What is an E-Invoice and How does E-Invoicing Work?

An e-invoice (electronic invoice) is a digital invoice that uses a structured data format like XML or JSON. Unlike paper of PDF invoices, e-invoices contain machine-readable information. That means they can be sent, received and processed automatically by whatever finance software you and your customers are using. E-invoicing has been around since the 1960s but has only really come into prominence in the last 20 years.  

What is E-Invoicing Used For? 

E-invoicing is used to send digital invoices between suppliers and buyers. For most of e-invoicing's history, it has primarily been used in B2B (business-to-business) transactions. However, that is beginning to change as global governments look to mandate e-invoices into becoming the standard invoicing method.  

What’s the benefit of an e-invoice? 

Moving to e-invoicing has a lot of benefits for governments and businesses alike, especially when it comes to cross-border transactions. The benefit of an e-invoice to your business could be: 

• Cutting the time spent handling invoices by removing the need for manual data entry or scanning paper invoices
• Saving you money on the labour, printing, postage and archiving involved in paper invoices
• Reducing the errors made when recording and paying invoices and therefore the time spent correcting tax returns and re-issuing invoices
• Speeding up the rate at which invoices are approved and paid by your customers
• Knowing in real-time the status (sent, received, approved, paid, disputed etc.) of an invoice you’ve issued
• Making compliance easier – you won’t need to sort and store invoices in case you’re audited or want to file a 13^th Directive refund
• Making it easier to scale by making it simple to handle a large volume of invoices 

When the team at SimplyVAT helps businesses file 13^th Directive reclaims, they find that invoices are a common issue. They’re a crucial piece of evidence to support your claim and they’re often missing or have been issued incorrectly. E-invoicing will prevent these issues stopping the SimplyVAT refunds team from helping businesses get their VAT refunds. 

E-invoices are more secure than their alternatives. E-invoicing platforms use encrypted channels and digital authentication to transmit the invoices. The data is transparent, traceable and updates in real-time. Consequently, it’s much harder to tamper with an invoice, or hide a transaction that should be taxed. 

Standardising e-invoices will make a huge, positive impact on the environment by reducing the amount we depend on the production and shipping of paper. They are way more environmentally friendly than their paper alternatives, which generate three times as much CO2. 

How E-Invoicing Works 

The specifics of how e-invoicing works depends on which software you’re using to create and send your invoices. There are a variety of e-invoicing solutions already available, or you can build your own. This can be financial or billing software, or an Enterprise Resource Planner (ERP). 

How to create an e-invoice 

When you’re ready to invoice someone, you’ll do so directly inside your software of choice. You’ll fill in all the details as you would for a normal invoice, and your e-invoicing solution of choice will export it in a machine-readable format. That could be: 

• XML (Extensible Markup Language)
• UBL (Universal Business Language)
• EDIFACT (Electronic Data Interchange for Administration, Commerce, and Transport)
• JSON (JavaScript Object Notation) 

How to send an e-invoice 

Once your e-invoice has been created, your software securely transmits it to your customer. There are several channels that can be used to do this: 

• Direct system‑to‑system transmission via APIs or EDI
• Certified e‑invoicing networks, such as PEPPOL
• Government‑mandated platforms (in countries with real‑time reporting)
• E‑invoicing service providers that act as intermediaries 

How to receive an e-invoice 

To receive an e-invoice, you will need software capable of doing so. When an e-invoice is sent to you, your software will automatically check the invoice to see: 

• If it’s in the correct, legal format
• That it matches your purchase order
• That it meets local VAT laws 

In the EU, the invoice will pass through a Peppol Access Point. The access points ensure that the invoice is being transmitted correctly and will automatically check that its valid. 

Once the invoice has been received, it will be processed by your software, then stored. 

E-invoicing Software 

To send or receive an e-invoice, you will need some sort of tech solution. There are three ways to approach this: 

• Build an e-invoicing application yourself
• Find an e-invoice service provider
• Get some off-the-shelf software 

Whichever route you choose, there are eight things your e-invoicing software of choice must have: 

 A nice-to-have would be good data mapping and migration tools. They’re not essential, but they’ll do a lot of heavy lifting when it comes to implementing your new e-invoicing system. 

How to implement e-invoicing 

If you need to implement e-invoicing in your business, you should start by assessing your current invoicing process. There are lot of different e-invoicing solutions available, and they all bring different things to the table. Look at you current work-flow and see if you can identify: 

• Any bottlenecks
• Where mistakes are most often made 
• If you have any gaps in your compliance 
• How many invoices you expect to be handling 

Knowing these things can help you chose a solution that can improve your process without blowing the budget. You’ll also need buy-in from your finance and tech teams, so make sure to include them in this process. They’ll know best where the current pain points are. Finally, consider what software solutions you’re already using in your business. You’ll need to find something that works with what you already have or consider switching everything over. 

E-invoicing Regulation 

Whilst in some places e-invoicing is optional, in many countries, governments have begun mandating its use. Mandates mostly began to appear starting in 2020, but this isn’t always the case. E-invoicing has been mandatory in South Korea since 2011. It’s common to see the use of e-invoices being rolled out in phases, starting with B2G or B2B transactions and taxpayers with larger amounts of tax to pay. 

E-invoicing regulations outline which standards a country wants to use for its e-invoicing system. For example, in the Netherlands, the European Standard (EN16931) is accepted but Peppol BIS 3.0 is preferred. 

What is Peppol e-invoicing? 

The Pan-European Public Procurement On-Line (or Peppol for short) is an EU-wide standard for exchanging e-invoices. When you have an e-invoice to send, you format it for Peppol and send it through a Peppol Access Point. It’s then received by your customer through another Peppol Access Point, creating a four-corner model.  

Having a single standard like Peppol makes it easier to send and receive invoices across international borders. That’s why it’s not just being used within the European Union. Countries like Japan, Australia, New Zealand and Singapore all use Peppol as the basis for their e-invoicing formats. 

E-Invoicing Europe 

Real time digital reporting is one of the core pillars of the EU’s VAT in the Digital Age (VIDA) package. Its aim is to reduce admin and compliance costs for businesses, and give Member States the data they need to reduce VAT fraud. All of that is only possible with the adoption of e-invoicing across the EU. As a result, EU countries have begun to roll out e-invoicing.  

E-Invoice Belgium 

The main hub for e-invoicing in Belgium is the Mercurius platform. Belgium has adopted the EN16931 standard and uses Peppol for exchange. The authority in Belgium responsible for e-invoicing's implementation is the Federal Public Service Policy and Support (BOSA). 

France e-invoicing 

France’s e-invoicing system is built on the back of private providers. Businesses that fall within the scope of e-invoicing mandates have to choose a provider accredited by the French Tax Authority. Exchanging them through anything other than an accredited provider will be prohibited. 

E-invoices Germany 

In comparison to some of its neighbours, Germany has been relatively slow to adopt e-invoicing. The local standard is XRechnung and is overseen by the Coordination Office for IT Standards (KoSIT). Germany also supports a format called “ZUGFeRD 2.1” which is a PDF with an embedded XML file. It aligns with the EU standard and is readable by both humans and machines! 

Poland E-invoicing 

Poland’s national e-invoicing platform is Krajowy System e-Faktur (KSeF), which integrates the previous B2G platform, the National e-Invoicing Platform (PEF). KSeF meets the E16931 and Peppol standards and has extensions for specific industries, making it a flexible framework.