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Everyone is talking about e-invoicing. Digitized invoicing processes promise enormous cost savings of between 60 and 80 percent compared to paper-based invoicing processes. The positive side-effects of switching to e-invoicing include: reduced entry errors, shortened processing times and an increase in cash discounts. Increasingly, e-invoicing becomes a legal obligation (e.g. European Directive 2014/55/EU).
But what exactly is an electronic invoice, what are the challenges in e-invoicing, what components should an e-invoicing solution have and what is Peppol? The following guide to e-invoicing answers these questions and more.
An electronic invoice is an invoice that is issued, transmitted and received in an electronic format. A distinction is made between
The transmission/reception channels available include e-mail, DE-Mail, e-mail, computer fax, fax server, web download, Peppol or web service. Invoices received in paper form and converted to electronic formats do not fall under the definition of electronic invoices under the VAT Act.
It is not very efficient to print, envelope, stamp and send a digital invoice on paper - just to have it manually captured and digitized again by the recipient before it can finally be booked and paid for.
Such a process is complex and expensive and not very environmentally friendly (paper, transport etc.). Due to this, German legislation has placed the electronic invoice on an equal footing with the paper invoice (01 July 2011). Since then, electronic invoices can also be sent without an electronic signature and, for example, simply by e-mail.
In response to the European Directive 2014/55/EU the legislator defines an electronic invoice in the Act to promote electronic government (E-Government Act - EgovG) as follows:
An invoice is electronic if:
1. it is issued, transmitted and received in a structured electronic format and 2. the format enables the invoice to be processed automatically and electronically.
Source (translated): §4a Para.2 German EGovG
The simple sending of invoices as PDF files does not meet these requirements, as the recipients cannot automatically process such PDF files. Instead, recipients expect electronic invoices to be in a structured format that can be understood automatically.
Structured invoice formats in their pure form, so-called EDI data (Electronic Data Interchange), are not readable by humans. The recipients must therefore first visualize the structured electronic invoices for internal invoice verification, release and subsequent archiving.
Hybrid invoice formats avoid this disadvantage by combining the machine-readable structured format and the human-readable visual representation. Technically, this can be achieved by embedding an XML structure in a PDF file. The figure shows, for example, a ZUGFeRD invoice containing a human-readable PDF with structured invoice data in an XML format.
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"It's difficult to make predictions, especially about the future". This truism attributed to Mark Twain also applies to E-Invoicing, but it is not so much a question of "whether" but rather "when" electronic invoicing will have replaced paper invoicing on a large scale. In any case, the direction is clear as the European Commission has already done everything necessary to further encourage this move away from paper invoices by gradually making electronic invoicing mandatory. Whereas in the European Union in 2017 70% of all invoices were still exchanged on paper and 22% in the form of PDF files that cannot be processed electronically, the tide has been turning. Structured and hybrid invoice formats are now having a share of more than 50%. The prediction is that this trend will clearly continue and that the number of paper invoices and PDF invoices will be reduced to a bare minimum by 2021.
Germany is by no means one of the pioneers when it comes to electronic invoicing. Actually southern and eastern EU countries such as Italy, Spain, Croatia and Hungary are outpacing Germany in the implementation of the European Directive 2014/55/EU. Nevertheless, electronic invoicing will become widely accepted in Germany in 2020 and 2021 too, and companies are well advised to equip themselves with appropriate digital solutions for E-Invoicing in the near future.
Are you a supplier to the public sector? Is your company internationally active? If your answer is 'yes' to either of these two questions, it is very likely that you will need to send invoices electronically, either now or in the near future.
Despite the enormous cost savings potential through the digitalization of incoming and outgoing invoices, the driver of E-Invoicing are the governments.
The EU standard 2014/55 regulates electronic invoicing for public contracts and requires more than 300,000 public administrations in EU countries to be ready for E-Invoicing from November 2018 in terms of systems, and from November 2019 in terms of processes. However, unstructured E-Invoices are not electronic invoices within the meaning of this Directive.
By February 2020. 24 EU countries have implemented a B2G e-invoicing solution, offer e-invoicing to suppliers or require a B2G e-invoicing solution already.
■ In progress
■ No information
Since typically 45 to 65 percent of all companies in a country are suppliers to the public sector, the aforementioned EU standard is predicted to be the driving force on E-Invoicing. Suppliers to public-sector clients are predominantly required to provide electronic invoices with structured data.
