What is an e-Invoicing: Types, How Does it Work, Benefits, And Pitfalls

Invoices are a core part of any business. To receive payment, many companies send invoices and bills, ranging from roofing services to healthcare.

Initially, invoices were entirely paper-based. The advent of electronic invoicing (or e-invoicing) in recent years has revolutionized how invoices are managed, bringing workflows to a new level and simplifying the entire process. Approximately $8.74 billion was generated by e-invoicing in 2021, with $29.68 billion by 2027 expected.

While the trend toward e-invoices is on the rise, over a third of accounts payable departments still receive paper invoices, despite facing the paper invoice error costing $53.50. The road ahead remains long.

Is e-invoicing something that interests you? Then this blog is for you. In this article, you will learn what is e-invoicing, electronic invoicing benefits, how to determine them, and several associated things.

E-Invoicing (Meaning, Pros & Cons, and Legal Requirements)

E-invoices are invoices that are electronically delivered and in a standardized electronic format sent from one service provider to the client. The use of electronic invoicing systems comes with numerous advantages to both businesses and clients.

The business owner who provides products and services to clients can generate e-invoicing automatically based on sales transactions instead of making and printing paper invoices. It eliminates the possibility of errors in invoicing.

Legal requirements for e-invoicing

According to a Federal Ministry of Finance ruling on 1 July 2011, electronic invoices are just as valid as paper. Email-based electronic invoicing no longer require signatures and can be sent via email.

To ensure compliance with Federal Office for Justice rules and regulations:

• Be structured and electronic, and receive, transmit, and issue.The term structured invoice formats are typically used to refer to an EDI (Electronic Data Interchange) connection.

Types of e-Invoicing

Electronic invoicing is becoming more prevalent in many countries. Even though e-invoicing is not legally required in some countries, it is nevertheless carried out since it promotes smooth electronic invoicing and payment efficiency. Thus, it can be divided into two invoice types: those that do not comply with laws and those that do.

1. e-Invoicing without compliance

This is another type of e-invoicing where the purchaser and seller agree only to the format of the data to be sent and, at the same time, do not comply with the electronic invoicing regulations of the country in question. As a result, the following processes are followed:

• This is where the buyer and supplier, i.e., the parties involved in the transaction, decide the details and format of the invoice document.
• Invoices will include structured data using either EDI (Electronic Data Interchange) or simple forms hosted on the web.
• In a nutshell, an electronic invoice is created and sent either through the e-invoicing solution of the supplier or via a web-based form it is generated from.
• Payment systems receive electronic invoices in a format that can be processed immediately by their accounts payable systems.

2. e-Invoicing with compliance

E-invoicing rules and regulations vary from country to country. Compliant e-invoices follow the same process, with these exceptions:

• Regulations and legislation of the trading parties determine the invoice format.
• Electronic invoicing adheres to government guidelines regarding content validation and security.
• You can use invoices for auditing and VAT (value-added tax) calculations.

How Does e-Invoicing Work?

e-invoicing is another name for electronic invoicing. Essentially, it involves sending invoices electronically or over the Internet rather than via email address or in person.

e-invoicing is different from digitizing scanned paper invoices. Photocopies of scanned paper invoices sent via fax machines, and apps that convert them to PDF or word formats invoices aren’t considered e-invoicing. Invoices not issued electronically and do not contain structured data readable by machines are not considered e-invoices.

Since the early days of the XML file format and the inception of Electronic Data Interchange EDI – machines for material procurement and document processing, e-invoicing has been around.

In the modern age of digital invoices, creating them using billing software solutions like InvoiceOwl is often possible, enabling customers to access their invoice data remotely through email or online in a secure environment.

There are a lot of invoicing systems out there that allow customers to pay through their portals as well.

Like with paper invoices, you will also need to include a lot of information on your electronic invoice, including information about the trading partners i.e., buyer and seller, the amount due, the date of payment, and the invoice number, just like with paper invoices.

Identification of e-Invoices

Here are the certain factors that help you identify the E-invoices precisely:

• Typically, e-invoicing includes structured information in the format of Electronic Data Interchange or XML that is used to transmit invoices electronically
• Structured invoice data is information that is issued via standard web-based forms on the Internet
• The e-invoice format facilitates electronic invoice processing in an automatic, quick and paperless manner.

