How U.S. Small Businesses Can Transition to E-Invoicing (Common Mistakes to Avoid)

Over the last several years, e-invoicing has taken the invoice management process to the next level, simplifying workflows and streamlining the entire process. Research also shows that the global e-invoicing market is projected to reach $62.68 billion by 2031 from $12.47 billion in 2023, registering a CAGR of 22.4% in 2023–2031.

While there’s a growing trend shifting towards e-invoices in many parts of the world, U.S. small businesses must stay ahead to thrive.

In this post, we'll cover:

Current e-invoicing requirements and processes.
How small businesses can transition to e-invoicing smoothly.
Common pitfalls to avoid during the transition.
The benefits of adopting e-invoicing early.

Is electronic invoicing mandatory in the United States?

Electronic invoicing is not currently mandatory in the United States. However, global changes in document digitization significantly impact American companies that run international businesses and strive to optimize invoicing costs.

Hence, in 2021, the Business Payment Coalition and the Federal Reserve announced the launch of the pilot test aimed at creating and testing a virtual network that would allow companies of all kinds to exchange e-invoices through a secure, open framework throughout the country.

The test aimed to establish an e-invoicing network similar to the PEPPOL system developed in Europe for the American Business-to-Business (B2B) market.

The test was successfully completed, and the Business Payment Coalition recommended a pilot phase to support electronic B2B payment methods.

Business-to-Government (B2G) e-invoicing is being implemented, with approximately 50% of all government invoices reported to have been processed electronically. While there is no federal mandate, the USA is seeing a gradual shift toward electronic invoicing.

Potential implication of the U.S. federal government mandate on e-invoicing

For some years, the U.S. federal government has been exploring e-invoicing initiatives to increase efficiency, transparency, and cost savings in its procure-to-pay processes.

If the e-invoicing mandate is issued, companies that do business with federal agencies will have to comply or risk losing contracts and falling behind competitors.

Nevertheless, it is unlikely that the U.S. government mandate will go beyond this domain and result in a standard, ubiquitous electronic invoicing system in the U.S.

Even without a mandate, the federal government's e-invoicing direction may influence change in the private sector, as implementing e-invoicing to accommodate government suppliers may pave the way for implementing e-invoicing with business suppliers.

Future strategies that seek to accelerate e-invoicing adoption in the U.S. may benefit from leveraging the federal government's plans.

E-invoicing requirements in the U.S.

While the U.S. lacks a centralized mandate, according to the DBNAlliance, e-invoicing must meet certain requirements. Here's what small businesses need to know about e-invoicing requirements:

Format Standards: Different agencies or sectors may require specific formats. For the USA, the required format is XML-based UBL or X12 EDI.
Compliance with Tax Regulations: Invoices must meet tax authorities' federal and state tax requirements, including proper identification of goods, services, and applicable taxes.
Integration with Partner Systems: To avoid disruptions, ensure your e-invoicing solution integrates seamlessly with your trading partners’ systems.

E-invoicing process in the U.S

The United States is adopting a four-corner network model similar to PEPPOL, which comprises the buyer, their access point provider, the supplier, and their access point provider. The e-invoicing process generally goes as described below:

Access point

Businesses must find and choose an access point provider to send and receive e-invoices. An Access Point provider provides an access point to the e-invoicing network so that an e-invoice can be sent to another person on the network.

When you send an e-invoice over the U.S. e-invoicing network, it moves from your station to your AP provider, who then sends it to the receiver's AP provider. Your receiver AP provider then sends it to your receiver.

Storecove is a reliable access point provider enabling interoperability between different e-invoicing systems throughout the country.

Register and connect to the provider’s network

Once you choose your access point service provider, you will need to register on their network and provide your business details. The information you give typically includes your company name, address, and contact details.

After registration, you will have to connect your accounting system to the access point provider so you can issue and receive invoices with other businesses using the exchange model.

Send and receive e-invoices

Once connected, you can start exchanging e-invoices with other users in the network. Business transactions between businesses will be conducted via secure AS2/AS4 channels to guarantee the secure and reliable exchange of e-invoices.

Steps for U.S. small businesses to transition to e-invoicing

The seven steps below summarize the most important approach for switching to electronic invoicing:

Step 1: Educate yourself and your team

Understanding e-invoicing is the first step to switching. Invest time in training sessions to learn about digital invoicing, regulatory compliance, and how it can benefit your company.

