What Is An Electronic Invoice? - The Complete Guide To E-invoicing

From contracts to purchase order, the world of business has traditionally revolved around the use of paper documents. Unfortunately, paper-based solutions can be very inefficient because they use a lot of space and make document retrieval challenging.

Additionally, paper documents are difficult for transnational organizations to manage since they often have to be physically transferred to different offices for processing.

Electronic documents, however, can be accessed online from anywhere in the world, and can easily be read and processed by modern computer systems. Electronic documents are particularly important in the area of invoicing because invoices preferably need to be sent, received, and get paid as quickly as possible.

As a result, today's businesses are increasingly looking for ways to digitize their e-invoicing systems. When electronic invoicing systems are set up properly, they can help companies to cut costs, reduce turnover, and make better use of data.

Read on to learn about why electronic invoices have become crucial for today's businesses.

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What Is an Electronic Invoice?

An electronic invoice (also known as an e-invoice) is an invoice document that is exchanged between a buyer and a seller in a mutually understandable format. Standards govern the e-invoicing process so that businesses can manage electronic invoices using processes that are consistent across most accounts.

Some invoicing standards are based on norms that suppliers use in good faith and that customers generally expect. For instance, it is generally assumed that suppliers will accept at least net 15 terms for invoices that have been sent out.

There are also invoicing standards that must be used to satisfy requirements set by governments. Generally, invoices need to clearly show a supplier's address and contact information. Invoices need to show a clear due date, delivery date, and issuance date.

Also, invoices must have a unique identification number and a description of the products that were purchased. Other legal requirements can vary widely between jurisdictions.

The concept of an electronic invoice seeks to achieve the same function as a paper invoice, without:

  • Time-consuming formalities;
  • Shipping delays;
  • And cumbersome format.

In theory, electronic invoicing systems should be able to completely replace antiquated invoicing methods that have been used for hundreds of years. Companies that are up-to-date on the latest technologies may even consider switching to suppliers that offer electronic invoicing and digital payments. However, other companies still insist on using older formats, so it is important for electronic invoicing strategies to be compatible with paper invoicing.

The bottom line is that electronic invoices are crucial documents for anyone doing business in today's world. Using the right electronic invoice system can make businesses more attractive to clients. Electronic invoices can also help companies to get paid faster and reduce the percentage of invoices that go unpaid. Therefore, any company wishing to remain competitive in today's business landscape needs to understand how to create an electronic invoicing system that meets the requirements of today's buyers.


What Are the Benefits of Electronic Invoices?

Electronic invoice systems have enormous advantages over paper-based invoices. In theory, current technologies should have already made paper invoices obsolete. Traditional invoices only continue to be used due to a lack of knowledge among decision makers and old habits that are difficult to break. Nine of the most significant benefits of using electronic invoice systems include:

1. Reduced Costs

Electronic systems bring down the cost of invoicing by avoiding the necessity of manually printing documents and placing them in envelopes. For suppliers, electronic systems help to bring down costs by eliminating mail handling costs associated with a deal. Additionally, when invoices are easily accessible through electronic systems, employees can access them instantly from anywhere in the world. In contrast, with conventional invoices, it is not uncommon for employees to waste time and money traveling great distances just to view and process physical documents.


2. Enables Automation

When documents are completely digitized, they can be easily accessed by software. Therefore, companies can automate many parts of their financial activities that are normally very expensive. The use of automation can help companies to make their cost structures more efficient while also improving how invoices are processed. Automated tools can flag transactions for potential discrepancies or fraud. In other cases, invoices can be paid immediately through a completely automated process.


3. Reduced Turnover

Electronic invoice systems can significantly bring down turnover by getting invoices into the hands of customers instantly. With paper invoices, companies often overnight large invoices to clients in an effort to get them to pay more quicker. Electronic invoicing systems can get invoices to a client faster at no cost. Therefore, companies can get paid in less time for the products and services they provide. Bringing down turnover can, of course, have enormous business implications by enabling companies to borrow more and by making a company more financially competitive relative to industry rivals.


4. Reduced Errors

Whenever paper documents are processed manually by humans, there is a substantial chance that errors will occur. It is not uncommon for over 1 percent of invoices to not be paid on time simply due to processing errors. Mail can get mishandled by a supplier or its client. It is also possible for letters to get lost in transit. With electronic invoicing, errors can be almost entirely eliminated.


5. Less Waste

Paper documents are expensive, and they can sometimes be seen as harmful to the environment. Some companies will not accept paper invoices because they have a need to help the environment. Therefore, electronic documents can help to retain environmentally conscious clients.


6. Enhanced Supplier Relationship

Dedicated suppliers appreciate when clients are receptive to using modern invoicing strategies. As a result, they may be willing to provide you with incentives ranging from small reductions in cost for paper billing to exclusive discounts given only to their best clients. Good relationships with suppliers also help your business to be prioritized during times of shortages and other issues in the supply chain. Therefore, the right invoicing strategy can help to build relationships with suppliers in a way that can make your business more sustainable and competitive.


