According to a study by Billentis, an e-invoicing consulting firm (page 53), electronic invoice methods can lead to cost savings of up to 80% compared to traditional invoicing methods. These significant savings have led to a shift with many businesses and governments implementing electronic invoicing over more traditional types, like digital invoicing, to streamline processes.
However, there is a clear difference between a true electronic invoice and a digital invoice, and these distinctions, especially for governments and global enterprises, are important.
An electronic invoice is an invoice that contains supplier or purchase data in a form capable of being entered (integrated) into the buyer’s accounts payable or invoicing software without the need for any manual data entry. Electronic invoices employ several different formats to fulfil this requirement including XML, Electronic Data Interchange (EDI), and standardised, internet-based web forms.
A digital invoice is most often, but not always, a scanned PDF or Word file that humans can easily read and understand. Those who don’t employ automated invoicing processes can then manually enter that invoicing data into their accounts payable or other financing software. Although it can be viewed and processed digitally, it differs from an electronic invoice because it doesn’t contain structured data.
The clearest way to distinguish these two forms of invoicing types is by determining what an electronic invoice is not.
Electronic invoices are not issued in PDF or Word formats that include unstructured invoice data, nor are they papers sent by fax machines or scanned paper invoices; these are considered digital invoices.
It’s important to note that there are some electronic invoice formats that also include a human readable component along with machine-readable data.
There are a variety of benefits to using electronic invoicing methods instead of sending digital invoices, including:
Cost savings
Electronic invoicing offers reduced costs for both buyers and sellers. For buyers, implementing electronic invoicing processing enables savings of upwards of 60-80% (as mentioned above) via the elimination of paper processing and manual data entry. Additionally, it also provides a fast payback period, usually from 6-18 months (see Bellentis Report, page 67).
Sellers benefit from electric invoice solutions because they automate the invoicing process. Not only is there no need for paper processing or manual data entry (both prone to human error) due to automation tools, but also other unnecessary costs like postage, purchasing paper invoicing materials, and storage. Electronic invoicing also provides further financial benefits by streamlining the process in terms of customer services by reducing calls and reprint requests.
Accuracy and efficiency
Benefits from the accuracy and efficiency that electronic invoicing offers affect all those using it. It optimises the process, providing faster payments and processing, in addition to increased accuracy. Electronic invoicing software captures business-crucial data directly via electronic capturing, then immediately sends it to an enterprise’s accounts payable software.
Automation
Electronic invoicing makes it easy to automate all manual data entry and invoicing processes. This, in turn, enables automatic data capturing and invoice approval, reinforces on-time payments, and helps prevent late fees. Not only do these things make the process much faster on all ends but also help build trust and confidence among buyers/suppliers, as well as improve strategic relationships.
Time savings
Electronic invoicing methods help save monumental amounts of time, fully automating all data entry (prone to human errors), the acceptance of invoices, and accounts receivable processing. Additionally, it enhances IT department productivity, optimising their infrastructure. Since electronic invoicing is much quicker, it also enables businesses to improve cash flow.
Data security
Electronic invoice systems allow for greater data security for a variety of reasons. Not only are they equipped with advanced measures to ensure authenticity at an incredibly high rate of accuracy, but they’re often File Transfer Protocol Secure (FTPS), and sent through safeguarded protocols or networks like Virtual Accounting Networks (VANs), Applicability Statement 2 (AS2), web services, and more. Additionally, electronic invoice software includes fact-checking tools, and automatic data validation, and isn’t susceptible to theft, loss, or damage like paper invoices. This heightened resilience not only safeguards critical financial data but also cultivates an environment of trust and assurance for all stakeholders involved.
Compliance with government requirements
By working with a third-party electronic invoice company, any regulatory and compliance issues involving business in their own, or other countries, are accounted for and implemented. Since businesses won’t need specific tax expertise, it makes sending, paying, and processing invoices much easier, and can also open more global trade opportunities.
Digital signatures and encryptions
Another security measure electronic invoice software includes is a way to track the origin and authenticity of e-invoices by using advanced electronic signature systems. Also, in a further effort to provide secure processing, electronic invoice software includes various forms of data encryption, and authentication methods to prevent unauthorised access and fraud of invoice data. Some of today’s most popular encryption methods include multifactor authentication. This multi-layered approach safeguards against breaches but also cements the integrity of financial transactions.
Accessibility and compatibility
Digital invoicing and electronic software need to be compatible with any accounting software, Enterprise Resource Planning (ERP) solutions, or financial systems in an organisation’s current IT architecture. They also need to be easy to implement and shouldn’t require any unnecessary stress on their IT department; seamless integration should be expected. It’s also designed to be easily implemented by businesses or governments that want to, providing a range of standardised formats for efficient data exchange.
Accounting software
When it comes to accounting software, electronic invoicing provides several tools and solutions, ranging from enhanced account reconciliation procedures to the elimination of inefficiencies in the supply chain by reducing invoice disputes. Using an online invoice system also provides an overall boost in an accounts receivable department.
HMRC compliance requirements
Electronic invoice software needs to follow specific HMRC compliance requirements, including using compatible software, storing records digitally, and using digital links to transfer or exchange data.
Digital records, those stored electronically in a compatible software system, must contain specific information like the business name, address, VAT registration number, the VAT on goods and services bought and sold, the time and value of every transaction, the rate of VAT you charged, and adjustments made to that data either by reversing a transaction or from a tax return.
When transferring data from one computer or software to another, they must be linked digitally in a way that creates an electronic paper trail for auditing purposes. For example, sending an email, linking cells in a spreadsheet, Electronic Data Exchange (EDI) exchange or Application Programming Interface (API) transfer. Copying and pasting data is not acceptable. Electronic invoice software should be capable of managing these functions.
Some of the most common challenges when moving to electronic invoicing solutions are when businesses have been using outdated methods, such as paper invoicing processes. This is where the IT department comes into play and choosing a reliable software provider that offers easy integration and implementation, as well as proper support is crucial.
Picking the right e-invoicing tool matters for organisations of any size. E-invoicing provides data in a format computers understand, not just humans. This makes everything faster and less error-prone: payments are processed faster, and data gets captured and approved automatically. E-invoicing can lead to streamlined operations, cost savings, and effortless compliance, with better financial ecosystems that redefine how businesses and governments handle money in this day and age, and the years to come.