The EU is leading the world in the introduction of standards for electronic invoicing, with its platforms and formats already finding traction outside of Europe in Australia, Japan, New Zealand and Singapore. Offering huge benefits for both governments and private companies, e-invoicing is fast becoming one of the driving forces behind fluid cross-border trade and interoperability.

Electronic invoicing (e-invoicing) is the business practice of sending invoices from seller to buyer using a structured electronic data format, which allows for automated processing of the e-invoice.

As a practice, e-invoicing is gradually replacing traditional paper invoicing throughout the world, bringing with it incredible productivity gains and cost savings. There are tremendous benefits for governments in terms of tax compliance and procurement efficiency. To benefit fully,  organisations need to pay attention to compatibility of data formats, structure, and delivery systems.

E-invoices are created and sent by the sender through e-invoicing software, either as a stand-alone platform or as part of an accounting software package.  It is received and automatically processed by the recipient’s software. Both systems have to use compatible standards, adhering to local regulations, and the internal policies of both parties.

An e-invoice consists of a structured invoice created using e-invoice systems that issue data using Electronic Data Interchange (EDI) or XML formats, and e-invoicing software that uses standard internet-based web forms.

The software for creating electronic invoices may run locally on company desktops and servers, or—for web-based, e-invoicing cloud services—on phone, tablet apps and desktop web browsers or applications.

An e-invoice can be visualised and read like any traditional paper or PDF invoice; however, it differs crucially in that the data is machine-readable and can be integrated automatically into the recipient's system, allowing for payment and further processing requirements.

A paper invoice that has been scanned, or an invoice created in Microsoft Word or Excel and sent as a common PDF or Microsoft Word format via email, is not an e-invoice. An e-invoice must conform to a specified format and can be processed automatically by the recipient’s system or software.

The exact data structure and delivery systems for e-invoices have become a matter of critical importance for companies and governments throughout the world as digital systems take over traditional business practices and governments mandate their use. The European Union (EU) in particular has led the way, creating formats, practices and directives that are setting standards for all parts of the world.

E-invoicing in the EU can be traced to business practices in the 1980s when manufacturers began to take advantage of EDI systems to improve invoicing and procurement practices, although in a context of almost no standardisation.

With a desire to improve interoperability between regions, we saw the creation of the European Directive on e-invoicing in public procurement with Directive 2014/55/EU. Aimed to standardise e-invoicing practices across EU member states, this directive was implemented fully in April 2020, meaning that all public administrations across the EU comply with the European Standard on e-invoicing.

The wide-scale adoption of e-invoicing within the EU brings considerable economic benefits and competitiveness to both the public and private sectors. Propelled by the implementation of e-invoicing directives, EU companies can do business more easily with the public sector across all EU nations, increasing their competitiveness with an advantage over other regions where e-invoicing is not mandated.

The economic benefits obtained through the elimination of paper invoicing are extensive, increasing profits directly, as shown in a study by PwC, where the European Union projected a 0.5% increase in GDP through the implementation of e-invoicing.

Such massive savings and growth come about through automation, integration, and a reduction of waste in terms of materials and human resources, as well as increased efficiency, a reduction in human errors, and assisting in key areas such as tax compliance both at home and internationally.

Cost savings

According to a report by the European Commission (referencing a study by Billentis, an e-invoicing consulting firm), savings of 80% can be made when using e-invoicing in comparison to traditional paper invoicing.

These savings are largely realised through a reduction in costs related to paper, printing, postage, and manual handling. This shift not only decreases financial expenses but also contributes to a reduction in energy consumption. This can be seen in the broader sense as a part of the green and digital transitions taking place throughout the world today.

The savings in the processing of e-invoices are significant thanks to integration into other business systems including accounting and payment systems or more general ERP systems, increasing the ease and speed of both paying and—from the point of view of the supplier— getting paid.

Further key e-invoicing savings are found in the archiving and storage of invoices—processes that can be automated and take up limited digital storage space in comparison to the vast physical spaces they have traditionally required.

Streamlined processes and increased efficiency

The streamlined e-invoicing process benefits suppliers by taking away the need for cumbersome paper-based transactions; the billing cycle’s duration and complexity are reduced, meaning that businesses are getting paid faster and using fewer resources to do so. 

The reduction in human intervention in the process of invoice creation, sending, receipt, processing and payment reduces the places where human error can occur, bringing with it more efficiency-boosting benefits. Removing manual work allows for more efficient assignment of crucial human resources.

The EU's push toward standardised e-invoicing practices amplifies the advantages of streamlined processes, leading to cohesion and greater competitiveness for businesses across member states.

Enhanced data security and compliance

By following stringent EU data protection regulations EU companies must operate on e-invoicing platforms that employ enhanced data security with robust encryption methods and authentication mechanisms, reducing the risk of data breaches. Compliance with EU directives, such as the General Data Protection Regulation (GDPR), is inherent in e-invoicing systems, providing businesses with a secure framework for financial transactions.

Secure data transmission protocols, such as encrypted connections (HTTPS), ensure that sensitive financial information is transmitted securely between parties, preventing unauthorised access.

The creation of standardised EU formats and protocols helps to promote consistency and compliance. Data minimisation and purpose limitation, consent management and cross-border data transfer all follow established GDPR requirements, ensuring data is processed and exchanged at the highest levels of security.

