We all know what an invoice is, or at least what it used to be: a piece of paper describing the amount, price and other key details of the product or service you’ve just bought/sold, a form of a written verification of the agreement between the buyer and the seller. That piece of paper is certainly one kind, but not the most important distinction between standard physical invoices and its electronic counterpart. Otherwise, a scanned copy of a simple paper invoice could be labeled as an e-invoice, which simply isn’t the case.
According to the definition provided in the related Directive 2014/55/EU, an electronic invoice is “issued, transmitted and received in a structured data format which allows for its automatic and electronic processing”. In order to justify the “electronic” prefix, it has to be a machine-readable document that can be automatically imported into the buyer’s Account Payable (AP) system without requiring manual adding it.
Paperless forms – scanned digital images, pdf files or any other visual digital form – indeed remove the physical element and allow the invoices to be handled and archived in a more efficient manner (compared to a paper version). Furthermore, these and similar formats can even be transmitted electronically, but they still require the invoice to be manually read and entered into AP systems, which in the end, doesn’t really provide full integration. Those formats constituted the first steps during the transition to e-invoicing, providing certain cost savings, but prone to errors due to the legibility issues.
On the other hand, e-invoices only contain the data in a structured form and can be automatically imported: visual format comes secondary, and the primary objective is – automation. A visualized version of the invoice, readable by humans, may also be created for reading purposes during the workflow; however, that it is not considered a part of the invoice itself.
In a due process, buyer and seller use a previously agreed upon transmission mechanism, along with specified features like digital signatures, to ensure e-invoices’ authenticity and integrity, requiring no further modifications or alterations. Depending on the regulatory environment, the minimum requirements for the e-invoice procedure to be completed successfully are related to the data format established by the trading partners, which is usually the case in countries without extensive e-invoicing regulations, allowing companies to fully capture workflow efficiencies.
In different cases, in countries with more restrictive legislation, compliant e-invoicing must adhere to government-specified guidelines regarding validation, security, and archiving, suitable for audit scrutiny. But that in itself is a stimulating story for some other occasion.