Electronic invoicing

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UML class diagram depicting a invoice UML class diagram invoice.svg
UML class diagram depicting a invoice

Electronic invoicing (also called e-invoicing or einvoicing) is a form of electronic billing. E-invoicing includes a number of different technologies and entry options and is usually used as an umbrella term to describe any method by which a document is electronically presented from one party to another, either for payment [1] or to present and monitor transactional documents between trade partners to ensure the terms of their trading agreements are being met. These documents can include invoices, purchase orders, debit notes, credit notes, payment terms, payment instructions, and remittance slips.

Contents

Purpose

The accounts payable department ensures all invoices from its suppliers are approved, processed, and paid. The main responsibility of the accounts receivable department is to ensure all invoices are created, delivered and subsequently paid by their vendors. Processing an invoice includes recording relevant data from the invoice and feeding it into the company's financial or bookkeeping systems. After the feed is accomplished, the invoices go through the company's business process to be paid. [2]

An e-invoice can be defined as structured invoice data issued in electronic data interchange (EDI) or XML formats, possibly using Internet-based web forms. [3] These documents can be exchanged in a number of ways, including as EDI, XML, or CSV files. [4] The company may use imaging software to capture data from PDF or paper invoices and input it into their invoicing system. Many companies hire a third-party company to implement and support e-invoicing processes and to archive the data on their own servers. [5]

The file extension .INV could be used. The .INV file can be in standards-compliant XML format.

History

Since the mid-1960s, companies have begun establishing data links with trading partners to transfer documents such as invoices and purchase orders. Inspired by paperless office, they developed the first EDI systems. At the time, there was no standard for electronic data interchange.

The Accredited Standards Committee X12, a standards institution under the umbrella of ANSI, moved to standardize EDI processes. The result is known today as the ANSI X12 EDI standard. [6] This remained the main way to exchange transactional data between trading partners until the 1990s, when companies began competing. New web-based applications allow for online submission of individual invoices as well as EDI file uploads, including in CSV, PDF, and XML formats. Suppliers could also see a history of all the invoices they submitted to their customers without having direct access to the customers' systems. This is because all the transactional information is stored in the data centers of the third-party company that provides the invoicing web app. [7]

According to a 2012 Global E-Invoicing Study, 73% of respondents used electronic invoicing to some degree in 2012, a 14% increase from 2011. Supplier resistance to e-invoicing has decreased from 46% in 2011 to 26% in 2012. [8] By 2022, a leading provider reported a 78% increase in the number of invoices processed through its platform over a two-year period. [9] According to a report done by the GXS in 2013, Europe is adopting government legislation encouraging businesses to adopt electronic invoicing practices. The United States Treasury estimated that implementing e-invoicing across the entire federal government would reduce costs by 50% and save $450 million annually. [10]

Standards

Various standards exist. The EU's Directive 2014/55/EU on electronic invoicing in public procurement noted that "several global, national, regional and proprietary standards exist; ... none of them prevail and most of them are not interoperable with one another". [11]

Under EU Directive 2014/55/EU on electronic invoicing in public procurement, the EU commissioned the development of a "European standard on electronic invoicing". [14]

Usage

To enable e-invoicing, there must be an existing method of viewing the transactions, typically an ERP (enterprise resource planning) or accounting system. Once routing is established in the system, validation rules can be set up to reduce the number of invoice exceptions. Once the e-invoicing specification testing is complete, the business's suppliers will be connected electronically. [15] [16]

Government-mandated

Several governments and tax administrations imposed e-invoicing formats in their respective jurisdictions for business-to-business (B2B) transactions, and required that the emitted documents be stored in centralized repositories, often controlled by the tax administration. Mexico, for example, introduced the CFDI format in 2004 in Appendix 20 of its Tax Code, requiring that all invoices be stored with the Mexican Tax Administration. [17] Non-standard invoices have been banned by law since 2012. Chile implemented a similar system in 2003, [18] and Colombia in 2020. [19]

In the European Union, France introduced mandatory government-controlled B2B e-invoicing starting in July 2024. [20] This obligation has existed in Italy since 2019. [21]

The primary goal of government-controlled e-invoicing is to reduce corporate tax fraud. Per a research paper published by the Harvard Kennedy School of Government, Mexico's tax-to-GDP ratio rose from 12.6% to 16.2% between 2012 and 2017, driven largely by a 48% increase in revenue from tax on goods and services after e-invoicing was made mandatory.

