The US is steadily moving towards the digitization of invoicing. In 2015, the OMB mandated that all federal agencies issue e-invoices by the end of 2018. Now, the BPC has concluded a market pilot for B2B e-invoicing and has established an exchange network to facilitate the transfer of e-documents between businesses.
Did you know the US is among the last countries to adopt e-invoicing? Even though e-invoicing has been around for a while, many businesses are still not using it since it is not yet mandatory.
However, like many other countries, the United States has specific requirements for e-invoicing.
If you want to start invoicing electronically in the USA, it’s important to be aware of these requirements and ensure you are compliant.
This blog post will outline the main e-invoice requirements in the USA and explain what you need to do to ensure compliance. Let’s get started!
How do you create a US invoice?
Compared to many other countries, invoicing requirements in the US are relatively relaxed. There is no single approach to creating and issuing an invoice.
However, whether you are sending a sales invoice or a purchase invoice, there are three main ways that businesses issue invoices:
- Paper invoice through the mail: It entails writing invoices by hand on paper and then sending the paper invoice to the client.
- Paperless invoices in email: This involves preparing an invoice using a word processor like Microsoft Word and then attaching it to an email to the client.
- Automated invoicing: This method involves using specialized invoicing software to automatically generate your invoice, after which you email it to the client directly from the software.
Paper invoices through the mail are becoming obsolete as the world shifts to electronic invoicing to reap efficiencies such as faster processing and improved compliance.
If you are just starting out, emailed paperless invoices may be fine for you.
Simply create the invoice in Word or Excel and email it as an attachment to the customer. But for improved invoice accuracy, you may consider using invoicing software.
What information needs to be incorporated into the invoice?
However you create a commercial invoice, it must contain certain information for it to be valid. These include:
- The word “invoice” (clearly written at the top)
- Your business name and address
- The customer’s business name and address
- The invoice date
- A unique invoice number
- The payment due date and payment terms
- A detailed description of the goods sold or services rendered
- The quantity and price of each good/ service
- All additional charges (such as shipping, insurance, etc., added to the invoice price must be specified)
- All rebates
- The total amount due
Note that if you import or export goods, the merchandise port of entry or country of origin must be included in the invoice.
Where sales tax is applicable, you also need to include it in your invoice. Sales tax differs from state to state across the US, so be sure to check with local tax authorities for specifics before sending an invoice.
Lastly, you should include your payment information at the bottom of your invoice. The information to include will depend on the type of payment you accept.
For example, for ACH, you need to include your account number, routing number, and bank address; for wire transfer, you need to include your account number, SWIFT code, bank codes, and bank address; but for checks, you need to include a mailing address.
How to number invoices in the US
There are no specific requirements for formatting invoice numbers in the US. However, invoice numbers should be alpha-numeric, unique, sequential, consistent, scalable, and date-referenced for accounting purposes.
Since the US has no specific requirements for formatting invoice numbers, you can use any numbering system that makes the most sense to you.
However, some rules to follow when formatting your invoice numbers include:
Uniqueness
Each invoice should have a different number. Unique invoice numbers allow you to easily trace and retrieve any issued invoice in your system when needed.
Sequentiality
Invoice numbers should follow a sequential order. This helps in chronological organization and provides a clear indication of the number of invoices issued.
Consistency
The format and structure of the invoice number should be consistent across all invoices. This helps in categorizing invoices efficiently.
Date reference
Incorporating the invoice date within the invoice number as a prefix or suffix can help quickly identify when the invoice was generated.
Alpha-numeric format
Use a combination of letters and numbers to create your unique invoice numbers. Some people include hyphens. However, limit the use of special characters as these may cause issues in some databases or software systems.
Scalability
Your invoice numbering system should be able to accommodate the growth of your business. As the number of invoices increases, the numbering system should still be able to produce unique and sequential invoice numbers.
Example of an invoice number
A typical example of an invoice number is OH-CLV-2023-06-003.
This can be broken down as follows:
- OH stands for the state the customer’s company is located (Ohio in this case)
- CLV is your abbreviation of the customer’s company
- 2023 is the year the invoice was issued
- 06 is the month the invoice was issued
- 003 is the consecutive invoice number (showing that it is the third invoice to the client in that month).
Note the use of letters and numbers to create a unique invoice number. In this case, the customer’s location (state), company name, and date are incorporated into the numbering system to facilitate retrieval.
