E-Invoicing Explained: Benefits and How It Works

With the New Year approaching, it’s time to start thinking about our resolutions for 2025.

For businesses, efficiency is a constant. 

Whether you are in charge of the procurement department or lead your own business, what you ultimately need is to find ways to be more productive and bring even greater value to your results. 

E-invoicing, is one of those ways. 

Never heard about it? Feeling curious about its benefits?

Well, keep reading on because we’ll be answering all of your questions.

First things first, what the heck is an e-invoice?

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What’s an E-invoice?

To understand what’s an e-invoice, it’s necessary to explain how an e-invoice works.

Hint: It’s not data in a pdf

In an e-invoicing system, invoices are created, sent, and received electronically, often via specialized software or a web-based platform. Unlike traditional invoices, which you’ll typically send by mail or email as PDFs, e-invoices are designed to be understood by a system so they follow a standardized format.

What an E-invoice is not…

To make things clearer, let’s go over what an e-invoice is not, so you won’t make any mistakes in the future. 

• Invoices in formats like PDFs or Word files with no clear structure.
• Invoice images in formats such as JPG or TIFF.
• Paper invoices sent as faxed image files
• HTML invoices on web pages or embedded in emails.

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How does E-Invoicing Work?

Creating the invoice

Consider this your first point, everything will begin the moment the invoice is created in an e-invoicing system or software. You will enter all the necessary details such as the buyer’s name, your business information, the products or services sold, pricing, taxes, payment terms, and any other relevant information. If this is not the first time you make businesses with the buyer, you can take advantage of using the already existing information. 

Standardized format

Once the details are ready,  the e-invoicing system will generate the invoice in a standardized format. This is often XML or another structured data format. If you are wondering why is this important, know that this is how the invoice can be processed automatically without any need for manual intervention. 

Automated validation

The recipient’s system will automatically validate the invoice. This usually includes a digital system like procurement software checking for errors, verifying tax codes, and making sure that all required information is included. Somehow there’s a mistake found? No worries, the system is designed to send a notification so you can fix the issue ASAP.

Receiving the invoice

After the invoice passes validation, it is stored electronically in the recipient’s system. Next thing left? Process it and of course paid hte money according to what was agreed.  

Reconciliation

Both sides involved can reconcile the invoice data automatically with their financial records. In some cases, the e-invoicing system can also integrate with tax authorities, automatically submitting necessary tax details or allowing businesses to track the payment status. Really useful, isn’t it?

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Differences with Traditional Invoicing 

Well, to begin with, traditional invoicing means manual work, and that as you might already know, it’s a pain in the back. 

With traditional invoicing, you receive paper invoices in the mail, and your AP team has to manually enter the details into your financial system. 

Feeling tired? 

The job is far from over 

The payment must be approved by someone else, which might include more manual entry. After that, a check or another payment method is written and mailed, and if your payment system doesn’t link with invoicing or approvals, your team ends up entering the same information again. 

See? A complete pain in the back indeed. 

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Benefits of E-Invoice

Increased efficiency

Perhaps the biggest reason why you should go for making the switch to digital invoices is that you’ll seriously save time. Think about it, how many hours or even days does your team waste on filling out information, checking for errors, and email communication?

Reduced errors

Mix manual work and pressure, and you’ll get the recipe for the perfect disaster. E-invoicing automatically verifies data accuracy, reducing the chances of typos or missing information, and leading to fewer disputes and payment delays. Everyone will be happy with the results. 

Cost savings

That’s right,  using digital invoices also contributes to eliminating costs associated with printing, paper, postage, and storage, without counting time as a precious resource. 

Faster payments

Money doesn’t buy happiness, but it certainly helps people feel more comfortable. By speeding up invoice approval and processing, e-invoicing helps accelerate payments, giving your company better cash flow. 

Better compliance

Worried about respecting the latest tax regulations? Well, this is another thing e-invoicing can help you with. How? By generating invoices in a standardized format and simplifying tax reporting.

Improved security

This isn’t breaking news for you, fraud, or more precisely accounts payable fraud is a serious threat to businesses nowadays. Invoices that are securely stored in digital formats, the risk of theft or alteration, thus minimizing fraud.

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How to Transition to E-Invoicing 

Start by evaluating your current invoicing process to identify areas where automation can reduce manual work. This will help you understand what features you need in an e-invoicing system.

Next,  you’ll want to choose an e-invoicing platform that integrates with your accounting system and meets regulatory requirements. Double check that your customer and vendor data is accurate and stored digitally to simplify the transition.

Integrate the platform with your accounting system for seamless data transfer. Test the system with a few invoices to ensure smooth operation before going live. Train your team, they will be the ones using it, so take as much time as needed to be sure that  they can effectively use the new system.

Once live, monitor the process closely, tracking payment times and error rates. Stay updated on any regulatory changes so you don’t miss any important details. 

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How to Choose the Best E-Invoicing Solution

When selecting an e-invoicing solution, don’t forget to consider these key factors:

• Integration: Ensure the platform integrates seamlessly with your existing accounting or ERP system to minimize manual entry and reduce errors.
• Scalability: Choose a solution that can grow with your business and offers additional features as your needs evolve.
• Compliance: Verify that the platform meets local tax regulations and industry standards for invoicing.
• User-friendliness: Select a solution that is easy to navigate and doesn’t require extensive training for your team.
• Customer support: Look for a provider that offers reliable and accessible support if any issues arise.

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Future Trends for E-Invoicing 

Global standardization

The push for global standards in e-invoicing is growing, with more countries adopting common formats to facilitate cross-border transactions and improve compliance.  All of this will simplify invoicing for businesses that operate internationally, if that’s your case, consider switching to e-invoicing a must. 

Increased automation

Nothing really new here, we all know that automation is expected to keep having a bigger presence in the near future. Artificial intelligence (AI) and machine learning will be used to further streamline processes, such as automatically detecting discrepancies and predicting payment behavior, reducing manual oversight.

Blockchain integration

Blockchain technology is expected to play a larger role in e-invoicing by enhancing security and providing transparent, immutable records of transactions. This is good news to reduce the risk of fraud and ensure greater accountability.

Real-time invoicing 

The integration of e-invoicing with payment systems will make real-time invoicing and payment processing more common. No more having to deal with delays, as a bonus, cash flow will improve by enabling quicker payments once invoices are issued.

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