An e-invoice is a digital version of a traditional invoice, but unlike a PDF invoice sent by email, an e-invoice is sent directly from the supplier's system, via an e-invoicing network (e.g. Peppol) to the recipient's system, without any manual handling. An electronic invoice can also be sent directly from the supplier's system to the recipient's system. This was more common in the past, when a technology called EDI (Electronic Data Interchange) was often used. This is why e-invoices are now also referred to as EDI invoices. It's not really the same thing, but it's generally accepted that EDI invoice is synonymous with e-invoice and when most people talk about EDI invoice today, it's actually e-invoice that they mean.
How is an e-invoice structured?
An e-invoice is made up of digitally structured data, usually in XML format, which allows different systems to communicate and automatically process the information. Unlike a PDF invoice, which is a visual representation of an invoice (an image-like format), an e-invoice is a data-driven document.
The e-invoice file also contains significantly more information than what appears on a PDF invoice. The e-invoice offers a higher degree of automation and security as it is structured in a way that allows direct integration into business systems.
However, an e-invoice file is normally delivered with an invoice image in PDF format as well, as it is much easier for a human to read and interpret than an XML file. The data used by the e-invoice management system and by the ERP system is normally extracted exclusively from the e-invoice file.
Differences and similarities between e-invoices for businesses and private individuals
E-invoices for businesses and individuals share several common features. Firstly, both often use XML as the format to structure the information. In the business context, e-invoices are often integrated directly into the accounting system, while e-invoices to individuals are usually sent to their online bank. Although the technical solutions may vary, the basic technology is the same; the invoice data is transmitted in a structured format that can be interpreted and processed automatically.
EU e-invoice and PEPPOL requirements for invoicing public bodies
Within the EU, it is a legal requirement that companies invoicing public sector entities (e.g. public authorities and municipalities) must use the Peppol BIS e-invoice format and that invoices are sent via the PEPPOL network. This requirement means that companies wishing to do business with the public sector must adapt to this standard to ensure that invoices are accepted and processed correctly. The PEPPOL standardization aims to facilitate trade, make it easier for authorities to control VAT and reduce the cost of invoicing within the EU by creating a common platform for electronic document management.
E-invoice requirements for business-to-business transactions
Several EU countries have already legislated to introduce the mandatory use of e-invoices for business transactions and more countries are on the way.
Some countries require or will require the use of the Peppol format, but not all. Some countries use, or will use, their own formats. The common denominator for all of them is that the agreed standard for the data model format should be EN 16931.
This standard specifies which data elements (fields) should contain certain data on an invoice (e.g. invoice number and total amount) and how these should be structured.
EN 16931 includes the following:
- A detailed definition of all mandatory and optional data elements in an e-invoice.
- Rules on how to structure and use these data elements.
- Technical specifications ensuring that e-invoices are compatible across the EU, regardless of the system used to create or receive the invoice.
In conclusion, e-invoices are a modern and efficient way of handling invoices, offering both security and automation. Several EU countries have made it clear that e-invoices will be required for business-to-business transactions. However, the timetables differ from one country to another and in several cases final decisions on implementation dates have not yet been made.
By complying with the new standards, businesses can not only meet current and future legal requirements today, but also benefit from a smoother and more secure billing process.