What is e-invoicing?

If you have customers in the public sector or your business works with bigger corporations, then you may have come across the term ‘e-invoicing’ already. Larger companies are already taking on this form of payment, but for smaller businesses, it’s not quite the norm yet.

The idea of e-invoicing is not new; in fact, electronic invoices have been around for 30 years or so, using electronic data interchange (EDI) and XML formats. Recently one of the main reasons e-invoicing has come to the fore is because governments have been adopting them.

The European Commission has created legislation to promote the uptake of e-invoicing across the European Union, making Europe one of the most active territories for electronic invoicing in the world.

So what is e-invoicing, and what does it mean for your business? This article will be a guide to e-invoicing and should answer your questions in the following areas:

• What is e-invoicing?
• What doesn’t count as an e-invoice?
• What are the benefits of e-invoicing?
• Should small businesses use e-invoicing?

E-invoicing is short for electronic invoicing. It is the process of sending a digital invoice to a customer that they can pay directly via links on the invoice itself.

In e-invoicing, any manual methods are removed from the payment process. For example, you do not have to file the invoice manually, and your customer does not have to handle a physical invoice or type in bank account details manually to send money to you. E-invoicing is therefore paperless and can be paid with a click of a button, making it much faster and easier than traditional invoice processing.

An e-invoice will include the same information as a regular invoice but will not be handled manually by the customer, like a paper invoice or PDF. By ‘handled manually’, we mean they will not have to go to a bank with it, write anything down, or make a payment through their online banking app, as you would with a PDF invoice.

So do PDF’s not count as electronic invoices? There are many accepted formats for e-invoices provided by different software, but not all digital forms of an invoice are e-invoices. 

For example:

• PDF invoices are not e-invoices. Although the customer can receive this via text or email, like an e-invoice, the PDF cannot process a payment because they are not part of a structured payment format. The customer would still have to do something with the PDF invoice to be able to pay. In comparison, an e-invoice can manage the payment too.
• Paper invoices, even in digital format, are not e-invoices. This includes scanned copies of invoices or images taken and sent to customers digitally. These invoices were not issued electronically via software, so even though they can be viewed digitally, they are not e-invoices.

With a manual invoicing process, you will have to create, process, file, and record invoices in your accounting records. When you use software to do this, not only are you saving yourself time, but you could be using that time to do more business and make more money.

When you aren’t processing invoices by hand or writing into an Excel sheet invoice by invoice, then you’ll be likely to make fewer errors. This is because the contact details of the person paying will be pre-loaded, so you know they’ll receive it, the bill can be itemised so that all amounts are accurate and totalled up correctly, without you needing to get your calculator out.

Sending invoices digitally means your invoicing process can be completely paperless. You also won’t contribute to postage or delivery mileage, wasting paper on incorrect invoices, or storing out-of-date paper records.

Research finds that bills are paid within 5.5 days when the invoicing process is automated, and without it, your business will wait for 18% longer to get your hard-earned money. This will be more beneficial for your cash flow as you won’t have to wait around and chase up unpaid invoices, as it’s easier and more convenient for your customer to pay through an e-invoice.

All e-invoices will be stored digitally, meaning there will be no need to keep paper records in a cabinet and be safe in the knowledge that your documents are stored safely on a cloud system.

If you are using e-invoicing in conjunction with accounting software, you’ll always have up-to-date financial data. Once an invoice has been paid, it will automatically be removed from your accounts receivable ledger and into your revenue total. This saves you any time-consuming accounting admin when it’s all done for you through the software.

How can small businesses use e-invoicing to benefit them? First, let’s look at some examples of why small companies should consider switching to an e-invoicing process.

• Legal reasons: Many governments have brought in mandatory e-invoicing laws, mainly with the public sector. Other governments and public bodies are following suit, so it doesn’t hurt to get ahead of the curve now before it becomes a requirement for your business.
• Competitive advantage: Not all private companies have adopted e-invoicing yet, but it could benefit your business by being able to send and receive electronic documents. Your customers will have a smoother and faster experience in paying you, and it shows your business is cutting edge and digitally literate.
• Give your business more flexibility: Automating this aspect of your business would allow your company to save money on paying an employee or third-party resource to do invoice management for you. It also allows your business to manage invoices remotely and save time compared to using a manual invoice process.

With the Countingup business current account and app, you can create invoices in seconds, get notifications when you’re paid, and receive automatic invoice matching so that you can save yourself hours of bookkeeping admin.  

The app automates a lot of the time consuming manual tasks associated with running a business. For example, it can help you create invoices in seconds, reconcile invoices once paid, automatically categorise your expenses and total up a tax estimate, so you’ll always know how much you owe HMRC.
Countingup is saving business owners hours of time-consuming work and helping thousands keep on top of their finances. Find out more here to save yourself hours of accounting and financial admin, and get back to what you do best – running your business.