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Updated on April 12, 2024
The State of E-Invoicing in the USA
E-invoicing in the USA is not yet mandatory at the federal or state level for both B2B and B2G relationships. However, the US is steadily moving towards the digitization of invoicing. The absence of a nationwide mandate for e-invoicing in the USA is primarily due to tax complexities and the absence of a centralized authority. The lack of a federal VAT or GST system, input tax credit mechanisms, and formal tax invoice regulations in most states contribute to the current situation.
A VAT system relies on input tax credits, which allow businesses to deduct the VAT they pay on purchases from the VAT they collect on sales. The US tax system doesn't currently have this mechanism in place.
However, US businesses participating in the global economy will inevitably be impacted by the rise of e-invoicing. On April 8, 2024, the U.S. and EU issued a joint statement to improve eInvoicing interoperability to reduce costs and increase cooperation in trade, customs, payments, and fraud prevention.
Both have adopted the following key principles for successful eInvoicing: single connectivity, elimination of roaming charges between access points, and open exchanges where users can choose their access points.
Efforts to continuously improve alignment and interoperability include identifying government experts, inviting access points, service providers, and enablers to participate in the collaboration, and convening regular meetings between U.S. and EU government experts, access points, and service providers.
B2G E-Invoicing in the USA
Business-to-Government (B2G) e-invoicing in the USA is gaining traction, with the Federal Reserve and the Business Payments Coalition (BPC) piloting a standardized B2B electronic document exchange system. The initiative aims to establish a standardized e-invoice model and create an electronic document exchange network.
The BPC E-invoice Exchange Market Pilot participants have launched the Digital Business Networks Alliance (DBNAlliance) as the legal entity to oversee the new electronic exchange network. The DBNA will be responsible for defining policies, standards, security mechanisms, and other rules and guidelines that make up the exchange framework.
B2B E-Invoicing in the USA
Business-to-Business (B2B) e-invoicing in the USA is not yet mandatory at the federal or state level. However, the BPC has concluded a market pilot for B2B e-invoicing and has established an exchange network to facilitate the transfer of e-documents between businesses.
E-invoices are generally processed automatically and electronically in one of two formats: Structured invoice format and Hybrid invoice format. The format dictates how an invoice can be sent (by EDI or XML), viewed, and accepted.
Conclusion
While the U.S. doesn't yet have a federal mandate for electronic invoicing, it can play an important role in helping companies stay compliant and avoid legal issues. Here's how:
- Improve accuracy and reduce errors: E-invoicing automates data entry and reduces manual processes, minimizing errors in calculations, tax rates, and invoice information. This reduces the risk of penalties for inaccurate reporting.
- Improved audit trails and record keeping: E-invoicing creates a clear digital audit trail, making it easier for businesses to track and manage invoices and supporting documents. This simplifies the process of responding to audits and ensures that all necessary documentation is readily available.
- Standardized formats: E-invoicing uses standardized formats, such as EDI or XML, to ensure consistency and facilitate integration with accounting and tax software. This reduces the risk of errors due to misinterpretation or incompatible data formats.
- Improved security: E-invoicing solutions often use strong encryption and access controls to protect sensitive data during transmission and storage. This minimizes the risk of data breaches and unauthorized access to financial information.
- Streamlined workflow and efficiency: E-invoicing automates workflows and eliminates manual tasks associated with paper invoices. This frees up resources and reduces the risk of delays or missed deadlines for tax filings or invoice payments.
In addition, as some states and specific industries move toward e-invoicing mandates, being prepared with an e-invoicing system can help businesses:
- Avoid compliance issues: By adopting e-invoicing early, companies can stay ahead of potential future regulations and ensure they are compliant with any upcoming state or industry-specific mandates.
- Maintain a Competitive Edge: Companies that adopt e-invoicing can demonstrate a commitment to efficiency and accuracy, potentially enhancing their reputation and competitiveness in the marketplace.
- Simplify B2B transactions: E-invoicing enables smoother collaboration and faster invoice processing with trading partners who already use electronic invoicing systems.
While the U.S. isn't there yet, e-invoicing offers significant compliance and legal risk reduction benefits. By implementing an e-invoicing system, companies can be proactive, improve internal processes and be prepared for possible future federal or state mandates.
If you need to fulfill the e-invoicing requirements not only in the U.S., but also other countries, make sure you choose an international e-invoicing provider. At SPS Commerce, we elevate more than 120,000 companies around the globe with secure and compliant solutions.
