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What Is E-Invoicing?

Woman looking at a mobile phone thinking about e-invoicing

E-invoicing (short for electronic invoicing) is a way to exchange an invoice document in an integrated format between buyer and seller. As an alternative to the paper-based processes, e-invoicing results in fewer errors and saves time and money.

What is electronic invoicing?

Electronic invoicing is the exchange of an electronic invoice document between a seller and a buyer. When a business sends invoices electronically, it can use a web-based form or its accounting system to transfer invoice data directly to a buyer’s accounts payable system. The process goes beyond sending a PDF of an invoice, which isn’t true e-invoicing. In order to be true electronic invoicing, the invoice issued by a supplier should contain data in a format that can be automatically integrated into the purchaser’s accounts payable system without manual data input.

The problem with electronic invoicing is that many solutions require that the buyer and the seller use the same software. For this reason, accounting software providers have called upon governments to develop a uniform, low-cost standard that will be accessible to all types of businesses. In order to create a trans-Tasman solution that can be used in Australia and New Zealand, these countries’ governments have agreed to create a uniform standard for e-invoicing software. This will enable e-invoicing solution providers to develop systems that can communicate with each other.

The benefits of e-invoicing

According to the Australian Taxation Office, Australian businesses are owed $26 billion in unpaid invoices at any given time. Here are some of the benefits of e-invoicing:

  • Faster payments – with e-invoicing, the data reaches the purchaser’s accounting system immediately after the invoice is created. This means it doesn’t need to be posted or emailed. The fact that e-invoicing is an automated process means that payments are received faster. This leads to the next benefit.
  • Improved cash flow – many surveys of SME owners show that cash flow is at the top of the list of business challenges. Faster payment processing times result in better cash flow. This is especially true for SMEs with contracts with the Commonwealth Government. From 1 January 2020 federal government departments will be required to pay invoices within five business days. Learn more in Government Confirms Faster Payments to SMEs. In 2018, the Commonwealth Government awarded nearly $13 billion in contracts to SMEs. Businesses that offer products and services to government departments will see faster invoice processing and improved cash flow if they implement e-invoicing. Some state governments have also adopted e-invoicing and will expedite payments for electronic invoices.
  • Cost savings – according to the ATO, the estimated average cost to process a paper invoice is $30.87 and $27.67 for a PDF invoice. This compares to only $9.18 to process an e-invoice – approximately 70% cheaper. With 1.2 billion invoices exchanged each year in Australia, the savings are estimated to $28 billion over ten years.
  • Fewer errors – around 20 per cent of all late payments are the result of invoicing errors. Of these, 20% are the result of the invoice being sent to the incorrect recipient after manual data entry. When buyers and suppliers use e-invoicing, these types of errors are avoided.
  • More direct and secure – e-invoices are transmitted directly to the purchaser’s financial systems. This minimises that risk of compromised and fake invoices. When transactions are part of a secure and reliable framework, it will reduce opportunities for scammers.

Next steps for small businesses wanting to implement e-invoicing

Although e-invoicing is now limited to buyers and sellers using the same accounting software, this will change when an Australia and New Zealand standard is implemented. In 2019, Australia and New Zealand (A-NZ) jointly announced the adoption of the PEPPOL framework for e-invoicing. This framework is already used in over 30 countries and is increasingly being adopted worldwide, facilitating international trade.

With an agreed standard in place, accounting software providers will soon make it possible for their users to send and receive e-invoices regardless of what software is being used. This means that e-invoicing will soon become a reality for most small businesses in Australia and New Zealand.

Author:

All the thoughts, ideas and musings from the Moula team! Covering everything from work/life balance to general finance tips plus everything in between!

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