E-invoice
E-invoice Meaning
The meaning of an e-invoice is an invoice that is generated, dispatched and collected in a reusable electronic and standard layout. The content of the invoice is the same as for the paper invoice. However, the advantage is that it can be displayed and dispatched in different formats. The result is that it is much faster to dispatch and collect e-invoices than traditional, paper-based invoices.
Detailed Explanation
The business world is changing and evolving rapidly and needs to keep up to date with changes in technology. One efficient change to billing is to use an e-invoice. This makes the billing process fast and efficient. It replaces the invoice manuscript between the seller and buyer in an integrated electronic layout.
Conventionally, the invoice process has been used via paper, which can be a time consuming and rigorous process while also being prone to human error as it involves massive manual processing. With the advancement of technology, electronically transmitted invoices are imported and exported between the buyer’s and the seller’s accounting systems. The benefit is that there will be few chances of error in the generation and posting of bills and invoices. The reason for less error is that there will be no human intervention and the care is taken by computers which then leads to higher accuracy.
An important point to note is that accounting systems perform automatic reconciliations between purchase orders, invoices, inventory receiving documents, customs documents, shipping documents, and other supporting evidence in the transaction cycle. This means that if there is any difference or anomaly, this can be highlighted to ensure that a corrected decision is taken promptly. The result is an increase in the overall quality of accounting record keeping.
The working mechanics of electronic invoicing is based on the prearrangement of the invoice data. Sequential data is sent and collected by using the electronic invoicing system and this updates the accounting records at both the sender’s and receiver’s places.
Despite the above discussion about how effective and accurate an e-invoicing system is, to this day, many businesses around the globe still use the traditional method of invoicing. These businesses use the billing mechanisms where invoices are printed on paper, placed in envelopes, franked and dispatched with high-priced postage. This process is only to ensure that correct numbers are entered into the buyer’s accounting system. Therefore, the cost of the process seems to be higher than the benefit obtained.
Benefits of Using E-invoicing
Following are some of the benefits of using an e-invoice:
The use of e-invoices leads to an overall reduction in the cost of the billing department. There is an overall cost reduction since processing time is reduced and human intervention in the accounting system is significantly limited. Not to mention, the cost of printing, as well as the envelope and postage is reduced. This is in contrast to manual invoicing which takes much longer to process while also having the higher risk of error or omissions during posting.
E-invoices are able to be delivered quickly while being error-free and timely. This inevitably means that quick payment can be expected from the customers. This leads to improvements in the liquidity of the business.
With e-invoicing, the working capital cost for the business decreases. This is often one of the high costs in the financial statement. Hence, even a fractional change can make a difference.
Since clerical work involved with the handling of accounts records and documents is reduced, it will lead to an increase in the overall productivity of the employees. Furthermore, employee headcount can also be reduced. This results in an overall decrease in business operations cost while also increasing business profitability.
Implementation of electronic invoicing leads to enhanced data structure for the accounting record. For instance, the system ensures that an invoice is backed by the contract, purchase orders, goods receipt and other supporting evidence designed in the organizational operations. Since the risk of errors or omissions is decreased, the quality of the accounting records is increased.
The quality of the payment mechanism is improved since the validation system help to ensure that accurate data is exchanged and entered into the accounting system.
In the e-invoicing process, figures are automatically updated with integrated resource planning systems. This therefore means that the risk of weak internal controls, fraud and deception is decreased with e-invoicing.
The use of e-invoicing is an excellent tool for billing for a group of companies. This is because there will be fewer chances of disagreement in regards to the trading terms. Hence, higher automation is enjoyed by these companies.
In order to facilitate e-invoicing, both the businesses of the supplier and customer must have an active e-invoicing system for generating, transmitting and receipt of the invoice. This means that the business will need to consider the cost and other aspects in relation to the implementation of an e-invoicing system. It is also important to note that often times, the cost of e-invoicing implementation is higher than the perceived benefits. That is why the relatively smaller businesses will need to consider the cost factors before making the decision to implement the e-invoice system.
In addition, project management is considered to be more compatible with the system of e-invoicing. For this reason, the project-related budget can be more precisely estimated for the specific project. In this way, e-invoicing can speed up automation as there will be less risks of disagreements once a contract is approved.
Essential Aspects of e-invoice Functions
There are two essential aspects of the e-invoice system which will now be discussed:
Firstly, the e-invoice must be generated with the correct structure. In other words, the price, terms, discount and delivery input must be agreed upon in advance.
Secondly, since the e-invoice needs to be transferred from the seller’s accounting system to the buyer’s payable system, the speed of transmission is higher. This is due to the fact that the two systems are integrated.
How Does an E-invoice Work?
The systems of the customer and supplier are connected which allows the data transmission and data exchange. So, the system of e-invoicing works through this integrated approach. In this regard, there are two well-known models for the implementation of the e-invoicing system. These will now be discussed.
Clearance model
In this model, the business is required to obtain clearance or approval from the respective tax authorities before sending an invoice to the customer. In fact, this is called the clearance model because clearance is required before sending the invoice to the customer. This model leads to higher regulation of the business activities. Currently, Italy as well as Latin America have opted for this model while other European countries are interested in implementing this model as well.
Post audit model
In this model, the business is not required to gain clearance of approval in advance. Instead, the business is obliged to prove the legibility, authenticity and integrity of the transaction after the transaction has occurred. Hence, this model is labeled the post audit model since the business must prove authenticity after a transaction occurrence.
Conclusion
E-invoicing is a product of modern technology and this model is adopted by businesses and trading partners around the globe. With the help and ease of e-invoicing, businesses are able to be in a better position to present and monitor transactional documents. These documents include but are not limited to invoices, purchase orders, debit notes, credit notes, payment terms, payment instructions, remittance slips, and so forth.
The main advantage of using the process of e-invoicing is that it saves cost and time which used to be required for the manual processing in the form of invoice generation, transmission and posting in the customer’s accounting system.
Frequently Asked Questions
Is an e-invoice used for cross-border trade?
The answer is “yes”. E-invoicing is used for cross-border trade throughout the world. In fact, an e-invoicing system is considered to be a game changer. This Is due to the fact that automation in compliance and tax-related matters can accelerate the speed of transaction execution. It is the responsibility for exporters to ensure compliance with certain additional requirements with the e-invoicing which includes code for supply type, recipient pin code, country code for export, shipping bill number, export duty amount, refund details and so forth.
What is the difference between an invoice and an e-invoice.
An invoice and an e-invoice have the same feature in that they both record revenue and bill the customer. However, in contrast, the format and procedure for both are different. In a conventional invoice, the bill is printed, placed in an envelope and dispatched to the customer. This manual way of doing things is time-consuming. On the other hand, e-invoicing is when the accounting and resource planning system of both the customer and supplier are integrated for data exchange. So, this technological advancement allows the process to be completed not only quickly but also with higher accuracy. This means that in the future, the use of e-invoicing will be spread worldwide.
Invoicing tools: