Electronic invoicing has become increasingly common since becoming mandated in more than 55 countries. These mandates have been popping up because electronic invoices improve the government’s ability to audit, track, and enforce tax regulations on sales.
While these mandates have yet to make their way stateside, it’s a practice that business owners should get familiar with. Digital invoices don’t just help governments do their enforcement work, they help businesses streamline their operations.
Before you consider using e-invoicing as part of your accounts payable or accounts receivable process, you need to understand what it is, how it works, and how to implement it. Here, we’ll cover the need-to-know information to get you started before the practice is potentially mandated.
What is e-invoicing (electronic invoicing)?
E-invoicing refers to when a business generates, sends, and receives invoices in a digital format. These invoices are created and sent digitally as opposed to paper invoices converted into a digital file like a PDF.
Typically, e-invoices are made in an accounting or invoicing software in an industry standardized format (like XML or UBL). They are sent directly or imported easily into the recipients accounts payable or accounting platform where they are reviewed, approved, paid, and stored.
Since the format is standardized, accounting tools are able to read information directly from the file and import it into the platform. This means there’s no manual data entry which is an error-prone practice.
If the recipient prefers paper invoices, they can easily print out an e-invoice and keep it for their records.
Are invoices and e-invoices different?
E-invoices are fundamentally different from paper invoices. A paper invoice could be scanned and stored as a PDF, however, that’s not an e-invoice.
Instead, e-invoices are digital-first documents formatted so they can be sent and automatically processed by accounting software and enterprise resource planning (ERP) systems.
The file types of e-invoices are formatted uniquely and can be read by software to import essential information like the goods or services purchased, the amount owed, invoice number, and due date.
Digitally converted versions of invoices like PDFs or JPEGs do not have the same format or traits. An accounting software could use a text reader to import an invoice, but it’s not the same as an e-invoice, which can be sent and imported directly to the platform.
How does e-invoicing work?
The e-invoicing process is very similar to the traditional accounts receivable and accounts payable processes, but with improved efficiency at nearly every step.
1. Invoice generation: The seller creates an invoice in a standardized format. Usually, they’ll use a template to which they only need to add the customer information and billed items.
2. Invoice validation: The invoicing platform reviews the invoice to ensure all information is correct, including whether it matches a purchase order.
3. Sending and receiving the invoice: The platform sends an invoice through to the customer. If the customer uses a compatible platform, the invoice is sent directly through where it can be automatically imported.
4. Customer completes approval workflow: After acknowledging the invoice, the approval workflow begins. Notifications are sent to stakeholders to sign off on the invoice. Tracking information is updated at every step of the workflow.
5. Payment is processed: Payments may be made directly in the platform using the preferred method of choice. If the payment is made using cash, check, or other physical method, the sender must update the amount manually. 6. Invoice archiving and storage: Both the buyer and the receiver are provided with a digital copy of the paid invoice that’s automatically stored for safekeeping.
This streamlined process saves time for both the sender and the receiver. Depending on the payment method, the accounting platform is updated automatically saving finance teams from having to micromanage both accounts payable and accounts receivable.
Benefits of e-invoicing
E-invoicing has benefits in both the accounts receivable and accounts payable process. Both the sender and the receiver have an improved experience when using e-invoices.
Streamlined workflows
Using e-invoices saves time in the generation and processing of an invoice.
The business generating the invoice can use templates to get a head start. Customer information is easily imported from a database and billed items are imported from a purchase order (if there is one).
Once generated, the e-invoice is sent to the recipient’s ERP, accounting, or accounts payable platform.
Once the customer receives the invoice, it’s imported directly into their preferred platform to begin the accounts payable process. WIth a centralized, digital invoice that everyone can access, approvals are quick to obtain before rendering payment.
Whether you’re sending or receiving the invoice, you’re saving time and opening up capacity for your finance team to take on more valuable tasks.
Fewer chances of errors
Digital invoices come in a standard format with information that imports directly into the platform of your choice. By cutting out manual data entry, you reduce the chance of human error as part of the process.
This automation saves you time in processing the invoice and time spent reviewing entered information for accuracy. No more accounts receivable or accounts payable audits trying to find out why the amounts won’t balance.
Improved storage
Paper invoices are often misplaced or could be filed in the wrong spot. With e-invoices, the files are kept readily accessible in your invoicing or accounting platform.
Cloud storage means you can access the invoice from anywhere in the world and on multiple devices. You could even access an e-invoice on your phone while on the go.
The IRS requires that invoices must be kept for at least 3 years. With e-invoices, they’re easily accessible without taking up physical space.
Cuts down on costs
E-invoicing skips the need for paper, printing, postage, and storage costs. These are all immediate savings when switching to digital invoices.
But beyond those cost savings, automation and templates cuts down on the labor costs of generating, processing, and importing invoices.
Regardless of whether you’re sending or receiving invoices, e-invoices give you the opportunity to save money on your accounts receivable and accounts payable processes.
A more secure process
Paper invoices contain sensitive information. When you mail an invoice, you risk the chance that it goes missing or falls into the wrong hands.
E-invoicing leverages the latest security technology like encrypted file transfers, access codes, and digital signatures to keep information safe for both the sender and the receiver.
With tracking and tracing capabilities, you’ll know exactly who accessed the invoice, when it was received, and whether it’s been paid.
What pain points does e-invoicing address?