More and more countries are demanding E-Invoicing: the main reason for the growing number of invoicing and E-Invoicing regulations is trivial: Governments are looking for new ways to enforce their tax laws and collect more VAT. From the VAT GAP Report 2020 the EU member states escaped an estimated EUR 137.5 billion in 2017 - or 11.2% of the total expected VAT in relative terms. The so-called tax gap from the expected VAT (also known as VAT total theoretical liability or ‚VTTL‘) and the VAT actually collected will probably continue its decreasing trend and fall below EUR 130 billion and 10% of the VTTL in 2018.
But against the backdrop of tight national budgets and slowing economic growth, the motivation in the EU member states to actually collect more of the expected tax will certainly continue to rise.
The easiest way for them to do this is by requiring companies operating within their national borders to provide all invoices electronically and - as is already the case in some countries - to report either the entire invoice or at least the VAT information it contains electronically to the tax authorities in real time.
Italy has taken a pioneering role in the electronic exchange of invoices in Europe through a recent amendment to the law: since 1 January 2019 at the latest, all domestic invoices in Italy have had to be issued in a defined electronic format and exchanged via an invoice portal (Sdi) run by the state. Since August 2018, the electronic VAT Reporting of outgoing invoices has been mandatory in Hungary under certain conditions. One more example: until the beginning of 2025 France plans to extend the current B2G e-invoicing mandate to B2B e-invoices. Outside of Europe, India is introducing a new reporting system which becomes mandatory for e-invoicing in India as per 1st of April 2020.
The main advantage of E-Invoicing lies in the enormous cost savings potential that the introduction of electronic invoices brings to companies. Printing and shipping costs are eliminated, invoices can be delivered faster and errors in incoming invoice processing are reduced. If there is an order reference to an incoming invoice, the invoice can be booked fully automatically. In addition, the use of E-Invoicing shortens the time from invoicing to payment and thus increases liquidity of the supplier as well as increasing the chance for the customer to meet the requirements for a trade discount if previously agreed.
The creation and delivery of paper invoices are highly manual and inefficient business processes for suppliers. These cause high costs and lead to errors and late payments.
From receipt of incoming invoices to release, all work steps are logged in a revision-proof manner.
Using E-Invoicing for outgoing invoices optimizes these internal processes, saves costs, increases the transparency of internal processes and improves the environmental footprint. Companies can thus improve their customer loyalty and secure market opportunities and competitive advantages.
The process of digital invoice delivery can be divided into four simplified steps: input, preparation, portal and transfer/export.
Entry: After the invoices have been created with an ERP system, the outgoing invoices are automatically transferred via an interface to the E-Invoicing solution for digital outgoing invoices.
Preparation: Depending on the E-Invoicing standard (e.g. ZUGFeRD), the received invoice data is converted into the desired format.
Portal: In a portal application, the outgoing invoice book can optionally be viewed centrally and an audit-proof archive can also be connected.
Transfer/Export: In the last step, the electronic invoice is sent to the invoice recipient, for example by email as an attachment or as a secure download link. A connection of invoice recipients via EDI (EDIFACT) is also a common approach.
By using an E-Invoicing solution for outgoing invoices, manual outgoing invoice processes are eliminated and the time for invoices to become due is considerably shortened by immediate delivery.
By using E-Invoicing, incoming invoices can be processed by the customer in a continuous, automated process: from the recording of incoming invoices to the final booking.
The process of digital invoice receipt can be categorized into three steps: receipt, preparation and processing:
Entry: The invoices are automatically received via different input channels.
Preparation: After invoice receipt, the invoice contents are converted into an internal standard. Electronic invoices, which already contain structured data, are converted. Scanned paper invoices and PDF invoices are identified and extracted using OCR/text recognition software.
Processing: The prepared invoice data is enriched with master and order data from the ERP system and automatically checked for order reference, quantity and price deviations or country-specific rules. At best, invoices can be automatically transferred for posting. All other invoices must be routed to an integrated clarification or approval process.
All steps that an invoice goes through in the verification process are logged. The invoice content required for the booking is transferred to the customer's ERP system. The invoice, attachments in the editing process, conversion and editing protocols must be archived in a revision-proof manner in accordance with the applicable national requirements.
Due to government regulations, internationally active companies are increasingly obliged to create and send their invoices electronically. But every country has different legal regulations. Corresponding global E-Invoicing regulations already exist in more than 65 countries worldwide and the number is rising.
The varieties in many countries with their respective regulations and local specialties cause international E-Invoicing to be complex. In almost all 65 countries in which E-Invoicing regulations already apply today, there are subtle differences in what data must be collected, how this data must be collected, and what requirements must be met by the digital signature. However there are basically two types of rules for electronic invoicing, commonly known as clearance and post-audit.