The last three elements of the numbering system also show sequential numbering and scalability.
For example, if OH-CLV-2023-06-003 is the third invoice to the particular client in that month, the first invoice to them was OH-CLV-2023-06-001, and the next invoice to them in that month will be OH-CLV-2023-06-004.
Having three elements means this numbering system is scalable and can accommodate up to 999 invoices to a particular client in the month.
E-invoicing rules and regulations in the USA
In 2015, the US government mandated that all federal agencies issue electronic invoices for goods or services by the end of 2018. To comply with this mandate, agencies must use an e-invoicing system that can generate, send, receive, and archive invoices electronically.
The rules and regulations for electronic invoicing in the US include:
Format (XML-based Universal Business Language (UBL)
It is required that e-invoices in the US use the XML-based Universal Business Language (UBL). UBL defines a standardized XML schema for electronic invoices.
This means that UBL provides a consistent way to represent invoice data electronically instead of paper-based or PDF invoices, which can vary widely in format and structure.
This consistency is vital for electronic data interchange (EDI) between businesses’ computer systems and software applications. Thus, the standard XML-based UBL format allows businesses and agencies to exchange electronic invoices easily.
Signature and authentication requirements
For the e-invoicing system to be compliant, it must use a digital signature and authentication mechanism. This ensures that the documents are sent securely and cannot be altered without detection.
Retention requirements
USA has a 7-year invoice archiving requirement. So, after issuing an electronic invoice, the invoice and supporting documents must be stored for at least seven years.
Issuing requirements
When sending invoices, agencies must either generate a unique identification number or include the Invoice Reference Number (IRN) in the subject line of the invoice.
Additional requirements will include the use of a post-payment notice and a commercial letter of credit.
Receiving requirements
To receive e-invoices, agencies must provide their suppliers with a valid email address and/or identify a web-based system where the supplier can upload invoices.
How to send and receive compliant e-invoices in the USA
To send and receive compliant invoices in the USA, you need to follow these steps:
1. Find a reliable Access Point provider
The US invoicing model follows the four-corner model, similar to that of the PEPPOL network. This means that you need access points to access the network and be able to send and receive e-invoices.
When you send an e-invoice in the four-corner model, it goes from your station to your access point (AP) provider. Your AP provider ensures that the electronic invoice meets relevant standards and format, then sends it to your recipient AP provider, from where it goes to your recipient.
Thus, the first step to sending compliant e-invoices in the United States is choosing a reliable Access Point provider. Some of the most reputable providers include Storecove, which was part of BCP in the pilot project. Storecove provides a complete e-invoicing solution for businesses and government agencies in the USA and interoperability with other e-invoicing networks worldwide.
2. Register on the network
Once you have chosen an access point provider, you will need to register on the network and provide your business details. This will typically include your company name and address and your contact details.
3. Connect to the network
After you have registered on the network, you must connect your accounting or billing software with the Access Point provider. This will allow you to send and receive compliant e-invoices directly from your system.
4. Start sending and receiving e-invoices
Once you are connected to the network, you can start sending and receiving e-invoices with other vendors or suppliers registered on the network. This will help improve efficiency and reduce costs for your business.
Who must comply with e-invoicing regulations in the USA?
All agencies and government departments are required to comply with the e-invoicing regulations. This includes the Department of Defense (DoD), the Department of Energy (DoE), and the General Services Administration (GSA).
However, businesses and individuals don't need to start using e-invoicing. However, most businesses choose to use electronic invoicing because of the efficiencies it offers (like faster processing, cost savings, reduced errors, etc.).
E-invoicing market pilot in the USA
The Business Payments Coalition (BPC), a group of more than 600 organizations in the US, piloted an e-invoicing solution in the US.
In conjunction with the Federal Reserve Financial Services, the BPC gathered information on e-invoicing to establish a roadmap for the adoption of e-invoicing.
The project, which tested the viability of a centralized e-invoicing platform, aimed to establish a B2B e-invoicing system in the USA.
The pilot ran up to 2022 to ensure that, by 2023, there will be an operational B2B system in the United States.
The result of the pilot is the establishment of the Digital Business Networks Alliance.
The DBNAlliance is a legal entity regulating the electronic document exchange network and providing oversight over the electronic invoicing system in the country.
