Introduction to electronic invoicing
An electronic invoice, also known as e-invoice, contains the same information included in a regular invoice, but it is issued, transmitted, and stored in a structured data format like XML or JSON, that can be processed automatically by software instead of an unstructured format such as paper or PDF.
Is a PDF invoice an e-invoice?
No, although a PDF is a digital format, it is not a structured digital format. Structured data formats can be automatically read by machines, while unstructured formats require human intervention to be interpreted and processed.
What are the advantages of e-invoicing?
Most companies store sales and billing information in their systems in structured formats but still issue invoices in unstructured formats (usually PDF) to their customers. As a result, the customer receiving the invoice often needs to pay an accountant or OCR system to manually input the data into their own structured data systems (e.g., ERP). This process doesn't make sense.
On the other hand, If the buyer and seller agree to exchange electronic invoices, their systems can automatically read, approve, store, and even pay invoices without inputting data manually. This makes e-invoicing a faster, safer, easier to audit, and cheaper method of communication between sellers and buyers than traditional invoicing in unstructured formats.
Is electronic invoicing mandatory?
The answer depends on the country or countries where the company operates. Moreover, in some sectors (e.g., automotive, pharmacy, retail, and logistics), e-invoicing has become a standard that buyers demand from their counterparts before engaging in any commercial activity. Electronic Data Interchange (EDI) is widely used in these sectors.
Before delving into countries where e-invoicing is mandatory, it's worth discussing the difference between two similar concepts: e-invoicing and e-reporting.
E-invoicing vs. e-reporting
E-invoicing refers strictly to the format and infrastructure (e.g., email, private networks) the seller uses to send invoices to the buyer.
E-reporting refers to a legal requirement by tax authorities to receive reports of sale transactions in a structured electronic format. When tax authorities require businesses to e-report each sale in real-time, it's typically called Continuous Transaction Control (CTC).
It's essential to note that since e-reporting is a natural extension of e-invoicing, many governments introduce both requirements simultaneously or in various combinations.
Countries with mandatory e-invoicing or e-reporting
As many as 40 countries have already introduced some e-invoicing or e-reporting requirements. Some countries mandate this only for specific transaction types, namely:
- Business-to-government (B2G): transactions between businesses and government entities (national agencies, states, towns, hospitals, etc.)
- Business-to-business (B2B): transactions between businesses
- Business-to-consumer (B2C): transactions where the seller is a business and the buyer is a consumer
The map below shows which countries fall under each category:
Countries with upcoming e-invoicing or e-reporting mandates
Over 20 countries have laws making e-invoicing/e-reporting mandatory in the coming years.
Countries with existing e-invoicing mandates are shaded in light green, while countries introducing or expanding mandates are shaded in dark green:
How can Invopop help?
Invopop helps global companies comply with local e-invoicing and e-reporting requirements. We offer an API that records every sale, converts it to a locally compliant invoice format, forwards it to the buyer, and reports it to the appropriate tax authority, according to local law.
If you want to prepare to comply with new electronic invoicing requirements, contact us today.