The Malaysian Government declared in the 2023 Tax Budget that mandatory e-invoicing will be introduced for businesses with an annual turnover exceeding RM 100 million starting in June 2024. By 2027, all businesses will be required to adopt this electronic invoicing method. [22] [23]

The United Arab Emirates announced its e-invoicing initiative in July 2023. The Ministry of Finance plans to roll out mandatory e-invoicing for B2B and B2G transactions by July 2026. [24] This system will follow a decentralized model, initially covering domestic transactions with potential future inclusion of B2C transactions. The initiative aims to enhance tax compliance and reduce administrative costs. [25] [26]

See also

Related Research Articles

Electronic data interchange (EDI) is the concept of businesses electronically communicating information that was traditionally communicated on paper, such as purchase orders, advance ship notices, and invoices. Technical standards for EDI exist to facilitate parties transacting such instruments without having to make special arrangements.

Accounts payable (AP) is money owed by a business to its suppliers shown as a liability on a company's balance sheet. It is distinct from notes payable liabilities, which are debts created by formal legal instrument documents. An accounts payable department's main responsibility is to process and review transactions between the company and its suppliers and to make sure that all outstanding invoices from their suppliers are approved, processed, and paid. The accounts payable process starts with collecting supply requirements from within the organization and seeking quotes from vendors for the items required. Once the deal is negotiated, purchase orders are prepared and sent. The goods delivered are inspected upon arrival and the invoice received is routed for approvals. Processing an invoice includes recording important data from the invoice and inputting it into the company's financial, or bookkeeping, system. After this is accomplished, the invoices must go through the company's respective business process in order to be paid.

An invoice, bill or tab is a commercial document issued by a seller to a buyer relating to a sale transaction and indicating the products, quantities, and agreed-upon prices for products or services the seller had provided the buyer.

The Legal Electronic Data Exchange Standard is a set of file format specifications intended to facilitate electronic data transmission in the legal industry. The phrase is abbreviated LEDES and is usually pronounced as "leeds". The LEDES specifications are maintained by the LEDES Oversight Committee (LOC), which started informally as an industry-wide project led by the Law Firm and Law Department Services Group within PricewaterhouseCoopers in 1995. In 2001, the LEDES Oversight Committee was incorporated as a California mutual-benefit nonprofit corporation and is now led by a seven-member Board of Directors.

xCBL is a collection of XML specifications for use in e-business. It was created by Commerce One Inc. and is maintained by Perfect Commerce.

E-procurement is a collective term used to refer to a range of technologies which can be used to automate the internal and external processes associated with procurement, strategic sourcing and purchasing.

Universal Business Language (UBL), ISO/IEC 19845, is an open library of standard electronic business documents and information models for supply chain, procurement, and transportation such as purchase orders, invoices, transport logistics and waybills. Originally developed by an OASIS Technical Committee with participation from a variety of industry data standards organizations. UBL is designed to plug directly into existing business, legal, auditing, and records management practices. It is designed to streamline information exchange through standardization, facilitating seamless connections between small, medium-sized, and large organization, thereby eliminating the re-keying of data and providing a comprehensive framework for electronic commerce.

An e-commerce payment system facilitates the acceptance of electronic payment for offline transfer, also known as a subcomponent of electronic data interchange (EDI), e-commerce payment systems have become increasingly popular due to the widespread use of the internet-based shopping and banking.

<span class="mw-page-title-main">Business-to-business</span> Commercial transaction between businesses

Business-to-business is a situation where one business makes a commercial transaction with another. This typically occurs when:

cXML (commerce eXtensible Markup Language) is a protocol, created by Ariba in 1999, intended for communication of business documents between procurement applications, e-commerce hubs and suppliers. cXML is based on XML and provides formal XML schemas for standard business transactions, allowing programs to modify and validate documents without prior knowledge of their form.

Business-to-Business (B2B) Gateways integrate data from back-end systems, enabling information exchange across trading partners. B2B Gateways also provide a centralized point for transformation of multiple data sources through interoperability standards such as XML, cXML(Commerce XML) and EDI. B2B Gateways provide businesses an e-commerce platform for integrating with key suppliers and customers quickly and easily. The platform is often a component of a company's Service-Oriented Architecture (SOA) architecture. Other capabilities of the B2B Gateway include trading partner management and security control. B2B Gateways help to bridge the collaboration gap across the supply chain partners and transform the data flow between companies from a batch oriented manner into a real time process. This streamlines the processing and enables for business activity monitoring(BAM) systems to be implemented, which provides the enterprise with greater visibility and proactive control over the applications. B2B Gateways continue to be in high demand for organizations of every size.

Supplier enablement is the process of electronically connecting suppliers to a company's supply chain. Supplier enablement is achieved when suppliers of goods and services are connected to a company's back-office systems to exchange critical business documents such as purchase orders, invoices and other information. Suppliers can be connected, or "enabled," using a variety of means including Electronic Data Interchange (EDI), Extensible Markup Language (XML), Web forms, RFID chips, or other e-commerce tools.

XML/EDIFACT is an Electronic Data Interchange (EDI) format used in Business-to-business transactions. It allows EDIFACT message types to be used by XML systems.

The term Public eProcurement refers, in Singapore, Ukraine, Europe and Canada, to the use of electronic means in conducting a public procurement procedure for the purchase of goods, works or services.

The XBRL Global Ledger Taxonomy Framework is a holistic and generic XML and XBRL-based representation of the detailed data that can be found in accounting and operational systems, and is meant to be the bridge from transactional standards to reporting standards, integrating the Business Reporting Supply Chain.

Electronic Business using eXtensible Markup Language, commonly known as e-business XML, or ebXML as it is typically referred to, is a family of XML based standards sponsored by OASIS and UN/CEFACT whose mission is to provide an open, XML-based infrastructure that enables the global use of electronic business information in an interoperable, secure, and consistent manner by all trading partners.

Amalto Technologies S.A. is a software development company based in Paris, France. The company develops and operates business-to-business (B2B) document exchange software solutions and provides system integration services. It serves the oil & gas, industrial, environmental and enterprise markets.

<span class="mw-page-title-main">Tungsten Network</span> Global electronic invoicing firm.

Tungsten Network is a global electronic invoicing firm that provides supply chain financing services from international offices in the United Kingdom, United States, Bulgaria, Germany, and Malaysia. As a small- to medium-sized IT company, they have an estimated revenue of £31.3 million (GBP) as of July 2017. Tungsten Corporation Plc (TUNG) is reported to trade regularly on the London Stock Exchange. Main competitors in this arena include Tradeshift, Ariba, Basware, Taulia and iPayables.

UNIDOC is an XML-based standard to support electronic data interchange (EDI) in business transactions between trading companies. Unlike other XML-based EDI formats, such as UBL, ebXML, RosettaNet or openTRANS, UNIDOC relies one a single structure. The first idea of such a universal format was published in 2014, its first specification in 2016 in the journal of the Chamber of Commerce and Industry Swabia . The current specification can be found in the UNIDOC XML Schema Definition.

The Central Electronic System of Payments (CESOP) regime is an automatic exchange of information regime being introduced in the European Union from 1 January 2024. The rules were introduced by Council Directive 2020/284, amending the EU's Value-added tax Directive.

References

  1. ↑ tieto. (2009). The future of E-invoicing, Pg. 5. Retrieved from digitdoc: "Archived copy" (PDF). Archived from the original (PDF) on 21 October 2012. Retrieved 17 June 2013.{{cite web}}: CS1 maint: archived copy as title (link)
  2. ↑ Accounting Tools. (2013). Accounts Payable Controls. Retrieved from accounting tools: http://www.accountingtools.com/accounts-payable-controls Archived 13 June 2013 at the Wayback Machine
  3. ↑ "e-VoicingBasics". 13 May 2011. Retrieved 13 April 2017.
  4. ↑ GXS. (n.d.). Lost? Don't Know What to look for in an e-invoicing solution? Retrieved from GXS: http://www.gxs.co.uk/eBooks/eInvoicing/e-invoicing_ebook_uk.pdf Archived 29 October 2013 at the Wayback Machine
  5. ↑ US Bank, Scott Hesse. (9 August 2010). Electronic invoice Presentment and Payment (EIPP): Streamlining the Payment Process. Retrieved from nasact: http://www.nasact.org/conferences_training/nasact/conferences/AnnualConferences/2010AnnualConference/CS7_Hesse.pdf Archived 29 October 2013 at the Wayback Machine
  6. ↑ Hill, M. G. (n.d.). A brief history of Electronic Data Interchange, pg 6. Retrieved from BizTalk Server 2000: A beginner's Guide: http://books.mcgraw-hill.com/downloads/products/0072190116/0072190116_ch01.pdf Archived 9 March 2014 at the Wayback Machine
  7. ↑ GXS. (2013). A brief history retrieved from einvoicingbasics: http://www.einvoicingbasics.co.uk/what-is-e-invoicing/a-brief-history/
  8. ↑ The Institute of Financial Operations. (2012). A shift toward e-invoicing ecosystems, pg. 6. Retrieved from baseware: http://www.basware.com/sites/default/files/restricted/2012-global-e-invoicing-study.pdf?rrt=21 Archived 23 September 2015 at the Wayback Machine
  9. ↑ "Proactis reveals record levels of invoices processed through its managed service". Proactis Ltd . 21 February 2022.
  10. ↑ Bruno Koch, G. (April 2013). E-Invoicing/ E-Billing. Retrieved from GSX: http://www.gxs.co.uk/wp-content/uploads/billentis-2013-report.pdf Archived 2 November 2013 at the Wayback Machine
  11. ↑ European Union, Directive 2014/55/EU on Electronic Invoicing in Public Procurement, 16 April 2014, Preamble, section 1
  12. ↑ Digital Business Council, eInvoicing Implementation Guide: Australian implementation of e-invoicing using UBL
  13. ↑ Description of Estonian electronic invoice
  14. ↑ European Union, Directive 2014/55/EU on Electronic Invoicing in Public Procurement, 16 April 2014, Article 3
  15. ↑ E-Invoicing and Supplier Connectivity. (2015). Transcepta. Retrieved from transcepta: http://www.transcepta.com/wp-content/uploads/2015/05/Transcepta-Building-the-Business-Case-for-E-Invoicing-and-Supplier-Connectivity.pdf Archived 30 September 2015 at the Wayback Machine
  16. ↑ "Online invoicing software" . Retrieved 14 May 2023.
  17. ↑ "La historia de la facturación electrónica en México – Bind ERP" (in Spanish). Retrieved 26 February 2023.
  18. ↑ Emprendedores, Hispanos (12 October 2020). "Cómo funciona la facturación electrónica en Chile". Hispanos Emprendedores (in Spanish). Retrieved 26 February 2023.
  19. ↑ "Cómo es la factura electrónica en Colombia| EDICOM CO". edicom.co (in Spanish). Retrieved 26 February 2023.
  20. ↑ "Obligation d'émettre des factures électroniques : un changement majeur dès juillet 2024". entreprendre.service-public.fr (in French). Retrieved 26 February 2023.
  21. ↑ "1° gennaio 2019: la fattura diventa elettronica". MEF (in Italian). Retrieved 26 February 2023.
  22. ↑ "E-Invoice (Electronic Tax Invoice)". 9 March 2023.
  23. ↑ "Malaysia's E-Invoicing System: Key Requirements". www.cygnet.one. 9 July 2024. Retrieved 7 August 2024.
  24. ↑ Asquith, Richard (14 February 2024). "UAE B2B e-invoicing July 2026 - vatcalc.com" . Retrieved 7 August 2024.
  25. ↑ "Comprehensive Guide to UAE E-Invoicing Mandate". www.cygnet.one. 28 June 2024. Retrieved 7 August 2024.
  26. ↑ "Digital invoicing | The Official Portal of the UAE Government". u.ae. Retrieved 7 August 2024.
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