As the world becomes ever more digitized, it’s no surprise businesses are looking for ways to make payment and taxation less of a manual task. This often appears in the form of e-invoicing.
It’s estimated that between straight fees and time spent, the total cost of processing an invoice manually is around €30. Processing an e-invoice, however - even when you include the cost of the software - comes in at only €7.
This 80% discrepancy means not only are businesses better off from an automation standpoint when they move their payments and invoicing online, they’re also benefiting financially. Overall, it’s a win-win; even the US government has recognized that implementing e-invoicing across the federal government could result in a 50% savings annually. In their case, that’s $450 million every year.
So what are e-invoices, and what does it mean to use them? This article breaks down the benefits of moving your billing process online, and how you can get started.
E-invoicing is defined as “the interchange and storage of legally valid invoices in electronic format only between trading partners.”
Characteristically, e-invoices don’t require the use of any paper, but are just as significant legally as paper invoices. They can prove compliance or even act as tax originals.
In order for an e-invoice to be valid, however, it must contain the correct data and it must be verifiably authentic. The invoice should be compliant, should clearly state the goods or services received, and be executable based on the payment terms set up with the seller before the transaction.
Typically it’s a good idea for both the buyer and the seller to hang on to e-invoices for a certain period of time - 3 tax years is advised in the United States, 22 months in the UK - as they should be available to present to tax authorities if need be.
In its most basic form, the roots of e-invoicing can be traced back to the 1960s. At the time, companies were developing Electronic Data Interchange (EDI) systems to help transfer documents like invoices and purchase orders.
This early system laid the groundwork for the more digital version of the same concept that would emerge in the 1990s, when robust accounts payable software and web application became more prevalent.
By 2000, issuing invoices as CSV, PDF, and XML documents was fairly commonplace, and suppliers were enjoying a renewed ability to easily view, organize, and analyze their past sales.
As the digital era rolled in, companies began rapidly moving to e-invoicing. By 2012, 73% of businesses were using electronic invoicing to some extent. Today, nearly the same number use e-invoicing exclusively.
E-invoicing is a good idea for a lot of reasons, one of the most prominent of which is the ability to remove humans from most of the process. Paper invoices must be manually entered into AP systems - a process that takes a ton of time and is typically riddled with errors. On top of that, paper invoices are often moved from location to location, increasing the risk of them becoming lost, or their receipt or execution being delayed.
With that benefit alone taken into account, e-invoicing can save companies roughly 80% of the their current invoice management costs.
Other benefits include:
- increased ability to analyze spending
- faster payment cycles
- better ability to analyze contract performance
- enhanced tracking
- ease in dispute mitigation
- opportunity to find more supplier discounts and rebates
- overall better auditability
- ease of access to data
- green approach in reduction of paper use
One of the greatest benefits of e-invoicing is realized by companies who regularly deal internationally.
Invoicing electronically allows suppliers to interact more easily with their overseas clients, essentially eliminating the language barrier by using a uniform template structure that’s automatically recognized by e-invoicing systems.
It also means neither supplier nor customer are faced with mailing documents internationally - an expensive process that can take weeks or even months depending on where the documents need to go and the reliability of that region’s postal service.
How to begin your e-invoicing depends on your company size, business volume, and number of suppliers.
For freelancers and small businesses, starting to e-invoice is as simple as migrating to a simple e-invoicing software, many of which are relatively inexpensive. Some of the best e-invoicing products for these types of suppliers include:
- Zoho Invoice, which not only helps you create invoices, but includes the ability to generate automated payment reminders, work with your accounting team, and track the time it has taken to process invoices. Zoho integrates with quite a few online payment gateways, such as PayPal, Stripe, and Authorize.net, ensuring you can be paid through your preferred method and on time.
- For businesses working internationally, Harvest is a good choice for generating multi-currency invoices. Harvest also allows you to create retainers, which is ideal for freelancers.
- Hiveage is one of the most loved e-invoicing products for small businesses, thanks to its wide range of features. It’s also known for its simple and comprehensive reporting, time tracking, and the ability to manage multiple users. Most importantly, Hiveage offers a free option, and premium plans start at only $6.95 per month.
For larger corporations, e-invoicing is typically rolled in with larger accounting software services. Some of the most popular for e-invoicing are Tipalti, RepliconPSM, Fundbox, Slickpie, Dynamics 365, and Zuora.
Regardless of how the e-invoice was generated, it’s important to ensure you avoid serious fees when you pay it. For international transfers, a service like TransferWise can seriously reduce the cost of your invoice payments. You could even sign up for one of their Borderless accounts, which will enable you to hold and manage money in 27 currencies, along with getting your own pound, euro and US dollar bank details so you can pay and get paid like a local.
For national transactions, the most important thing is ensuring your suppliers are being paid through their preferred payment method.
If you’d like to learn more about e-invoicing and how the practice is growing internationally, Gartner recently released a study about its growing traction. If you’re not sure how to pay an overseas invoice, How to Pay an International Invoice is a great place to start.
Otherwise, getting started is easy. Start saving your business time and money by migrating your payments to e-invoicing.