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What Is E-Invoicing: State and Trends of E-Invoice in Europe

What is e-invoicing and how can businesses prepare to adopt e-invoices in their organization? Discover current e-invoice state & trends in Europe from a governmental level to improving productivity and accuracy in the AP department.

What is e-invoicing? The idea of e-invoicing is not new. Electronic invoices have been around for 30 years, using electronic data interchange (EDI) and XML formats. Recently, the main driver behind e-invoicing adoption has come from a government level.

In Europe – the most active region for e-invoicing – a series of legislation has been created to promote the uptake of e-invoicing across the European Union. Furthermore, many public sector organizations in Europe – including Sweden, Norway, Spain and Denmark – have announced compulsory e-invoicing programs. And Italy has gone even further by introducing a mandatory e-invoicing network for all businesses.

What is E-Invoicing?

First things first – what does e-invoicing mean? The most commonly used definition is that “electronic invoicing is the exchange of an electronic invoice document between a supplier and a buyer.

This exchange can be enabled by a point-to-point connection between the buyer and seller, which is most often the case when using EDI invoicing. The other option is through a network connecting multiple buyers and sellers. The network model is most commonly used today where the growth of e-invoicing is expected, thanks to its scalability and efficiency for all parties involved.

What is an E-Invoice?

An e-invoice is an electronically delivered invoice in a specified standardized format.

E-invoices contain the invoice data in a structured form and can be automatically imported into the buying organization’s accounts payable system. Typically, they don’t include a visual presentation of the invoice data. However, they can be temporarily rendered during processing or transposed into visual formats.

The use of e-invoices requires two key functions:

  • The e-invoice needs to be created with the correct structure.
  • The e-invoice needs to be transferred from the seller’s system to the buyer’s system.

E-invoices are not:

  • Unstructured invoice data issued in pdf or Word formats.
  • Images of invoices such as jpg of tiff.
  • Unstructured html invoices on a web page or in an email.
  • OCR (Scanned paper invoices)
  • Paper invoices sent as images via fax machines

E-Invoicing Legislations in the European Union

In 2014, the European Parliament voted for the Directive on electronic invoicing in public procurement:

“The Directive calls for the definition of a common European standard on e-invoicing at a semantic level, and additional standardization deliverables which will enhance interoperability at the syntax level.“

Put simply, the semantic level refers to a standard set of data fields that an e-invoice should include. And the syntax level defines the technical format for the data exchange. This means the EU Directive aims to set a standard for both what the e-invoice shall contain and how it shall be transferred to the receiving part.

The Directive also states that starting on April 18, 2019, all governmental organizations should be ready to receive e-invoices. Some countries, including Sweden, Norway, Spain, and Denmark, have taken the legislation one step further making it mandatory for suppliers to provide e-invoicing if contracting with a governmental organization, in particular in the case of public tenders.

Tax Control Drives Mandatory E-Invoicing – Italy First Out in Europe

Tax control and compliance is an essential driver behind the governmental push for e-invoicing in Europe. In countries where the tax gap is large, e-invoicing can be used to combat tax fraud, evasion, and avoidance. In fact, this strategy has already been applied by several countries in Latin America such as Chile, Brazil, and Mexico, where adoption of e-invoicing is high both in business-to-government and business-to-business transactions.

It is no surprise that Italy, with the largest VAT gap among the EU members, is the first country to introduce a mandatory e-invoicing model for all business transactions. The Italian legislation is built on a clearance model where the seller registers the invoice in a government invoicing portal. The buyer confirms receipt and will only pay the invoice if it has been registered in the portal. This way, the Italian government moves to a real-time or near real-time tax control as opposed to the post-audit model.

Countries with similar tax challenges as Italy, including Spain, Portugal, and Greece, are looking at this type of mandatory e-invoicing model as well. And industry experts predict that Spain will be the next country to follow this route.

What is PEPPOL?

PEPPOL is a non-profit international association with both public sector and private members, facilitating cross-border e-invoicing by providing its stakeholders with widely accepted technology standards and specifications.

It is crucial to understand that PEPPOL is not an e-procurement platform. Instead it provides a set of technical specifications that can be implemented in existing e-procurement solutions and e-business exchange services to make them interoperable between disparate systems across Europe.

The PEPPOL structure also includes a network used as a directory where members, via a PEPPOL Access Point, can register their acceptable e-invoice formats (as long as these are one of the formats on the EU approved list) to ensure smooth and accurate delivery of e-invoices.

PEPPOL Access Points connect users to the PEPPOL network and exchange electronic documents based on the PEPPOL specifications. These access points are often so-called VAN operators, or service providers, that have the data exchange as their core business. But lately, other providers in related business areas such as ERP systems and accounts payable solutions have been certified to be PEPPOL access points on behalf of their customers.

Both the buying and selling organizations need to be connected to a PEPPOL access point, but it does not need to be the same operator in the buying and selling side. The e-invoicing networks’ interoperability can be compared to the model used by mobile phone operators where local phone operators facilitate cross-border calls by connecting via a global network, aka roaming.

Businesses Need to Get Ready to Send and Accept E-Invoices

Significant cost and time savings can be achieved by removing paper and manual processing from your invoicing. But the real benefits of e-invoicing come with the level of integration between you and your trading partners and between your invoicing software and other business systems. For accounts payable in particular, integrating e-invoices directly into the AP automation solution further drives touchless invoice processing. And that frees up time and resources for more value adding and strategic tasks.

If your organization wants to provide e-invoices to European buyers or streamline the reception and processing of cross-border e-invoices, it is recommended to partner with a PEPPOL access point. Bear in mind that this might be someone you already work with, such as your ERP partner or AP automation solution provider. Although PEPPOL is far from the only e-invoicing network in the world, it is the one showing the highest growth rates, and many industry analysts believe PEPPOL will be the dominant network in the future.

Starting to send and receive e-invoices can be an excellent first step of your organization’s digital transformation journey and a critical step to ensure your business operations is efficient and scalable to support future growth.

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