Benefits & Pitfalls of Digital Invoicing (In-detail)

Getting paid faster and maintaining good customer relations is easy with online invoices. With the online invoicing app like InvoiceOwl, you don’t have to send invoices separately, making it the best way to generate invoices.

By doing your bookkeeping and multitasking, you don’t have to chase your clients for payment.

Here are the benefits and pitfalls to give you a better understanding of digital invoicing.

1. User-friendly

Invoices are tiring to fill out by hand since you feel as if your hand is falling off every time you do so at the end of the month.

It is no secret that as a business owner, you have to do a lot of hard work every month to keep your business going; with an online invoicing system, you will be able to do everything precisely that you need to do automatically just with the click of a button.

If you wish to send an invoice to a client, you can do so easily. add their name and other details, and the details will be displayed automatically every time you send an invoice.

2. Loss is not a concern

Invoices sent through a regular platform have a higher risk of being lost.

As a result, if something like this happens, you will be asked why your clients or customers have not yet paid you, even though the other side has not yet received your invoice.

Even though your client has received your invoice, they will either forget or is unable to locate it when they are overwhelmed with paperwork.

As a result, by using an invoicing application in web-form , you can eliminate both of these problems while creating a backup of your invoice copies for use in the future. By doing so, your invoices are less likely to get lost.

3. Enhances the capabilities

Using an online invoice application that allows you to track the delivery of your invoice, you will always be notified when your client receives it.

Thus, the client won’t have any reason not to pay you when the time comes. This will minimize the risk of late payment, ensuring that you are left with zero ovcerdues and will improve your cash flow. Invoices will be saved digitally, so you won’t have to worry about whether your client received them.

4. Helps save money

Stop sending physical invoices to your customers and save paper, ink, and money by not sending them. Exactly how?

An automated invoice generator saves you money since you won’t need to purchase pens or paper. Instead, you can send an invoice through email, eliminating the need for envelopes, paper, pens, etc.

By doing this, you save both time and money.

5. Pitfalls

1. Filter spamming

Online or electronic invoices assist you in getting paid faster once your customer sees them.

At a certain point, the email service providers will mark invoices as spam, sending them to a folder to which your users and customers will pay a fee for access.

This may put you in a problematic situation, as you won’t be able to recognize when your invoices are being filtered out of your inbox as spam.

2. Offline customers

Sometimes, some of your potential clients, customers, or business partners may not access the internet or emails from their residences or may not have an email account.

Many customers do not know how to use online invoicing or may not have access to it.

Some might be elderly persons who do not know about online billing. Due to the habit of sending invoices by paper, they have a hard time understanding online invoices.

3. The fees

In case you are a business owner, you will need to use the invoicing services provided by a company to perform your online invoicing tasks. There will be a small fee required for the company’s services, and these fees can be added immediately.

e-Invoicing vs. Manual Invoicing

1. Invoices pre-filled

Invoicing clients manually requires you to enter sales and business information manually. The invoice amount can be calculated, discounted, taxed, and your logo uploaded.

If you choose to use e-invoicing, you can customise the invoice templates as per your needs and specifications. You will only need to upload information that will appear on all of your future invoices, such as your business’ logo, name, address, and contact information, once. This will result in the automated generation of them on all future invoices. So, welcome the new automated business rules and say bye to the old manual techniques.

2. No more manual follow-ups

With manual processing, you will have to follow up manually with your customers to ensure they pay their invoices.

When you use e-invoicing, you can configure payment reminders, which will be automatically sent to your customers at intervals configured by you, informing them when their payment is due.

3. Creating real-time reports

In the manual processing, you will be required to manually retrieve and collate data from previous invoices and create reports. As a result, using spreadsheets or word processor records to show the results.

With e-invoicing, you can access your invoices in real-time, making predictions and decisions based on the data without waiting. Electronic invoicing software, like InvoiceOwl, one of the most common reports available is the one on payments received, bad debts, and outstanding invoices to help you make business decisions that will benefit your business in the long run.

4. Accepting online payments is simple

There is no direct integration between third-party applications and manual invoicing business systems. The invoice must be attached with the bank account details of your business, or payment must be made in cash.

It is possible to accept online payments when using e-invoicing through a payment gateway easily when you use e-invoicing. The manual payment methods can be time consuming whereas accepting online payment is quick and accurate.

Conclusion

Once your business develops, you must have a better strategy for creating, tracking, managing, and storing invoices since most of these processes can be automated with electronic invoicing.