Key Differences Between B2B and B2G E-Invoicing Transactions in the U.S.

Business-to-government (B2G) electronic invoicing became mandatory in the US towards the end of 2018. The mandate, issued by the United States Office of Management and Budget (OMB) in 2015, stated that invoices should include contract numbers and relevant agreement details and comply with the Federal Acquisition Regulation (FAR).

Although mandatory business-to-business (B2B) e-invoicing is not currently mandatory in the US, that may change soon. A pilot project launched in 2021 to establish a common electronic invoicing network for B2B transactions, with the final wave in 2022, had positive results.

The Business Payments Coalition (BPC) and the Federal Reserve launched the project to try and overcome the challenges of implementing a nationwide e-invoicing mandate.

In this post, we’ll discuss B2B and B2G electronic invoicing in the US, their key differences, and their benefits. We’ll also look at the challenges most businesses encounter when implementing e-invoicing in the US and how to overcome them.

Is e-invoicing mandatory in the USA?

Since the end of 2018, business-to-government (B2G) e-invoicing has been mandatory as per the mandate issued by the United States Office of Management and Budget (OMB) in 2015.

B2B e-invoicing is optional, but the US government is working to change that soon.

Overview of B2B e-invoicing transactions in the US

Mandatory B2B e-invoicing in the US is still a work in progress, with few obstacles making it challenging for the government to achieve. These include the diverse rules on e-invoicing among different states and tax complexities.

The most recent move by the US government towards mandating B2B e-invoicing was the launch of the pilot project in 2021.

The e-invoicing pilot project in the US

The US e-invoicing pilot project was launched by the Business Payments Coalition (BPC) and the Federal Reserve to explore the feasibility and benefits of a standardized e-invoicing framework for B2B transactions.

The system had to overcome compatibility issues and enable interoperability between different systems. In 2021, the Digital Business Network Alliance (DBNAlliance) was established to oversee the adoption of e-invoicing in the US.

The DBNAlliance had to ensure a seamless exchange of electronic invoices between companies and advocate for shared protocols to address the need for a cohesive e-invoicing model.

This allowed access point providers to help connect businesses and ensure electronic invoices adhered to the requirements. The e-invoicing model included the buyer, the buyer’s access point provider, the seller, and the seller’s access point provider.

B2B e-invoicing requirements in the US

The DBNAlliance overseeing the legal framework of the e-invoicing pilot project in the US outlined the requirements for invoice compliance. These include:

Format: In the US, invoices must be issued using the XML-based UBL format. Most ERP systems accept this popular standardized schema. Unlike traditional PDF systems, this format allows easy invoice data storage and retrieval.
Digital signature and authentication: Invoices must have a digital signature to help authenticate the source and details in the document. Using an electronic signature also enhances the security of your documents, making them more challenging for fraudsters to access.
Archiving: After completing a transaction, business owners in the US must archive the electronic document for at least 7 years.

Benefits of B2B e-invoicing in the US

While the US government still decides how to proceed after the e-invoicing pilot project for B2B transactions, businesses can significantly benefit from this nationwide mandate.

Here are the benefits businesses can gain from electronic invoicing in the US.

Scalability

E-invoicing systems are designed to accommodate businesses of all sizes, from small startups to large enterprises. The scalable nature of these platforms allows them to handle increasing transaction volumes without compromising efficiency.

For example, as a company acquires more clients or diversifies its product and service offerings, the e-invoicing system can seamlessly manage the added complexity, ensuring uninterrupted workflow.

Scalability supports industry-specific customization. Whether a company operates in retail, manufacturing, or services, e-invoicing systems can adapt to sector-specific invoicing requirements, ensuring compliance and operational efficiency.

Enhancing cost efficiency

Traditional invoicing involves paper, printing, postage, and storage expenses, which can accumulate significantly over time. E-invoicing eliminates these costs, offering a digital alternative that is both eco-friendly and budget-friendly.

Beyond direct savings, cost efficiency extends to error reduction. Paper-based systems are prone to errors, such as incorrect data entry or lost invoices, leading to disputes and delays.

E-invoicing minimizes these risks, ensuring invoices are accurate and delivered instantly. This precision reduces dispute resolution and reprocessing costs, freeing up resources for other business priorities.

Streamlining business operations

E-invoicing streamlines invoicing workflows by automating repetitive tasks, such as invoice generation, validation, and approval. Automation reduces processing times, enabling businesses to focus on core activities rather than administrative tasks.

Streamlined operations contribute to better vendor and customer relationships. Faster processing times mean suppliers receive payments sooner, fostering trust and loyalty.

Shortening payment cycles

E-invoicing accelerates payment cycles by enabling faster invoice delivery and approval processes. Unlike traditional paper invoices that can take days to reach recipients, electronic invoices are delivered instantly.

This speed allows businesses to meet early payment deadlines, take advantage of discounts, and improve their cash flow.

Payment reminders and real-time tracking features notify businesses of upcoming deadlines, minimizing late payment risk. Shorter payment cycles enhance liquidity, enabling companies to reinvest in growth and reduce dependency on credit.

Improving security and traceability

E-invoicing systems offer enhanced security features, such as encryption and secure data transfer protocols, that protect sensitive financial information from unauthorized access.

This level of security is crucial for businesses handling high-value transactions or sensitive customer data.

Electronic invoicing platforms allow businesses to track invoices in real time, from issuance to payment. This visibility ensures that companies can quickly address any issues, such as lost or delayed invoices, while maintaining a clear record for audits and compliance purposes.

Overview of B2G e-invoicing transactions in the US

Business-to-Government (B2G) e-invoicing in the United States is designed to ensure transparency and efficiency in government-related transactions.

These invoices are subject to strict requirements for accountability and compliance with federal regulations.

B2G e-invoicing requirements in the US

Strict standards govern B2G invoicing to ensure the proper use of government funds. B2G transaction invoices must adhere to formats established by regulations like the Federal Acquisition Regulation (FAR).

When creating an invoice for a transaction with a public entity, you must include specific details, such as contract numbers, reference identifiers, and agreement-related data. These provide a clear trail for verification and auditing purposes.

Benefits of B2G e-invoicing in the US

B2G e-invoicing offers multiple advantages, particularly in improving regulatory compliance and fostering transparency. It helps ensure efficient and accountable transactions between organizations and government entities.

Enhancing regulatory compliance

Mandating businesses to issue electronic invoices that conform to predefined standards, such as those outlined in the FAR, indirectly enforces regulatory compliance.

Companies must ensure that the transactions align with the federal requirements to minimize the risk of penalties, delays, or rejected payments due to non-compliance.

Digital e-invoicing also allows automatic checks for errors and missing information to ensure each electronic document meets regulatory standards.

This is especially critical for large organizations that engage in high-stakes transactions with government entities.

Improving transparency

Transparency between public institutions and businesses strengthens public trust by enabling better oversight of government spending.

Mandatory B2G e-invoicing requires transacting parties to include detailed information, such as contract numbers and agreement identifiers, which clearly record the relationship between the service provider and the government.

The high level of credibility facilitated by B2G e-invoicing in the US not only benefits government entities but also reinforces the credibility of businesses participating in these transactions.

What are the differences between B2B and B2G e-invoicing transactions in the US?

B2G electronic invoicing in the US became mandatory in 2015, while B2B e-invoicing is still optional. Here are more differences between B2G and B2B e-invoicing in the US:

Technical infrastructure: Your e-invoicing platform must be integrated with the government system for consistency and transparency when issuing an invoice to the government. However, you can issue invoices for B2B transactions with SRPs and e-invoicing systems designed for broader commercial use.
Invoice standards: B2G invoices must adhere to strict government formats, such as the Federal Acquisition Regulation (FAR), whereas B2B invoices have flexible formatting. B2G transactions are subject to rigorous audits and accountability measures, while B2B transactions are monitored primarily by private entities.

How do I create a US invoice?

The following are steps you can follow to create an electronic invoice that meets the requirements:

Step 1: Choose an e-invoicing method

First, decide whether you will create the invoice manually or use existing templates or invoicing software. If you are creating an invoice for a one-time transaction, you can do it manually, but if you run a business, you may need a quicker process.

Organizations that partner with an e-invoicing service provider often have an easier time since the e-invoicing systems are custom to the country’s regulations.

