What is e-invoicing?

What is e-invoicing?

More and more, business leaders and procurement executives are seeing the benefits that Accounts Payable automation can bestow upon their businesses, both in terms of realising significant savings and strengthening relationships with their suppliers. Growing demand for automation solutions inevitably leads to an increase in “solution providers”, but when you dig deeper it becomes clear that many solution providers use identical language to describe very different products: e-invoicing, straight-through processing, mobile AP, exception handling, ERP integration, automated workflow, intelligent capture with OCR… The list goes on.

Let’s take “e-invoicing” as an example (at Tungsten Network, it’s our favourite example!)

In the world of AP automation, “e-invoicing” is about as fundamental a term as you are likely to come across. At Tungsten Network, we use it (pretty much every minute of) every day. So what is (not) e-invoicing?

• Unstructured data sent in a Word or PDF document, is not an e-invoice.
• A paper invoice sent via a fax machine, is not an e-invoice.
• A paper invoice scanned and sent via email, is not an e-invoice.

Confusing? No, electronic invoicing, or e-invoicing, is the exchange of electronic invoice data from a Supplier’s computer to their (Buyer) customer’s computer with no requirement for supporting paper documentation. An e-invoice acts as a VAT, tax and accounting document, as well as the request for payment.

Compliance is a priority. This should go without saying but very often does not. Do not let a service provider tell you that it is not a priority. If your e-invoice will not stand up to an audit, then it is not an e-invoice and you may have legal difficulties. Having said that, it can be hard for service providers to meet the nuanced requirements of fiscal legislation in different countries and guarantee compliance, never mind to stay ahead of the game and build upcoming legislation into their solutions.

You should not be afraid to interrogate a service provider on compliance, because if they can achieve compliant e-invoicing, they will generally be VERY happy to tell you about all the trouble they’ve gone to in order to accomplish this feat. A good clue is if the provider can confidently discuss things like the role of different legislative directives or the nuanced electronic archiving requirements in various countries.

This is discussed in greater detail in Gary Benson’s latest blog, ‘Can you be partially compliant?!’

Straight-through processing

The overarching objective of an e-invoicing programme is to remove friction from accounting function. Friction manifests itself in manual, human touchpoints in the process, each of which costs extra resources, both in terms of time and money. As such, the success of your e-invoicing solution will ultimately depend on the level of integration between your ERP / accounting system and that of your customer.

Straight-through processing is the ideal. It means invoice data being sent from the Supplier’s accounting system and delivered into the Buyer’s accounting system with no human intervention necessary. The major challenge here is that invoice documents need to be verified, and Buyers don’t necessarily save invoices in the same format as their Suppliers. Therefore, in order to achieve straight-through processing, after electronic invoice data has been sent by a Supplier, it must be translated, enriched, validated, and digitally-signed before it is delivered to the Buyer’s accounting system, in their preferred data format.

A best-in-class service provider will manage the integration between accounting systems, or if the Supplier does not have an electronic accounting system, they will make provision to send invoice data via an online portal. Ideally, there should be no need for additional hardware or software to be implemented. You might be able to achieve some cost and time savings by simply removing paper, but the real benefits of e-invoicing are realised only when you begin to achieve big percentages of straight-through invoices compared to your overall invoice volume.