Unlike the typical PDF or paper invoices, e-invoices are shared between the seller and the buyer in a machine-readable format. This characteristic of e-invoices allows real-time data monitoring, status checks and live fraud identification.
How do e-invoices work?
E-invoices require a specific format and, typically, software that simplifies issuing and administering them. The standard e-invoices formats are XML, CSV, and EDIFACT. These formats can be read by special software and easily converted.
Some countries like Italy, Austria, and Singapore have already established requirements for e-invoicing in their legal base, making e-invoices mandatory for large companies that execute B2B sales. This direction is currently implemented all over the globe, with Poland, France, Luxembourg, and other countries pushing for e-invoicing regulation.
The reasons why businesses are moving towards electronic formats of invoices are simple: digitally processing invoices is much faster, and e-invoices save a significant amount of time, consequently saving money for the companies as well. In addition, for tax authorities, e-invoices allow controlling and monitoring of transactions more efficiently, opening a window for curbing tax evasion and fraud.
What‘s next for e-invoices?
In the upcoming years, the European Union plans to enact changes to the VAT regime and the Digital Reporting Requirements. As a result, it is intended that e-invoices will become a norm throughout the European Union with a harmonized or partly harmonized set of rules in place. With the upcoming changes in place, a much more rapid expansion of e-invoicing platforms and solutions is expected. For companies, it means more opportunities to save resources on paperwork, and for governments – more transparency and less tax evasion.