What is E-Invoicing ?

Electronic Invoicing – Definition

Electronic Invoicing (e-Invoicing) is defined as the interchange of digital invoices between two or more entities (businesses, government, natural persons) involved in a business transaction. The definition is not only concerned with the issuance and receipt of digital documents, but also with the automation of all of the processes that are involved in them, from their archiving and retrieval to the management of disputes that might occur.

The meaning of Electronic Invoicing is not limited to the required sales accompaniments. It is concerned with all of the output by ERP systems: documents between the two business companies: offers, orders, purchase orders, etc.

Electronic Invoicing is also mandatory in Greece

In the enforcement of the 6th Community Directive with Article 1 of law 3193/2003, a regulatory framework for what Electronic Invoicing is was defined for the first time in Greece. It, however, received legal and substantial status in 2014 with the Official Government Gazette (OGG) A/251, and in particular with Articles 14 and 15 of law 4308/2014, which comprise the implementation of the 2006/112/EU Electronic Invoicing Order. With this law, the legality of electronic documents has been made clear, conditions were set according to which a document is considered acceptable or not, and a method was set with which the integrity of an electronic invoice is guaranteed (usage of Advanced Secure Electronic Digital Summary, EDI, etc.).

It is noted however, that as far as public procurements (B2G) are concerned, the issuance of documents electronically will be mandatory and it will the only method to issue them with the incorporation of the related provisions of Order 2014/55/EU of the European Parliament which is in the course of being adopted by November 27, 2018, and for which a competent lawmaking commission has already been put together in the Ministry of Economy and Development. The final date for the incorporation of the Order in the corresponding legislations of Member States was set to April 18, 2018.

Finally, it is worth to note that the Ministry of Finance and the Independent Authority for Public Revenue have declared that their goal is to make electronic bookkeeping mandatory and to enforce Electronic Invoicing in all transactions (B2B & B2C) from 01/01/2020. For this goal, a working group will be put together – with participation of representatives of financial and sectoral entities – which will identify the required actions, as well as the required logistic infrastructures, so that the implementation of the mandatory Electronic Invoicing takes place from 01/01/2019 for a significant percentage of businesses.

Added value of electronic invoicing

The main purpose of the function of a financial department in a company is to ensure that the sum of its outstanding invoices (from the suppliers) is controlled, is subject to management and finally it is approved and settled.

The processing of an invoice involves the recording of important details from the invoice and their registration in the financial or logistics systems of the company. After the procedure is completed, the invoices proceed to payment and are finally archived, until they have to be recovered from the archive for internal or external auditing purposes.

By utilizing Electronic Invoicing, the movement and management of documents does not require human intervention any more, which brings about mistakes and delays. All of the actions regarding a document are recorded and a documentation history exists for all of the actions that took place from involved persons, thus contributing to quickly informing interested persons, even several years after settlement or after the expiry of the tax period that the document belonged to.

Using any traditional invoicing method, the maintenance of such – of vital importance to relevant departments – volume of information is practically impossible. On the contrary, the retrieval of part of such information usually consists of a time-consuming procedure, which leads to the dysfunction of financial departments and the burdening of their current requirements, with dramatic consequences to the smooth operation of the business.

Electronic Invoicing is based on the quick movement of data from the documents and on their storage in data centres. With this method, the archiving procedure is rationalized and automated, while the company also benefits from the reduction of its environmental footprint.

Naturally, some companies have their own -internal- Electronic Invoicing procedure. However, many utilize outsourcing as a solution, which means that they refer to Electronic Invoicing vendors for the implementation and support of Electronic Invoicing procedures, as well as the archiving of data in external servers on in the cloud.

E-Invoicing: Historical Background

Since the mid 1960s, companies started utilizing electronic communication with their business partners in order to transmit documents, such as invoices or purchase orders. Inspired by the idea of a paperless office and a more reliable transfer of data, they developed the first Electronic Data Interchange systems (Electronic Data Interchange – EDI). These private systems were very efficient, but not at all flexible. Each group of trading companies or business team had their own method of electronic data interchange and there was no common standard that the business partners could utilize.