Clearance regulations: : The regulating countries require that invoices to companies in the respective country must be settled via an intermediary regulatory authority, so that among other things, real-time controls are possible. These real-time controls usually include digital signatures. The clearance rule is applied, for example, in Mexico, Brazil, Italy, Turkey, Portugal, Spain and Hungary.
Post-audit: The rules in the respective country specify a minimum period for which electronic versions of invoices must be kept for possible automated verification. The post-audit procedure is used in the EU with a few exceptions.
The implementation of the EU standard EN 16931 requires that invoice recipients can receive and process invoices electronically. However, this does not mean that they also enforce this with your suppliers. Not many Member States go that far today.
International regulations are changing at a rapid pace. Countries that require E-Invoicing in any form are constantly increasing and numerous regulatory details of individual countries that need to be observed increase the complexity of e-invoicing for internationally active companies.
One of the biggest challenges in international business is to keep pace with regulatory changes. Here are three examples:
In Hungary, the electronic transmission of VAT-relevant data to the tax authorities is mandatory by law since 1 July 2018.
Until April 2020 the mandate has received every couple of months new XML versions, data elements and validation rules and upcoming changes, becoming effective in 2020 and 2021, have been announced.
In Italy, the eighth largest economy in the world, e-invoicing is obligatory for all B2B invoices since 1 January 2019.
In 2019 over 2 billion documents passed successfully through the SDI (Sistema Di Interscambio). The flows were mainly B2B (towards VAT) and B2C (towards tax ID numbers), with a minority of B2G (towards Pubblic Administration).
2020 is considered instead as the consolidation and improvement year for the electronic Invoicing processes with a real push towards digitization.
To this end, on the basis of Revenue Agency Provision no. 99922 of the 28th February 2020, a new XML layout and technical specifications are planned starting as of the 4th May 2020, in order to make the accounting process for invoices faster and more precise.
Since 1 April 2019, electronic reporting of VAT-relevant data to the HMRC – the so called Move To Digital ‚MTD‘ for businesses – is mandatory in in the UK.
The soft-landing period of MTD ends on 31 March 2020. From 1st April 2020 the penalty system starts for taxpayers who do not comply with the requirements of the digital recordkeeping and full digital link.
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PEPPOL was an acronym standing for „Pan-European Public Procurement OnLine“ including the terms „European“ and „Public Procurement“. The PEPPOL project was launched in 2008 with the aim of simplifying electronic procurement across borders. Technology standards have been developed and implemented by all European governments. PEPPOL is the most important driver for electronic procurement by public authorities in the EU and naturally supports Directive 2014/55/EU.
In late 2019 PEPPOL was re-branded to Peppol for marketing purposes. The new brand Peppol has no such meaning as PEPPOL - it is just a name now.
Becoming meaningless is often negative but in case of Peppol it is the opposite. Peppol now is a brand for truly global e-procurement having around ten percent of the approximately 300 Peppol service providers outside of Europe (e.g. Singapore, Australia, Turkey, USA and likely Malaysia and others joining soon) – and countries having introduced Peppol for B2B and not for B2G e.g. the Peppol new joiners from Asia.
The Peppol network is used e.g. as an open exchange network – not a platform! – for electronic procurement including electronic ordering and invoicing. It is increasingly being used for business-to-business (B2B) scenarios. Peppol is gaining momentum worldwide and is used in 31 countries across Europe, Canada, Singapore and the US.
Peppol currently consists of a consortium of project partners from twelve European countries. In countries, the so-called Peppol Authorities are responsible for the definition of the national characteristics of E-Invoicing. In Germany, the Coordination Center for IT Standards (KoSIT) takes over this task. So for example the KoSIT is defining the compliance of the invoice standard XRechnung and the transport protocol AS4 with Peppol.
The introduction of Peppol in the Benelux countries is encouraged and promoted by the relevant government authorities. In addition, E-Invoicing is mandatory for B2G invoices in Croatia since 1 July 2019, where the Peppol network will be used for the transmission of invoices. Another example is E-Invoicing in Poland via Peppol which will become mandatory by November 2020.
The exchange of invoices in the Peppol network is based on the so-called 4 corner model. The 4 corner model consists of a transmitter, a receiver and their access points. The Peppol format UBL (Universal Business Language) is used for seamless cooperation between the different systems. Communication takes place via the Peppol network which provides a partner directory through which recipients, the supported processes (such as the electronic invoice) and the recipient access point are identified.
