E-invoicing Refresher: Electronic VS Digital Invoices Explained

What is e-invoicing?

E-invoices stand out for their ability to integrate directly with your accounting systems, eliminating manual data entry.

The way businesses manage transactions is undergoing a transformation, with e-invoicing both a necessary and strategic tool. Unlike traditional paper or PDF/digital invoices, which require manual handling at multiple stages, e-invoices transmit structured data in a machine-readable format. By automating invoicing workflows with e-invoicing data, accuracy is improved, tax compliance is simplified, and audit readiness is boosted, alongside numerous operational efficiencies.

Potential benefits of increased digitization;

Adopting e-invoicing offers numerous benefits, from better compliance to improved efficiency. The advantages of Vertex e-Invoicing are felt across the organisation.

• Say goodbye to data entry with accounts receivable (AR) and accounts payable (AP) automation. Vertex e-Invoicing automates accounts receivable (AR) and accounts payable (AP) processes, seamlessly connecting with local mandates like Peppol and SDA – so your teams can focus on more valuable work.
• Smoother, less stressful tax compliance audits. Tax audits don’t have to be a scramble. Vertex e-Invoicing keeps you up to date with evolving tax regulations improving audit readiness and securely archiving up to 15 years of approved invoices.
• Better cash flow and fewer financial bottlenecks. Automation reduces errors and lowers the cost of compliance. With e-invoicing you’ll reduce human error and speed up payment cycles, helping your teams to decrease Day Sales Outstanding (DSO) and improve cash flow.
• Deeper trust with your customers and vendors. By sending error-free, compliant invoices quickly and reducing delays and disputes, payments run smoothly, and your customer and vendor relationships grow stronger.
• Supporting a greener future. Cutting down on paper use and waste, helps you commit to sustainable business practices whilst also streamlining your invoicing operations.

Is e-invoicing the same as digital invoicing?

If you don’t have an immediate and accurate response to that question, you’re hardly alone. Just a few years ago, the Organization for Economic Co-operation and Development (OECD) reported that one-quarter of tax administration officials were not clear on the differences between a digital document vs an image of a paper document vs an electronic invoice (e-invoice).

Tax professionals within companies that do not conduct business in countries with e-invoicing requirements – such as Brazil, Mexico, Taiwan, Italy, and India – should consider familiarizing themselves with the fundamentals as more countries move to adopt new e-invoicing regulations. The European Union’s recently approved VAT in the Digital Age (ViDA) relies upon e-invoicing mandate as one of its three pillars, to promote transparency and reduce tax fraud. You can read more about this in our recent article: E-invoicing and the domino effect for VAT.

Evolution from paper invoices to digital invoices to e-invoices

As all tax pros know, paper invoices contain key data (product amounts, descriptions, and quantities) on a printed paper that is read manually. The physical nature of the paper invoice requires the invoice to be manually sent by the supplier and manually received by the buyer.

Digital invoices, contained in PDFs and other digital formats, replace the physical form of paper invoices with digital images. While this enables digital invoices to be managed and stored in more efficient ways, this form still requires manual interventions. Sending and receiving processes are partly automated and partly manual and the buyer must manually read and enter a digital invoice’s data into an accounts payable (AP) system.

E-invoices enable a more automated exchange. A structured e-invoice contains data from the supplier in a machine-readable format that can be automatically imported to the buyer’s AP system without manual intervention. This transmission does not include a visual representation of the invoice data. The primary objective is accuracy and efficiency as opposed to manual readership of the invoices (which can be performed when certain instances make sampling reviews necessary).

Although their specific rules vary, the primary regulatory objective of e-invoicing requirements is for tax jurisdictions to gain real-time (or near real-time) access to tax-relevant data on the invoices. This approach increases tax administration efficiency, helps ensure compliance accuracy and reduces tax fraud. Tax authorities tend to emphasize these benefits when proposing new e-invoicing rules, but while e-invoicing is becoming an important part of VAT compliance, the benefits of e-invoicing versus digital invoicing go far beyond just meeting regulatory requirements.

E-invoicing best practices: rules and requirements

For companies and their tax groups, e-invoicing requirements are a mixed bag. Disadvantages include inserting tax authorities’ processes and requirements into the sales cycle upfront; following up on credit notes and debit notes; implementation and maintenance costs; and the fact that any errors become immediately visible to tax authorities.

Indirect tax groups whose companies operate in jurisdictions that have e-invoicing requirements planned (or already on the books) should deepen their knowledge of the compliance implications.

As businesses look to adopt e-invoicing it should not be viewed as an isolated initiative, but as part of a broader strategy for digital transformation. Engaging cross-functional stakeholders from finance, IT, procurement, and other departments is key in making sure that e-invoicing supports overall digital goals. To explore how this aligns with the future of tax and finance, you can read more in our comprehensive whitepaper, The Future of E-invoicing and What It Means for CFOs

For those seeking to learn more about Vertex e-Invoicing and what the future may hold, I suggest reading my recent article in ITR, Reimagining invoices for the 2020s. Stay tuned for future thought leadership content on this trending and evolving topic.

Vertex e-Invoicing – how to get started

Stay ahead of e-invoicing regulations

Don’t wait for e-invoicing regulations. Take a proactive approach to e-invoicing, staying ahead of local and international compliance requirements. You’ll gain efficiency, accuracy, and cost-saving benefits plus the ability to maintain growth and expansion without disruption when new regulations take effect.

Assess current invoicing and compliance needs

Before implementing e-invoicing you need to evaluate your current invoicing processes, systems, and the regulatory requirements in the regions where you operate. Understanding your business’s unique needs, including existing ERP systems and specific e-invoicing requirements, is key to successful e-invoicing adoption.

Align e-invoicing with your business needs

Based on your assessment, we will collaborate with you to make sure your e-invoicing approach aligns with your business needs and goals, across global indirect tax compliance, country specific VAT requirements, and your existing systems.

Integrate e-invoicing with your ERP

Vertex e-Invoicing connects with your existing ERP system and relevant tax authority portals. This connectivity allows data to flow seamlessly between the systems, eliminating the need for manual entry, and creating faster and more accurate end-to-end e-invoice processing.

Staff Training

Training your team to use the new platform effectively is key. Focus on educating finance, IT, and tax teams to make sure they understand the workflow, from e-invoice creation to compliance reporting.

Automate validation and compliance

With the solution in place, Vertex e-Invoicing will automatically validate, convert, and transmit invoice data according to the e-invoicing requirements of each jurisdiction for your business. This step is where your business begins to take full advantage of the benefits of electronic invoicing, improving efficiency and reducing the need for manual processing.

Monitor, optimize, and scale

Vertex e-Invoicing will help as you scale your operations, without adding complexity to VAT/GST processes, and supporting both continuous compliance and efficiency. Regularly review the benefits of electronic invoicing, such as reduced errors, better cash flow, and smoother audits, and adjust your e-invoicing requirements, as necessary.

For those seeking to learn more about e-invoicing and what the future may hold, I suggest reading my recent article in ITR, Reimagining invoices for the 2020s. Stay tuned for future thought leadership content on this trending and evolving topic.