seriously considering e-invoicing mandates as early as 2013, a figure that is bound to have increased since then.
The types of businesses that are eligible for e-Invoicing, especially for taxation and GST purposes differ from country to country. Most countries that have a GST system in place have eligibility criteria for e-Invoicing.
The US is the only major economy that does not have a VAT or GST system, and therefore there is not yet a framework or mandate for e-invoicing in that country. Nevertheless, a few states in the US are slowly resorting to digital invoicing. For example, The Business Payments Coalition (BPC) led by the Federal Reserve Bank of Minneapolis, promotes the adoption of electronic business-to-business (B2B) payments, remittance data, and invoicing. A present initiative of the BPC is to develop and maintain the standards and requirements to enable the extensive exchange of e-invoices.
What is the purpose of e-invoice?
The purpose of using an e-invoice is to overcome the necessity of using paper invoices and increase the efficiency of the invoice payment process. Organizations look to boost savings in terms of cost, effort, and time, besides increasing speed and accuracy from the time of the creation of the invoice till the time payments are cleared. The digitization of e-invoices also helps in adhering to compliance and VAT regulations and ensuring the security and safety of important documents for audits.
What is the difference between invoice and e-invoice?
An invoice is a commercial paper document that is sent from a supplier to the buyer for collecting payment for goods and services. A scanned paper invoice or one that is created in Word is called a digital invoice. E-invoices are invoice data files issued either using electronic data interchange (EDI) or extensible markup language (XML) formats or through standard internet-based web forms.
How is e-invoice generated?
E-invoices are created by suppliers or vendors through accounting or billing software. Following are the steps to generate an e-invoice:
- The e-invoice schema with mandatory parameters is first completed and then a JSON file is created
- A unique invoice reference number (IRN) is generated
- The e-invoice is then digitally signed and a quick response (QR) code is generated so it can be accessed even through hand-held devices.
- The invoice is uploaded to the invoice registration portal (IRP) for approval
- The uploaded data is shared with the E-way bill and GST system
- The digitally-signed JSON along with IRN and QR code is sent back to the seller by the portal and the buyer will also receive the invoice on their email id.
Who is exempted from e-invoicing?
The kinds of businesses that are exempt from e-invoicing also vary between countries. In India, for example, Insurance Companies, Banks and Financial Institutions, Goods Transport Agencies, Transport Service Providers, and units in the Special Economic Zone, Free Trade, and Warehousing zones are exempted from submitting e-invoices for GST/taxation. ZUGFeRD, NLCIUS, and Finvoice are some of the e-invoicing standards used throughout the EU, with information about which kinds of companies are and are not eligible or exempted from e-Invoicing. All these standards are based on the EN 16931 standard (semantic data model) and may be referred to for more details on exemptions.
What is e-invoicing software?
An e-invoicing solution or software is a tool used to streamline the invoice process in accounts payable (AP). It uses structured data formats to make vendor and customer systems compatible and uses appropriate field mapping for better interoperability. The software usually uses a cloud-based database or Saa for access and storage.
What is the limit for an e-invoice?
The limit for e-invoices varies between countries and it is best to get the information on specified limits from the taxation department of the relevant country. For example, in India, companies with a turnover of 50 Cr. – 100 Cr. are required to submit e-invoices for taxation purposes.
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