To become part of the Peppol network, you need a connection to a Peppol Access Point. A Peppol Access Point assumes the role of the sending and the receiving Access Point and thus enables the electronic exchange of documents such as catalogues, orders, dispatch notifications and especially invoices.
SEEBURGER is a certified Peppol access point provider for AS2 and AS4 and also offers Peppol access as a cloud service. Invoice issuers can use this SEEBURGER Peppol Cloud Service to quickly and easily send EU-compliant invoices to government agencies and other global invoice recipients.
For the introduction of electronic invoicing, a decision to be made is the mode of operation of the E-Invoicing solution. Three strategic questions should be answered in advance:
Hosting: Should the E-Invoicing solution be located in your own data center or should the operation be outsourced to a data center operator?
Operating mode: Should the solution be operated as a licensed product on-premises or as a cloud service on a pay-per-use basis?
Standards and formats: Which e-invoicing standards and formats do I need currently and possibly in the future?
If your priority is a maximum of control over your invoicing and settlement processes, the classic license-based on-premises installation is the way to go. However, if you want the greatest possible flexibility, a cloud solution is more appropriate. Additionally there is even more to cloud based invoice processing: fast implementation, simple integration and high operational reliability. Make sure that your cloud provider can deliver the solutions for all relevant countries and scenarios out of a single platform.
In contrast to flexible cloud operation, the acquisition costs of the hardware and software, as well as the implementation and technical setup, are only the tip of the iceberg in an on-premises operation. The running costs for personnel and maintenance of an on-premises E-Invoicing solution should not be underestimated.
In this guide, we have explained what an electronic invoice is and why E-Invoicing is relevant today and in the future. The driver of E-Invoicing is the legislation in various countries and international regulations. There are also many business advantages, in particular the cost saving potential, which make E-Invoicing a very interesting opportunity for companies.
Manual outgoing invoice processes are eliminated by digitalization and thus the cash flow is much more rapid by immediate invoice delivery.
The digitalization of incoming invoices increases the processing quality due to manual errors avoided. Our data surveys also show that costs can be reduced by up to 85% through the use of E-Invoicing from as little as 12,000 incoming invoices per year - compared with conventional manual invoice processing.
Internationally active companies are faced with the problem of being able to support and process the various E-Invoicing standards. The Peppol initiative could counteract this problem, if it is successful. In order to cope with the constantly changing regulations, the use of a cloud-based E-Invoicing solution is recommended, which delivered out of one hand. This way the management of the service is simplified a lot.
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New mandatory e-invoice reporting system in India
The Indian government is rolling out a new mandatory e-invoice reporting system becoming effective on 1st of April 2020. It is based on the new Invoice Reporting Portal (IRP) for the registration of domestic B2B and B2G invoice transactions and export invoices.
Hungary: VAT Reporting
Electronic invoicing becomes mandatory in Hungary as of August 1, 2018. Avoid penalties by transferring data to NAV automatically.
United Kingdom: Making Tax Digital – MTD
Electronic VAT returns is obligatory in the UK since 1st of April, 2019.
On 1st of April, 2020 the soft landing period ends and the penalty regime starts.
Recent changes to Italian law require that the online platform SdI is used for all business-to-business E-invoicing.
France: E-Invoicing with Chorus Pro
Send invoices to the public administration in France via Platform Chorus Pro.
Switzerland: How is E-Invoicing implemented in Switzerland?
Electronic invoicing has existed in Switzerland for more than two decades.
How do I connect to Peppol?
Send electronic invoices to authorities and other Peppol participants worldwide quickly and easily with SEEBURGER Cloud Services.
E-Ordering Mandate in Italy via the NSO Platform – Postponed to 1st of February 2020
Italy mandates e-ordering for suppliers of the national healthcare system, referred to as SSN (Servizio Sanitario Nazionale). For e-ordering the NSO platform “Nodo di Smistamento degli Ordini di acquisto delle amministrazioni pubbliche (NSO)”, known from the Emilia-Romagna region, is mandatory to be used by 1st of February 2020 (initial deadline was 1st of October 2019).
France plans to extend the current B2G e-invoicing mandate to B2B e-invoices until beginning of 2025
Has the race to mandatory business-to-business (B2B) e-invoicing in Europe just begun? Following Italy’s new B2B mandate, France now plans to extend the current business-to-government (B2G) e-invoicing mandate to B2B e-invoices until the beginning of 2025.