December 27th, 2020
Electronic invoicing (e-invoicing) is quickly becoming the standard. With all the well-proven advantages, such as speed, cost savings, and accuracy, most organizations have come to the decision that it’s no longer justifiable to keep paper processes.
Back in 2014, the European Commission and individual countries in the EU decided, in accordance with the EU E-Invoicing Directive 2014/55/EU, to set an April 18th, 2019 deadline for public institutions to be able to receive and process e-invoices. Following the implementation of the EU e-invoicing directive, many European countries met the deadline, embracing e-invoicing and all its benefits. Seeing the advantages, a number of countries even started making business-to-government (B2G) e-invoicing mandatory right away (in 2014, that is).
In the meantime, there are also countries that are taking the EU e-invoicing directive one step further. These countries have made (and are making) business-to-business (B2B) e-invoicing mandatory. In these countries, it is required to send e-invoices as EDI messages for accurate processing and archiving.
Why Require E-Invoicing?
The choice to make B2G e-invoicing mandatory in the EU isn’t without reason. Besides the more commonly listed advantages of e-invoicing, it also contributes to economic well-being:
- It contributes to public policy priorities, such as reducing public deficit, improving financial transparency, and promoting sustainable development
- Over time, it reduces costs and improves the overall efficiency of the public sector
- It brings instant benefits to private sector suppliers and creates opportunities for the public sector to act as a catalyst for broader implementation of digital processes
Aside from B2G, mandatory B2B e-invoicing can also be beneficial for government agencies. In Brazil, Mexico, and Chile, B2B e-invoicing has been mandatory for years. The initial motivation to require e-invoicing came from the high amount of unpaid taxes. To solve this issue, they needed accurate VAT returns and improved payment processes. This led them to make it mandatory for businesses to implement e-invoicing practices, and therefore enable EDI invoice processing, which has proven to be very effective. A good example is Mexico, as the country has improved its tax revenue by 34% since B2G and B2B e-invoicing became mandatory.
Considering the success realized other countries, it’s no surprise that many European countries also want to make B2B e-invoicing mandatory. Italy is at the forefront of this, requiring all B2B invoices to be exchanged electronically since January 2019. Another example is Greece, which has one of the highest VAT deficits in Europe. There, B2B e-invoicing has been mandatory since January of this year (2020). Additionally, Spain, France, Turkey, and Portugal are all on their way to making e-invoicing mandatory, meaning that all businesses will have to become capable of EDI invoice processing to keep up with new regulations.
The European E-Invoicing Standard (EN)
In 2017, the EU created the European E-Invoicing Standard (EN), a standard for the structure of e-invoices to promote exchanges and further development. A key objective is to enable suppliers to send invoices to many customers using a single e-invoicing format. In this way, the invoice does not have to be modified when sending and/or receiving, and trading partners are immediately capable of processing invoices electronically via EDI (or other) methods.
To achieve this objective, the European E-Invoicing Standard defines a list of all business terms that may be used in electronic invoicing and how they should be understood for accuracte invoice processing via EDI methods. Thus, there are common rules and terms that allow trading partners to exchange structured e-invoices under general commercial conditions. The main publication of the European E-Invoicing Standard is the semantic data model (EN 16931-1) and its business rules.
In order to realize a successful exchange of information between two parties, a number of things need to be taken into account:
- The information exchanged must be relevant to the situation; it should include only what is necessary and omit anything that is not
- The meaning of the information must be understood in the same way by both parties
- The information must be expressed in a format that is understood by both parties
- The information should be exchanged according to a method of which both parties have access
If we take a paper invoice as an example, it must, of course, contain amounts, text, and data that enable the buyer to process the invoice and pay it to the supplier. Therefore, in a paper invoice, the data must be commonly understood. The invoice is then printed on paper in a language that both parties can read, and it is finally sent by a postal service that both parties have access to.
In this traditional paper exchange, parties with experience and general knowledge can adjust any missing data and inaccuracies (even though this is often a lengthy process). On the other hand, if the same invoice is automatically processed by a computer, the data must be defined more precisely. That’s becase a computer is somewhat less flexible in understanding the information presented to it.
The European E-Invoicing Standard defines a basic model for invoice data. It contains frequently used invoice information, and this is (usually) sufficient for invoice exchange. It then defines the exact meaning of the business terms used in the model. This is known as the core data model for invoices because it standardizes the content of the invoice and its meaning.
The European E-Invoicing Standard specifies how the information in the core invoice should be mapped in each message standard. It’s important to note here that the technical structure of the e-invoice is not defined by the European E-Invoicing Standard. Instead, two international XML message standards are used to exchange the information defined in the core invoice data model:
- UBL 2.1 invoice
- UN/CEFACT Cross Industry Invoice (CII)
How to Start E-Invoicing in the EU
As mentioned earlier, there’s a good chance that e-invoicing will become mandatory in the near future if it’s not mandatory already. It’s highly likely that this will be implemented in different ways in different countries within the EU and that there will be certain requirements. For example, you may need to complete the invoice online in a specific system and/or deliver the invoice in a specific format. With this in mind, many organizations have already taken steps to ensure compliance with e-invoicing rules in the (near) future. TIE Kinetix makes this easy for companies of all sizes with our extremely flexible FLOW platform.