Step 2: Create your invoice and assign a number

Create a professional, clear, and easy-to-read document layout. Include “invoice” at the top of each electronic document you generate.

Before you key in the required details, assign a unique invoice number using a sequential, chronological, or customized numbering system.

Step 3: Include key information

A compliant e-invoice in the US includes components such as business and client information, project details, and payment terms. You must also check applicable regulations by state tax authorities and ensure any required forms are submitted.

Each state has its own rules and regulations on e-invoicing and taxation for B2B transactions.

Step 4: Review and send

The payment information is placed at the bottom of the invoice. Here, you must specify acceptable payment methods and provide accurate details for each.

Now that your invoice is ready, double-check it for accuracy and issue it via email, mail, an invoicing platform, or an access point provider.

What information should be included in a US invoice?

When issuing an e-invoice in the US, you must consider state laws since each state can make its own taxation decisions. However, there’s no national sales tax like VAT on invoices in the US, but businesses transacting with a US client require submitting a W-9 tax form.

Here is the mandatory information to include in an electronic invoice in the US:

Business name and address
Customer name and address
Invoice number and date
Payment terms and deadline
Description of goods sold or services rendered
Amount of products or services offered
Due amount and sales tax, if applicable

The bottom of the invoice should include your payment information, depending on your acceptable payment type.

How to assign numbers to invoices in the U.S

No specific rules exist for assigning numbers to invoices in the US. However, a few factors business owners must consider help ensure a consistent data track and traceability for future references. These include uniqueness, date reference, alpha-numeric format, and scalability.

The following are some of the most common systems for assigning numbers to invoices that US business owners can use:

Sequentially

This is an easy format to adopt and allows scalability as your business expands and you get more customers and projects. Sequentially requires you to use three of four digits, for example, 0001, 0002, 0003, 0004, etc.

You can also use the current business year as an identifier and add a sequence after it, such as 240001, followed by 240002.

Chronologically

Assigning numbers chronologically means using dates. For example, an invoice created on 1 January 2024 can be written as 20240101, where you have the year followed by the month and the day.

You can also include your customers’ unique numbers to distinguish them and write your invoice as 20240101-200-001. “200” can represent the customer, and “001” is the invoice, so the number for your next invoice with the same customer would be 20240101-200-002.

Customer number

If you prefer to identify invoices on a customer basis in your system, you can begin your invoice number with a customer’s unique number. This comes in handy for businesses with a wide range of customers in the books.

The numbers from this system may look similar to the chronological system. An example is “200-20240101-001”, followed by “200-20240101-002”, “200-20240101-003”, etc.

Project number

Companies that often work on projects or render services can significantly benefit from this system, which includes a code for the project, a customer’s number, and a sequential number.

An example is “RDCN1000-20-001”, followed by “RDCN1000-20-002” and “RDCN1000-20-001.”

How do I send and receive compliant e-invoices in the US?

While most companies in the US continue to adopt and embrace e-invoicing, some still issue and receive paper invoices. This outdated method is costly, prone to errors, time-consuming, and environmentally hazardous.

Let’s look at the steps for sending and receiving electronic invoices in the US to help streamline business operations and enhance customer-supplier relationships:

Step 1: Partner with a reliable access point provider

Access point providers facilitate interoperability between different organizational systems. They allow businesses to exchange compliant e-invoices despite the technical differences in their electronic invoicing systems.

The customer and supplier must each have their own access point provider. Like the PEPPOL network, the US e-invoicing platform has four participants in the invoicing process.

Step 2: Register and to your provider’s network

Choose a reliable access point provider like Storecove and register to their network. Storecove was the recipient of the first-ever electronic invoice issued for B2B transactions in the US.

To register for your provider's network, you must provide your business details, including contact details, company name, and address.

After registration, connect your existing e-invoicing or billing system to your provider’s network. This allows you to generate and issue compliant e-invoices directly from your software.

Step 3: Start generating and issuing your invoices

You can generate and issue e-invoices from your system now that you are connected. You can find a provider with an advanced network that can allow automation and tracking capabilities, making it easier and quicker to complete transactions.