Step 2: Evaluate your current systems

Next, conduct an audit to identify gaps or challenges that could be addressed by transitioning to an e-invoicing system in your existing invoicing process. This evaluation will help you determine what changes need to be made.

Step 3: Choose and register with the right provider

As a small business owner who wants to transition to e-invoices, you must partner with the right access point provider for a seamless switch. The right provider should be able to convert data automatically and support all formats. They should be able to connect to international networks to ensure tax compliance across many countries with different standards. Services such as invoice templating, digital payment buttons, and digital signatures can add extra value.

Step 4: Create invoice templates

The next step is to create customized invoice templates that look professional and contain relevant information such as:

Your company information
The address of the recipient
A consecutive invoice number
VAT details (if applicable)
Payment deadlines and bank details

Step 5: Communicate with your clients and suppliers

Inform your clients and suppliers about your transition to e-invoicing. Encourage them to adopt similar practices to ensure smooth transactions. Clear communication will help manage expectations and foster a collaborative approach.

Step 6: Test the system

Before switching entirely to e-invoicing, run a few tests with a few clients. Send and receive test invoices to ensure everything works as intended. This will help identify any potential issues before going live.

Step 7: Seek professional assistance

If the transition seems daunting, consider hiring a consultant or an accounting professional with expertise in e-invoicing. They can provide tailored advice and help you navigate the implementation process smoothly.

At Storecove, we help ensure companies are using the right sending and receiving digital solutions for e-invoicing in the US. We were part of the BCP pilot project that tested the viability of B2B e-invoicing in the U.S., and Storecove successfully received the first electronic invoice on the US e-invoicing network.

Common mistakes to avoid when transitioning to e-invoicing

Transitioning to e-invoicing requires careful planning. Avoid these common pitfalls:

Waiting too long to make the switch

Introducing e-invoicing can be time-consuming, especially if processes are manually documented or outdated. Timely preparation gives you the leeway to overcome potential challenges and allows you to implement best practices step by step.

Poor communication with customers

Failing to communicate effectively with customers can cause confusion and frustration. Hence, as you plan to transition, communicate effectively with your customers to ensure they are up to date with this change and its benefits.

Some clients may be reluctant to embrace the change. Still, by communicating benefits such as cost savings, easier invoice processing through automation, faster invoice payments, fewer errors, and tighter security, you can powerfully convince suppliers looking to manage their cash flow and get paid sooner.

Not updating your business system in time

Many companies overlook the fact that their current business system version may not meet the requirements of the e-invoicing obligation.

This can lead to inefficiencies, especially with compliance requirements. Take the opportunity to update your system and ensure it is compatible with your chosen Access Point.

Failing to choose the right access point provider

Selecting an unsuitable Access Point provider can cause compatibility issues, security vulnerabilities, or compliance lapses. To prevent future compatibility issues and vulnerabilities, ensure that your provider has substantial experience managing e-invoicing compliance across multiple markets.

They should have a deep understanding of both local and international regulations and a proven track record of successfully delivering compliance solutions. Look for partners who have established a presence in regions critical to your business and can adapt to different regulatory environments.

Benefits of e-invoicing for small businesses in the U.S.

The benefits of adopting an e-invoicing system include:

Reduces operating expenses by eliminating paper and data entry and automating invoice routing and approval workflows.
Optimizes financial management by speeding workflow to enable payers to take advantage of early payment discounts and payees to provide timely invoices, leading to improved cash flow and working capital.
Minimizes the risk of overpayments, duplicate payments, tax fraud, and fraudulent payments.
Improves the real-time view and traceability of all invoice-related documents and the ability to archive them online.
Improves data quality, accuracy, and access to critical business information by reducing manual inputting.
Reduces the complexity of working with trading partners in multiple countries through enhanced, standard processes to improve compliance with tax systems and other country or regional directives.

Takeaway: Streamline your e-invoicing transition with Storecove

If you are a company operating in the U.S., you can enjoy the benefits of transitioning from paper-based or PDF invoices to electronic processes.

In any case, teaming up with a reliable and experienced e-invoicing service provider helps make the switch swift. Are you ready to simplify your business operations? Storecove can help. Contact us today to get started with an optimized invoicing process.

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