Ask anyone who has worked in accounts receivable or accounts payable and you’ll hear stories about the frustrations of handling paper invoices. This is how e-invoicing addresses those pain points.
Pain point #1: There’s too much paper.
Paper is THE productivity killer. It requires manual labor—and a lot of it. Plus, its transparency factor is practically nil, it’s hard to organize, and printing and mailing it is tedious.
Right now, your paper invoicing process may look like this:
- Research the amount due against past invoices and the month’s activities, including digging through past paper files and trying to locate other paper documents.
- Create the invoice electronically, checking the remittance information several times to ensure no typos or errors.
- Print the invoice.
- Stuff the invoice into an envelope, address it, stamp it, and drop it in the mail.
- Wait for the invoice to be delivered.
- Wait for the payment.
If the idea of surfing a paper tsunami doesn't thrill you, move to e-invoicing. You’ll benefit from electronic invoice creation, immediate delivery online, and the ability to easily store and grant access to documents such as past invoices, contracts, and payment history.
Pain point #2: Remembering due dates
It’s the 30th. All invoices are due. So who has paid and who hasn’t?
Tracking down the information is time-consuming. Even worse: Those painful payment reminder calls.
E-invoicing often comes with automated reminders. From chasing down unpaid invoices to making sure your payments are always on time, digital invoices make staying on top of payments easy.
Pain point #3: Data entry.
No one likes to tackle data entry. It’s mind-numbing work and it takes a substantial amount of time. Because of these two reasons (and more), it often brings about errors. One or two typos or transposed numbers can throw a wrench into your cash flow and reporting.
Keep your systems synced with e-invoices. Generated invoices automatically sync with accounting software to update accounts receivable and sales numbers while received invoices can be imported to update your expenses and accounts payable.
All of this means your books are up-to-date without errors whenever you send or receive an e-invoice.
Should you automate your e-invoicing?
Automated e-invoicing is faster, simpler, and easier than manual processes. As companies grow, an automated accounts receivable or accounts payable solution can provide more efficiencies, but even small companies can benefit from automation.
For example:
- It saves the organization time
- It helps keep the finance department lean as the company grows
- It lets you handle invoice management remotely, so you’re not tied to the office
- It assures compliance with approval workflows
In short, it can streamline the entire AR/AP process and help you improve your cash flow management.
Automate your AP e-invoicing with BILL
When you use BILL to automate your e-invoicing, you get a lot more than that. Here's how it works.
Step 1. Invoice arrival and automatic data entry
When an invoice arrives, BILL AI starts reading the invoice automatically and enters the data into the system for your review. This speeds up the data capture process and reduces the chance of human error. In fact, BILL customers reported saving on average 50% of their AP time.*
*Based on a 2021 survey of over 2000 BILL customers
Step 2. Streamlined, automated approval workflows
Once in the system, each invoice is directed to the right people for approval. You can set up as many business rules as you need. Pay some bills immediately and require several approvals for others. Your workflows are matched to each invoice and applied automatically in accordance with your preferences.
Step 3. Smart, easy handling for issues and hold-ups
Too many AP systems are built for an ideal world, as if everything will go according to plan all the time. That’s not real life. A big part of the BILL difference is how the system can become a resource to help you manage each challenge and keep things moving.
Paper invoices. Do you have a vendor who’s still sending paper invoices? Streamline your process by entering them into your BILL workflow. Just snap a photo with your phone and upload it through the app, or scan it to your computer and drag and drop it onto the BILL dashboard. BILL treats it just like invoices that are emailed directly from vendors.
Invoice questions. When someone has a question, you can collaborate on that invoice right inside the app. Any message is stored digitally with the invoice itself. All invoice communication is—every question and response. BILL uses digital, cloud-based storage to keep track of all of it in one place.
Invoice holdups. Does an invoice seem to be held up in the system? Do you need to speed things up to take advantage of discounting terms for early payment? Check its status to see where it is in the approval process and what's needed. Request the missing approval with a few clicks. The approver can even validate the invoice on their phone via the mobile app.
Step 4. Private, secure payment with a few clicks
When you’re ready to pay that invoice, BILL offers multiple types of payment methods: virtual card, ACH, international wire transfer, and even paper check. No matter which you choose (even a paper check), BILL will issue that payment from its own accounts, so your banking information isn’t exposed to the companies you’re paying. Choose from your payment options and pay with a few clicks. BILL will handle the rest.
Step 5. Automatic syncing with your account software
BILL can integrate with corporate accounting software like QuickBooks, Oracle NetSuite, Sage Intacct, and Xero. Your books stay up to date automatically, making reconciliations easier than ever, with far less chance of human error. The invoice data follows the invoice from initial entry, to payment, to updating your accounting software, all automatically.
Step 6. Time-stamped audit trail for transparency and visibility
At every step of the way, each touchpoint with an invoice is documented in a time-stamped audit trail. Auditing becomes a simple process when all events are captured permanently and available for inspection.
Step 7. Scaling up your business
BILL scales up just as fast as you can grow. In fact, BILL can help you scale up even faster by making it easy to manage incredibly complex AP systems with a lean finance team—so you can add to your revenue without an increase in your payable department headcount.
“Prior to implementing BILL, the AHS team spent almost a week each month processing paper, matching each of the invoices to a single check. Now the process takes just one hour in addition to dramatically reducing the time the CFO spends in the approval and signing of checks.” — Diana Westrop, Controller, Atlanta Humane Society