The DBNAlliance adopts a similar architecture as PEPPOL, so its activity includes enabling Access Points - service providers that connect businesses of all sizes and government agencies and enable them to exchange documents via the exchange framework.
Several electronic invoicing service providers, including Storecove, have joined BCP to create a standard solution for the US market.
APs are basically gateways for exchanging documents in the network, so connecting to one will allow businesses to send and receive e-invoices without special software or hardware.
In addition, the system will be interoperable with other e-invoicing systems around the world.
You may also like: The Rise and Role of the Digital Business Networks Alliance.
How the USA ensures e-invoicing compliance
The US government has taken slow but steady steps towards e-invoicing.
The first real step was the e-invoicing mandate for federal agencies issued by the US Office of Management and Budget (OMB) in 2015, which required all federal agencies to start issuing electronic invoices for goods and services by 2018.
The next big step was the establishment of the BPC and the subsequent launch of the BPC’s pilot to build a network that allows US businesses to exchange e-invoices seamlessly.
2023 saw the end of the market pilot and a significant shift toward a nationwide standardized e-invoicing system.
The electronic exchange network has announced plans to implement the system in all businesses by 2024.
Thus, all businesses need to get ready to make the transition smooth for their employees and customers.
Benefits of e-invoicing for businesses in the USA
Electronic invoicing offers several benefits to businesses in the US, as it streamlines the invoicing process and enhances overall efficiency. Some specific advantages of e-invoicing for businesses and the government include cost savings, improved cash flow, reduced errors, and more.
Cost savings
E-invoicing can help businesses save money on paper, printing, and postage costs. In 2015, when OBM introduced the mandate, it estimated savings ranging between $150 million and $200 million annually.
Faster payment
Electronic invoicing leads to quicker invoice delivery, as invoices are delivered instantly. It also speeds up invoice processing, reducing the time between the delivery of goods or services and receiving payment.
Improved cash flow
E-invoicing can help businesses improve their cash flow by decreasing the time to pay and collect invoices. This can help reduce the risk of late payment penalties and interest charges.
Reduction in errors
Electronic invoicing reduces the risk of errors that often occur in manual data entry that characterizes traditional paper invoicing. This leads to more accurate invoices, reducing the likelihood of payment delays and disputes.
Reduction in invoice fraud
Fraud cases related to paper invoices are more common than those related to electronic invoices. This is because it is easier to alter paper documents and harder to track them. E-invoicing can help reduce fraud by providing a secure and tamper-proof system.
Increased efficiency
By automating processes and facilitating invoice processing, reducing errors, improving invoice tracking, and more, electronic invoicing can help businesses become more efficient.
Improved data collection
E-invoicing can help businesses collect valuable data that they can use to improve decision-making, manage costs, and identify growth opportunities. Invoices contain a wealth of information, such as supplier details, purchase prices, and product codes.
E-invoicing allows businesses to automate processes, improve efficiency, and reduce costs, which can help them gain a competitive advantage in the market.
Improved invoice tracking
Electronic invoicing systems allow businesses to track the status of their invoices in real-time. Companies can see when an invoice has been delivered and paid, providing greater transparency into financial transactions.
Takeaway: Connect with Storecove and send compliant electronic invoices in the US
The US is on the path of digitalizing its invoicing systems. After the 2015 US OMB’s (Office of Management and Budget) mandate to federal agencies to e-invoice by the end of 2018, establishing the Business Payments Coalition (BPC) was the next giant leap in that direction.
The BPC is assisting in the transition from a paper-based invoicing system to electronic invoicing.
After successfully running a market pilot for B2B e-invoicing, the BPC has established a document exchange network that facilitates the exchange of invoices and other electronic invoices between businesses.
The exchange network uses the four-corner model, just like PEPPOL, where e-invoices are shared and received through an Access Point service provider that connects the network to the users.
Thus, the first step to sending compliant e-invoices in the US is connecting with an Access Point service provider.
Interestingly, Storecove is one of the most reliable APs you’ll find. Storecove was part of the BCP in the pilot program and provided excellent e-invoicing solutions to businesses.
With Storecove’s e-invoicing solution, you can connect your business to the US exchange network, helping you to comply with e-invoicing regulations automatically and transfer documents with customers seamlessly. Get in touch with us today to explore our e-invoicing solution!
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