E-invoicing: all the basics you need to know

by | Dec 16, 2024 | Suppliers

E-invoicing hasn’t quite hit its stride in the U.S., but it’s certainly a hot topic in the supply chain industry. E-invoicing enables more businesses to comply with new guidelines and business practices, adopt new technologies and support faster, more efficient invoicing.

While e-invoicing may feel like a big change for companies in the U.S., it’s one that has been well-established in Europe for quite some time. Whether you’re in Europe and need to get started with e-invoicing or in the U.S. and just want to get a feel for what could be ahead, here’s an overview of the basics.

Times are changing

As a B2B or B2G supplier of goods or services, the act of sending an invoice is nothing new; it’s how you ensure that you get paid for the goods or services you provide.

What may be new for you, however, are the changes to your customers’ billing requirements. If you haven’t had to deal with these changes yet (or are still putting it off), it can’t hurt to gain a better understanding.

A quick history lesson on invoicing

Throughout history, the invoice has gone through several transformations and improvements to get to where we are now.

~3000 BCE: Humans began creating invoices because of the need to record transactions of items that were sent and received. These first invoices were extremely basic and were written on materials like stone, clay or bone. (Thankfully, we’ve progressed quite a bit from this format!)

~1500: People began using paper for invoices. Items and services are written down and then shared with the purchaser to record transactions and remit payment. Funnily enough, this process would remain very similar for hundreds of years. Initially, these invoices were still handwritten and most likely hand-delivered; eventually, they would be typed and mailed.

1981: The first computer-generated invoice is created. Since the 1980s, electronic invoices have become the norm for businesses.

Present day: You likely send PDF invoices via computer by email or through your accounting system. However, these invoices are not always secure, and data is at risk of being compromised by cyberattacks. This, along with boosted compliance and accuracy, is why the e-invoice is the logical next step.

What is an e-invoice?

Like a PDF, an e-invoice is a digital file. But that doesn’t mean all PDFs are e-invoices.

An e-invoice is a structured file where each part has a fixed location that’s determined by the standard used. Because of the structure, an e-invoice can be automatically exchanged electronically between different systems.

The e-invoice must contain the same information as any other invoice (and any additional information requested by your customer).

What are the benefits of e-invoicing?

One set e-invoicing standard: A set standard for e-invoicing creates simpler processes that ensure documents are traceable and secure.

Automated electronic invoicing processing eliminates errors: Without human input, you’ll see improved productivity, processing speeds and reduced errors.

B2G and B2B invoicing costs are decreased: Manual mistakes are mitigated, and invoices are processed and paid faster, which can have a massive impact when you’re looking to optimize your procure-to-pay or order-to-cash processes.

Supplier and buyer relationships are improved: Improved collaboration means your partners are happier, fewer invoices are lost or missed and invoice delivery expectations are met.

Processing and payment cycles are completed faster: Efficiency is boosted as the payment process is streamlined, and you can gain more insights into your workflow.

How do I create an e-invoice?

There are several ways to create an e-invoice. It all depends on the invoicing requirements of your customer and the options your customer offers. But it’s also influenced by the capabilities of your company and the number of invoices you send.

Option 1: Directly from your accounting or ERP system

You can create a direct link between your system and your customer’s system by adopting an EDI (electronic data interchange) software that makes this direct link possible.

With EDI, no human intervention is required for the exchange to take place. When a business exchanges many documents each day, this saves a lot of time, effort and paper.

EDI does come with a price tag, however, which is why you should tailor your EDI system to match the number of documents your business exchanges each month.

Option 2: From PDF to e-invoice

If you’re still interested in sending your emails via a PDF format, you can choose to purchase software that converts your ‘born digital’ PDF invoices to e-invoices.

‘Born digital’ means that the PDF was generated by an accounting system, recognizable by the fact that you can select the text in the file.

Like an EDI solution, there are costs involved in purchasing this software. You’ll have to consider whether it’s necessary for your business right now; if you only exchange a few documents a month, you may not need to worry about switching to e-invoicing.

Option 3: Using WebEDI or your customer’s e-invoicing portal

If you only send a few PDF invoices per year, you’re probably not eager to invest in an EDI solution or software to convert PDFs.

For these suppliers, a supplier portal (or e-invoicing portal) is often offered. This is also called WebEDI and allows suppliers to manually enter invoices online into a portal. These are then converted to the buyer’s desired e-invoice format and sent to the buyer’s system without human intervention.

The use of such a portal is free of charge for the supplier; in fact, the portal is operated by the buyer and this organization therefore owns the e-invoicing portal.

How do I send an invoice through Peppol?

If you’re in Europe, you may find that your customer requests that you send your invoice through Peppol. However, Peppol is a network that is becoming increasingly popular around the world. Many companies and governments are connected to the network. Once you have access to this network, you can securely exchange invoices with all connected parties.

All invoices sent via Peppol must comply with the Peppol format: Peppol BIS Billing 3.0. To access the Peppol network, you need a Peppol Access Point (such as SPS Commerce). Access points are (usually) service providers that have been screened by the umbrella organization OpenPeppol to meet several quality requirements.

Conclusion

A lot has changed since the first invoice was created and it will only continue to evolve in the future. Similarly, the e-invoice has been around for a while now. Though it started as a solution for larger businesses, it’s now becoming increasingly embraced by smaller organizations as well.

Now, as Peppol expands throughout the world, organizations in the United States have a clearer idea of what e-invoicing requirements may look like soon. This is partially due to the different options for sending e-invoices where each is suited to a particular situation. Now, it’s accessible and easy for anyone to implement e-invoicing into their business.

SPS Commerce Blog Team
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