Reduction of fraud

VAT is undergoing a sea change in the era of digitalisation and with it the means to combat billions of Euros of tax revenue lost to VAT fraud each year. On December 8, 2022, the European Commission proposed measures to modernise the EU's VAT system, in an attempt to combat VAT revenue losses of €99 billion in 2020 alone, where one-quarter was attributed to intra-EU trade fraud.

The proposal advocates a real-time digital reporting system based on e-invoicing, aiming to reduce VAT fraud by €11 billion annually, cut administrative costs by €4.1 billion per year for EU traders over a decade and harmonise national systems across the EU. The new approach enhances transparency and enables Member States to promptly combat fraud.

Another angle in the reduction of fraud comes from the enhanced safety e-invoicing brings to the invoicing process. No longer vulnerable to scams and aggressive forms of invoice mail fraud, companies and governments can benefit from the security features of protected and secure e-invoicing platforms as mandated.

Cross-border trade

Since the e-invoicing Directive came into place in 2020, all public administrations throughout the EU have been required to comply with the European Standard on e-invoicing.  The European Commission has stated that this has consequently helped to reduce trade barriers that had previously arisen because of differing technical standards and national legal requirements for e-invoicing.

Prior to the Directive, each member state operated its own standards for e-invoicing and many states had their own e-invoicing platform. Today, Europe’s 27 EU Member States and four additional European Economic Area (EEA) countries (including the UK) must now operate under the standard fostering cross-border trade enabled by greater compliance and shared e-invoicing formats and practices.

Business-to-government (B2G) e-procurement

E-procurement as an EU-wide, B2G practice refers to the digitalisation of procurement processes between businesses and government entities. It involves the use of electronic tools and platforms to facilitate and streamline the various stages of public procurement, from the announcement of opportunities to the submission of bids and the eventual awarding of contracts.

Electronic invoicing forms an integral part of what constitutes B2G e-procurement, and the development and implementation of e-invoicing directives has been a keystone in its overall development, providing a path towards standardised formats and interoperable platforms that serve businesses and governments across the EU.

It is interesting to note that the European Commission assesses that one of the goals of the public sector adoption of e-invoicing is to provide benefits to private sector suppliers, with the public sector acting as a catalyst for the wider adoption of digital processes, leading to greater ease in cross-border trade and overall economic well-being.

The EU has committed to a path of regulation for e-invoicing throughout the region, and in 2014, the European Parliament adopted a directive that requires all public sector bodies in the EU to accept e-invoices.

Many Member States within the region have their own e-invoicing platforms in place with distinct policy frameworks and approaches for receiving and processing electronic invoices, and for the monitoring of e-invoicing implementation. However, the directive aims to create a set of formats and standards that permit interoperability between the Member States’ platforms and regulations.

Overview of EU directives related to e-invoicing

The European Directive on e-invoicing in Public Procurement was adopted with Directive 2014/55/EU in 2014, which requires all public sector entities to accept e-invoices and all private sector organisations to send e-invoices for B2G transactions. Implemented fully in 2017, invoices must conform to certain standards that include specifications for digital signatures.

What are some of the supported formats across the EU?

The European Committee for Standardization (CEN) developed the European Standard (EN) format for e-invoicing. This standard aims to harmonise e-invoicing practices across EU member states, promoting consistency and interoperability. The EN format includes specifications for data elements, syntax and semantics, ensuring that e-invoices are structured in a standardised way.

The United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFACT) Cross-Industry Invoice (CII) format is another commonly supported standard in the EU. This format is based on global standards and is designed to be interoperable across various industries and regions.

E-invoicing emerging trends

With the goal of keeping the Directive relevant, The DIGITAL eInvoicing Building Block is an EU organisation that aims to support and quicken the pace of e-invoicing within public and private entities in EU countries.

Beginning its work in 2022, the eInvoicing Building Block has continued and pushed forward with e-invoicing initiatives within the scope of the Digital Europe Programme (DIGITAL), with a focus on the initiatives led by all stakeholders.

As an alternative, the EU directive-led approach to cross-border standardisation and interoperability, the new French-German e-invoicing standard Factur-X / ZUGFeRD is lighting the way. Developed through cooperation between France’s National Forum for Electronic Invoices and Electronic Public Contracts (FNFE-MPE) and Germany’s Forum elektronische Rechnung Deutschland (FeRD), it shows that the DIGITAL initiative is not the only path toward a unifying standard.

Migrating to e-invoicing involves several steps. To begin, understanding the regulatory landscape is key, accompanied by selecting a suitable and compliant e-invoicing solution, and fostering communication with suppliers and customers, as not everyone is ready for e-invoicing.

Each business should understand the legal requirements of the EU countries they do business in as regulations, formats of invoices, and tax obligations can vary.  

Finally, ensuring training with staff who will author or receive electronic invoices should be completed for a smooth transition. 

The development of e-invoicing standards in the EU is paving the way for greater financial well-being for all stakeholders, reducing tax deficits and administrative burdens for governments. It also makes cross-border trade easier and more competitive for businesses in the member states. As a part of the greater digitalisation of business processes, the adoption of e-invoicing is a question of how soon, and not if.