Step 4: Receiving e-invoices

When receiving an electronic invoice, your access point provider ensures your system gets the document in readable form. They help overcome the barrier of interoperability issues in cases where some systems cannot read or edit specific formats.

Challenges in the implementation of e-invoicing in the US and how to overcome them

Implementing e-invoicing in the U.S. presents unique challenges for businesses striving to modernize their financial processes. They stem from a lack of standardization, varying state regulations, and the complexities of integrating new technologies into existing systems.

These challenges include:

E-invoicing integration with ERP systems

ERP systems often vary in complexity, customization, and compatibility, making seamless integration difficult. Companies using legacy ERP systems may face issues with outdated software, which might not support modern e-invoicing protocols.

Aligning data formats and ensuring smooth communication between the e-invoicing solution and the ERP system is also challenging. This may require extensive technical expertise and resources.

One of DBNAlliance's primary responsibilities was to facilitate interoperability between different systems. Using access point providers is often a quick way to integrate electronic invoicing with ERP systems.

Most reliable providers will accommodate your needs and the technical specifications of your existing system. They can tailor a custom solution for your organization.

Data security and privacy concerns

During e-invoicing, businesses must share data with government agencies and tax authorities for digital reporting, which increases the risk of data breaches or unauthorized access.

Ensuring compliance with e-invoicing regulations while safeguarding sensitive information becomes a critical hurdle for organizations.

Businesses must adopt advanced encryption technologies and multi-factor authentication to secure their accounts payable process and protect sensitive data.

You can implement secure, cloud-based e-invoicing platforms with robust data privacy measures to prevent breaches and foster trust with stakeholders, including tax authorities.

Resistance to change

Many businesses face resistance from employees or management when transitioning to mandatory e-invoicing. Concerns about the complexity of new systems, fear of disrupting existing workflows, and a lack of familiarity with e-invoicing regulations often delay adoption.

Overcoming resistance requires proper training and clear communication of the benefits of e-invoicing, such as reducing tax evasion and enhancing efficiency.

Highlighting real-world examples of improved processes and digital reporting compliance can help build confidence in the transition. Providing user-friendly platforms and ongoing support further eases the shift, ensuring all stakeholders are on board.

Ensuring interoperability across borders

Ensuring that your e-invoicing system is compatible with international tax authority requirements and e-invoicing regulations can be daunting for businesses engaged in cross-border transactions.

Differences in reporting formats, tax rules, and legal requirements create significant challenges in maintaining seamless workflows.

Adopting platforms that support global standards, such as PEPPOL (Pan-European Public Procurement On-Line), facilitates interoperability and ensures compliance across jurisdictions. These solutions simplify reporting to government agencies and reduce tax discrepancies.

You can also hire training teams to handle cross-border requirements to smoothen operations further and boost compliance.

Complex US tax systems

With varying tax rates, exemptions, and jurisdictional rules, businesses must ensure that their invoicing processes align with state and local tax regulations. Non-compliance risks, including penalties and audits, can further complicate e-invoicing adoption.

The intricate nature of the US tax system requires robust systems capable of managing accurate tax calculations across diverse business transactions while adhering to e-invoicing mandates.

Partnering with experienced e-invoicing providers simplifies integration with tax modules that adapt to jurisdictional requirements. These systems also improve cash flow management by reducing delays caused by tax discrepancies and ensuring seamless invoicing.

You can also leverage electronic data interchange (EDI) tools to automate tax calculations and ensure accuracy across all levels.

Takeaway: Adopt e-invoicing in the US for enhanced business performance

E-invoicing adoption in the US is on the rise as businesses seek to digitize most of their processes. Though not mandatory, issuing e-invoices in the US is permitted after a successful pilot project launched in 2021.

Mandatory B2B e-invoicing will be similar to B2G e-invoicing, which was mandated in late 2018. The main difference is the flexibility of B2B transactions and platforms compared to B2G transactions, which are subject to extensive audits and accountability measures.

Adopting B2B e-invoicing also poses various challenges for businesses, most of which are easy to overcome with the right access point service provider.

If you want to join the thousands of US businesses that have already adopted electronic invoicing, contact Storecove today to schedule an appointment with one of our e-invoicing experts.

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