7. Simple Archiving

Paper invoices are a nightmare for companies to manage. It is not uncommon for large corporations to have entire rooms dedicated to storing invoices they have received from suppliers. For legal reasons, many of these companies have to retain invoices for an extended period of time. Some companies hold on to invoices they received decades ago.

When you use an e-invoice system, there is no need for expensive document printing, storage, and retrieval. Instead, an e-invoice system gives you the power to store all of your documents digitally in a way that enables instantaneous retrieval at no cost. Therefore, using an e-invoice system helps to save money while making your business more effective at invoice processing.


8. Faster and More Convenient Payments

One of the primary benefits of using electronic invoices is the ability to get a customer to pay immediately. Some invoice portals are designed to function as optimized shopping cart pages that encourage clients to make payments right away. You can experiment with changing the design of your payment portal to maximize the conversion rate of your electronic invoicing system. Additionally, you can design your payment portal to support a broad range of payment mediums, such as check, card, PayPal, or even cryptocurrencies.


9. Powerful Data Collection

Unlike conventional paper invoices, electronic invoices give you the chance to track clients as they receive their invoices and make their payments. You can insert tracking pixels into emails sent to clients to confirm that they opened your invoice. You can also track clients when they click through to a portal for viewing invoices or making payments. With this data, your organization can be more sure that you have fully informed your client about what they owe. More advanced systems can help your company to more accurately predict when you will receive revenue.


How to Send an Electronic Invoice

As mentioned earlier, most electronic invoices are sent in a format that mirrors conventional paper invoices. You will usually want to design electronic invoices in a way where they could be easily printed on an ordinary piece of computer paper. There are a wide range of applications available online that can help to generate invoices. Also, some software suites designed for accounting and purchasing functions come with tools designed to generate invoices. Similar tools exist for generating XML documents compatible with EDI.

Once you have created your invoice, you will next need to send it to your client. Email is increasingly seen as acceptable for sending an invoice. In more informal buying situations, you could even consider sending your invoice through a text message or even a private chat on social media. You will generally want to send invoices in PDF format. However, you could also consider sending your invoice in DOCX format if there is a need for your client to be able to modify the invoice.

Some clients prefer an electronic invoice to be sent in CSV, XLS, RTF, or other less common formats. If you are in regular contact with your client, consider contacting them directly to see if their electronic invoice processing team has a preferred format. Over time, you will start to notice patterns of preferences in your industry that can help you to send invoices in a format that your customers prefer.

Keep in mind that if you are sending an invoice through email, you should be sure to use the right email account. Scammers and hackers are increasingly targeting the email accounts used by buyers to steal sensitive information, such as EIN numbers, the identities of officers, and other confidential information. This information can be used by criminals to generate fake invoices to get companies to mistakenly deposit large sums of money in the wrong account. To avoid upsetting your client, be sure to ask what email address they prefer for an electronic invoice you are sending out.


How to Receive an Electronic Invoice

Receiving an invoice can be more complicated than many business people generally assume. Most companies are legally required to send invoices, so they will usually send you a paper invoice in the mail. Be sure that you have provided any supplier with the right mailing address so they can successfully send you any invoices that you need. There is nothing worse than missing a payment simply because you have not provided your supplier with the right mailing information.

If you receive invoices in the mail, you should digitize them by scanning them. Once invoices have been scanned, your team members can view them from anywhere in the world. In general, you should hold on to the original copy of any invoice you receive. Invoices are ultimately legal documents, so it is important to have the original document that can verify the legitimacy of any claims that you make. Nevertheless, after a significant period of time passes, you can dispose of most of your invoices to save space.

You will, of course, want to give your suppliers the right email address so that they can send you electronic invoices and other correspondence. If you receive an electronic invoice, you should immediately copy it into the electronic file system that you have to back it up. Also, be sure to organize your invoices in the right way since it is easy to forget about them when they get buried deep in your inbox.


Electronic Invoice Networks

Electronic invoice networks can enable businesses to connect their data systems together for the purpose of streamlining electronic invoice processing. An e-invoice system that connects businesses directly can speed up payments while enabling more data to be shared. Most importantly, an integrated e-invoice system eliminates the need for reconciliation by ensuring that both parties are referring to the same document. If changes are made to an electronic invoice, the changes can be seen by both parties. Therefore, misunderstandings can be avoided and electronic invoice processing can be more effective.

When an e-invoice system connects two suppliers together, it also enables data to be provided in the format both parties need. Data shared between parties in an invoice system is usually provided in a structured format. As a result, the data can be easily read by a computer system, but ordinary invoices can still be generated by using third-party software. This integrated data helps to facilitate automation by enabling cloud-based software to access and manipulate the data.

It is also important to keep in mind that integrated electronic invoice systems can enable possibilities that cannot happen with ordinary invoices. For instance, distributed invoice networks can be set up that share invoices with hundreds of raw material suppliers, shipping companies, and other stakeholders across several levels in the supply chain.

Therefore, supply chain shocks can be minimized and lead times can be reduced. The bottom line is that electronic invoice processing is much more effective than traditional invoice systems, and it introduces an unlimited range of possibilities that can transform how companies do business.


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