Recognizing this fact, the Accredited Standards Committee X12, a standards organization chartered by ANSI (American National Standards Institute) proceeded to standardize EDI procedures. The result is known today as the ANSI X12 EDI standard, which remained the main method of data interchange between business companies up to the 1990s, where companies who offered more powerful implementations based on the web appeared. These new implementations via internet had functionalities that served the supplier as well as the client, allowing the electronic submission of separate invoices, as well as EDI file downloads, including the CSV, PDF and XML formats.

Invoices in the cloud

The prevalence of the Internet, and largely of broadband, completely changed the situation in contrast to the early forms of EDI, which even required direct connections between companies or forced them to use specific communication channels and file types to quicken machine to machine communication. Even smaller companies could now benefit from complete digitalization of their accounting.

The arrival of cloud technologies contributed significantly to the new generation of Electronic Invoicing and to the modernization of digital accounting. Beyond the digital issuance of their documents and their movement via the Internet, corporations could now transfer their whole invoice archive to reliable and secure data centres in the cloud. The invoices remain stored in Cloud with very low cost with the maximum possible security, while a physical archive which requires space and storage infrastructures causes difficulties in retrieval and is subject to deterioration with the passage of time is not necessary.

Characteristics of e-Invoicing: What an electronic invoice is and what it is not!

The 2014/55 Directive of the European Union for Electronic Invoicing in public procurements uses the term “electronic invoice” and describes it as an “invoice that has been issued, transmitted and received in structured electronic form that allows automatic and electronic processing”.

Thus, there are two basic aspects to a digital invoice: Digital reproduction and visual representation The former allows a computer to process the information contained in the data structure in a file, while the latter allows the data to be visualized in a human-friendly form.

Digital reproduction

The documents are stored in multiple forms, so that they are directly or indirectly processable by a computer, while most of the times it is not possible for them to be readable by a human:

Non-structured data: Computing systems cannot automatically access the file data. Those include spreadsheets, word processing files, html files and image files.
Structured data: The data can automatically be read (from the file) by computing systems. These include standardized forms, i.e., data files based on publicly published specifications such as EN 16931, UBL, CIL, EDIFACT, etc., as well as non-standardized data, i.e., internal data files whose structure does not follow publicly published specifications.

Visual representation

The purpose of these files is the visualization of the content, such that it is readable and processable by a human. These include the following file formats:

PDF: Digital document format (common format in email attachments).
jpg, png, gif: Common image types.
TIF: Common image file type in scanning solutions.

The invoices that comply with the European standard of Electronic Invoicing must always follow a standardized form, i.e., all of the invoice data must be stored in a structured data format.

A structured electronic invoice contains data (from the supplier) in a format readable by software, which can automatically be entered into the Accounts Payable (AP) system of the buyer without requiring manual entry or processing.

When we compare the electronic invoices to paper ones, it is useful to know that paper invoices have three characteristics. More specifically, paper invoices:

contain details such as amounts, descriptions and quantities,
present this data in a visual form so that they can be read by a human and finally,
Due to their physical form, are managed and exchanged by hand.

Digital image files, pdf files and other digital, visual representation forms of invoices relieve the companies from paper and allow the management and archiving of the invoices in a more effective way than traditional invoicing methods. Still, these forms require the reading of the invoice by a human only, as well as the manual entry and processing in AP/ERP systems.

On the contrary, electronic invoices, thanks to the structured form in which they store the invoice data, allow direct entry in AP/ERP systems through an automated procedure. The visual representation of the invoice data, while not the main goal of digital representation of invoices since these formats are used for machine to machine communication, is strong and most modern implementations of Electronic Invoicing provide for download functionalities in pdf or physical printing of the documents in their functionality, in addition to online visual representation.

