What is electronic invoicing and what are their benefits over paper invoicing?

Time and effort are two of the most valuable resources for businesses — so creating a process to quickly create, send, and save electronic invoices is essential. Though it may sound like a simple tool, the benefits are powerful.

E-invoicing, or electronic invoicing, is a digital invoice tool that can be sent once or automated for regular customers. The associated benefits are extensive: Not only can electronic invoicing be a major time-saver for businesses that rely on it for processing accounts payable, but it can also reduce material and paper costs, lower potential invoicing errors, and lead to faster payment. What’s more, many find that e-invoicing solutions can help with compliance regulations.

Read on to learn more about the advantages of switching from paper invoices to e-invoicing, from reducing overall costs and errors to enabling faster, more accurate processing.

What is e-invoicing (electronic invoicing)?

To avoid a cash flow crunch, almost all businesses need to create and track invoices. But what is an invoice? Think of it as the way we confirm to our customers that you performed a service or shipped a product, and now they owe you money. Instead of sending paper invoices, which can be tedious and tough to manage, many businesses have digitized their invoice solutions process through e-invoicing.

E-invoicing involves generating, transmitting, and processing invoices in a digital format between businesses. These invoices contain structured data with the relevant transaction details and are created using specialized software. They can then be transmitted quickly through electronic channels and seamlessly processed and validated without manual entry.

How does e-invoicing work?

So, how does e-invoicing work? Here’s a quick step-by-step breakdown with the key steps involved in e-invoicing:

  1. Generate an invoice. The invoice is created electronically in a structured data format.
  2. Validate. The invoice is validated to ensure accuracy, completeness, and compliance with legal and business requirements.
  3. Transmit the invoice. It is transmitted to the recipient through an electronic channel.
  4. Receive and process. The recipient’s system receives and processes the e-invoice, extracting relevant data for payment processing.
  5. Match with relevant documents. The e-invoice is matched with related documents such as purchase orders or delivery receipts.
  6. Approval and payment. Once approved, payment is initiated.
  7. Archive. E-invoices can be digitally archived for convenient record-keeping.

What is not considered an e-invoice?

Unlike traditional invoices, e-invoices are made up of data that can be automatically processed without manual action. In other words, e-invoices can be seamlessly transmitted into a company’s financial system without the need for accounting staff to sort each one.

Therefore, the popular invoice formats listed below aren’t necessarily considered electronic invoices:

  • Word (.doc) and Excel (.xls). Paper invoices, even if they are converted to digital format, are not e-invoices because they are not issued electronically.
  • PDF. When you create a PDF invoice, it is then typically sent by email and is not considered an e-invoice. PDF invoices cannot be processed automatically because they are not sent in a structured format.

What is the difference between e-invoices and other types of invoices?

What’s the difference between an invoice and an e-invoice? In short, an electronic invoice is a type of digital invoice — yet not all digital invoices qualify as e-invoices. Both terms describe the act of generating, sending, and receiving invoices. But instead of manual processing, e-invoices are created in a structured data format so they can be automatically transmitted between businesses.

Benefits of electronic invoicing

Today's e-invoice is no different than the traditional paper ones. It includes all the same information, from the customer's address to details like services performed (or products sold), pricing, descriptions, and more. The difference is it's not in physical form, which can help make the invoicing process faster, simpler, and even more secure.

Here are some of the biggest benefits of electronic invoicing:

  • Track and traceability. E-invoicing automatically tracks transaction history and the entire document journey, so you don’t have to spend time doing it manually.
  • Secure document and data exchange. Encrypted file transfer, digital signatures, and secure networks all make e-invoicing a safer way to send and receive invoices.
  • Compliant. Keep your operation running smoothly and grow overseas without e-invoicing regulations holding you back. Plus, get updates to help your business maintain compliance with new e-invoicing requirements as they're enacted.
  • Cost savings and boosted efficiency. Switching from paper invoices to e-invoicing can enable significant savings in printing, postage, invoice handling, and more.
  • Fewer mistakes. E-invoicing helps cut back on data entry mistakes by using automated invoice data transmission.
  • Faster payment. With e-invoicing, businesses can collect payments faster and help improve cash flow.

Here’s a quick overview of e-invoicing for small businesses and the benefits.

E-invoicing and compliance

Whenever you handle credit or debit payments, you must maintain compliance with the PCI DSS (Payment Card Industry Data Security Standard), a set of comprehensive data security regulations to protect consumers and guard against fraud and unauthorized transactions. Not complying with e-invoicing regulations can lead to fines and audits.

For instance, PayPal Invoicing is designed to simplify e-invoicing compliance through:

  • Digital signature and authentication
  • Retention requirements
  • Conversion of XML invoices into business partner’s desired format
  • Processing and optimization of incoming and outgoing invoices
  • Document transmission

How to create electronic invoices

Creating an e-invoice is relatively simple. Here’s a quick guide:

  1. Inform customers. Before starting to send customers e-invoices, make sure they’re willing and able to receive them.
  2. Set up e-invoicing. Ensure your e-invoice format includes all the information necessary to identify the transaction, supplier and customer, and other details, such as acceptable payment methods and any applicable taxes or discounts.
  3. Generate the invoice. You can use PayPal for this.
  4. Deliver the invoice. Send the e-invoice to customers via email or through a secure portal.

E-invoicing FAQs

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