With digital processes essentially replacing paper-based transactions in the consumer payments industry, business-to-business (B2B) payment methods are also evolving. Standardized networks for exchanging electronic invoices (e-invoices) and digital remittance information are essential in modernizing B2B payment transactions, and government initiatives are now accelerating the creation and adoption of these frameworks.
The most active global region for e-invoicing, the European Union, already has an effective network in place for standards-based document exchange, and recent legislation will drive even greater usage. And in the United States, businesses have been exchanging invoices electronically through various channels for decades, but the anticipated release of a fully operational network by the Business Payments Coalition (BPC) in 2023 will further ramp up e-invoicing adoption.
Below, we outline key concepts related to e-invoicing and explore the reasons for making the shift from paper billing to digital invoicing and electronic remittance.
What is Electronic Remittance?
Electronic remittance, or digital remittance, is information describing the products or services a buyer has purchased. Remittance may be sent along with a digital payment or transmitted separately.
What is E-Invoicing?
In e-invoicing, two business entities—a supplier and a buyer—exchange an invoice document in a standardized electronic format.
What is an e-invoice?
The document in an e-invoicing exchange, an e-invoice, meets two key requirements:
- It contains data in a structured format, specified by an electronic exchange network
- It can be automatically imported into the buyer’s system
Notably, unstructured invoice data (e.g., pdf or Word format), invoice images (e.g., jpg or tiff), invoice information on a web page or in an email, scanned invoices, and paper invoices sent via fax cannot be used in e-invoicing transactions.
E-Invoice Exchange Framework
An e-invoice exchange framework provides a network for sending and processing electronic invoice and remittance data. It operates much like an exchange framework for email communications. Within an email exchange framework, users sign up with a service provider (e.g., Gmail), and this provider acts as an access point, delivering emails between users. The frameworks enable users to sign up a single time and exchange communications with virtually any other email user.
As part of an e-invoice exchange framework, a business can engage in digital invoicing and remittance with any other participating organization. Critically, e-invoice frameworks enable straight-through processing for businesses—that is, the completely automated exchange of invoice, payment, and remittance data from start to finish.
A typical workflow within an e-invoice exchange framework includes the following steps:
- A retail operation purchases items from a supplier
- The supplier creates an invoice for the items and submits it to an e-invoicing service provider (access point 1)
- Access point 1 sends the invoice to the retailer’s designated service provider (access point 2)
- Access point 2 converts the supplier’s invoice data into the format required by the retail operation’s accounting system and sends it to the retailer
- The retailer processes the invoice and pays the supplier via ACH, wire transfer, card, or instant payment
- Remittance information describing the purchase is sent through the same set of access points
Why do businesses choose e-invoicing? The advantages of a digital approach include:
By sending invoices electronically instead of printing and mailing hard copies, companies save on administrative expenses, which can be a substantial budget item, especially for small businesses.
With e-invoicing, businesses exchange invoices and remittance information far more quickly, without administrative resources devoting time to the process.
Easing cross-border business
As more and more countries worldwide adopt e-invoicing as a best practice, business across borders will be faster, more efficient, and highly secure.
Companies using e-invoicing solutions know when a bill has been sent, reviewed, and paid. At tax time, financial information is readily accessible. And e-invoicing platforms can serve up analytics, allowing businesses to view key metrics—how quickly they get paid, on average, for example—at a glance.
Streamlining invoice creation
E-invoicing solutions also offer templates, enabling businesses to quickly and easily create professional invoices with logos and other company branding.
In e-invoicing, businesses conduct encrypted transactions with trusted parties. The process virtually eliminates the risk associated with manual, paper-based exchanges.
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