A readable – by a human – version of the invoice can be generated for reading purposes and to include in a structured message, but is not considered part of the invoice itself.

E-Invoices are therefore not:

Invoices in files of non-structured data (which are issued in a pdf or Word form)
Invoice pictures in image file formats (.jpg, .tiff, etc.)
Invoices in a non-structured form (.html in a website or an email)
OCR (invoices from paper scans)
Paper invoices sent as an image via fax.

The use of Electronic Invoicing requires two basic functionalities:

The e-Invoice must be created with a standardized structure.
The e-Invoice must be transferred from the issuer’s system to the recipient’s system.

The benefits of e-Invoicing

The necessity of digital invoicing arises from a series of problems that are identified in the private, as well as in the public sector.

These problems are the following:

The issuance procedure of traditional invoices is time-consuming, since it requires manual – most times – entry of details, printing, and afterwards sending of the invoices via the post office or by courier.
Besides being time-consuming, the process is also costly. In the long term, the company has significant monetary losses from simple consumable material such as ink and paper, gasoline, and especially lost man-hours from the management of card agreements and disagreements.
The manual processing, from the entry of details to the sending of invoices inevitably causes mistakes. This, in turn, causes delays and can even reach to non-approval of the invoice by the client.
The delays caused due to the causes mentioned above usually result in increase in expenses when there are clauses or financial penalties due to delays in time.

The benefits of adopting Electronic Invoicing are multiple.

Besides the immediate reduction of cost (printing, sending, storing, retrieving), by using Electronic Invoicing, mistakes are less, transactions occur faster, and the client/supplier receives the electronic file quickly on their computer, which also means that the invoice will be paid faster.

Moreover, the following is a series of other advantages due to the digital nature of the procedure: Archiving, searching, export of statistical details, immediate view of income/expenses, communication with ERP, etc.

Finally, Electronic Invoicing resolves a series of important matters (combating tax evasion) related to the public and to state entities.

Cost reduction: The main advantage of Electronic Invoicing is the reduction in cost which also becomes perceived immediately. The cost of traditional invoicing involves printing paper, ink, printers and naturally the cost of sending the invoice to the client. The above costs are exponential if we consider a large company with dozens of suppliers/partners/customers which sends tens of thousands of invoices per year. With an Electronic Invoicing solution, the above costs just become zero. Indeed, the implementation of an e-Invoicing solution comes with its own cost, but the breaking even point happens very soon.
Fast payments: Probably the most common problem of traditional invoices faced on an (almost) daily basis by companies is the many conflicts that can occur with the clients. The invoice gets lost in transit many times and either it is never received, or it “disappears” inside the company. The result of this is it not getting settled. Most times, this conflict leads to re-sending the invoice, resulting to additional cost and naturally, many more wasted man-hours. Electronic Invoicing eliminates all these problems since the invoices reach the clients instantly and it is impossible for them to be “lost”.
Digital archiving: Digital archiving of e-Invoices puts an end to paper and therefore, to physical archiving of invoices. The electronic invoices are stored in the cloud, allowing their searching by either the issuer or the client at any moment . The client can search for documents pertaining to them from any point, any device, regardless of the date of issue. The elimination of paper from the flow of movement of invoices inside a company can dramatically contribute to the improvement of its environmental footprint.

Important statistical details

The percentage of electronic invoices in Greece remains very low and amounts to only 6%. Specifically, according to data from the Independent Authority for Public Revenue (IARP), via Aggregated Statements of Clients/Suppliers, about 290 million invoices were issued in Greece in 2016 by 109,000 companies. Out of those, only 15 million were e-Invoices. The universal adoption of Electronic Invoicing can save €1 billion to €1.5 billion annually for Greek companies, where the provision of electronic transactions makes the automation of the tax and auditing mechanism significantly easier.