E-invoicing was a double-digit growth market in the last few years. In 2021 the estimated size is 69 billion transactions worldwide. The market is expected to quadruple from the 2019 size to USD 20 bn until 2025.

Figure 1: Estimated electronic invoices/bills (2021, billions)

Source: Billentis Report

For banks, each invoice means a payment transaction to gain or lose, as each invoice is a payment request. The invoice can be issued preceding or simultaneously with the payment.

What is a true e-invoice?

An electronic invoice (e-invoice) is an invoice that is issued, transmitted, received, processed, and stored electronically using specific document formats, which contain structured invoice data. E-invoices are digital throughout the entire document life cycle, from issuance to archiving. 

If we take a simple pdf invoice, it does not constitute a true e-invoice, because only generating and sending the invoice happens digitally, but on the receiver side, the invoice cannot be processed digitally. 

How does an e-invoice look like?

An e-invoice can have a form of pure structured invoice data issued in electronic data interchange (EDI) or XML formats or a hybrid form that contains the data and a pdf invoice image together. The hybrid format ensures the possibility of human and machine readability and therefore it is widely used.

What are the benefits of e-invoicing?

With e-invoicing 60-80% cost savings can be realized compared to paper-based invoice management. Almost all areas of invoice processing uncover significant savings potential both on issued customer and received supplier invoices. 

The difference between paper-based and manual processes and digital processes is that e-invoice data ensure 100% accuracy as opposed to manual and OCR processing. The 100% data accuracy eliminates the room for mistakes, which cause a huge portion of costs in invoice management.

Figure 2: Savings potential for e-invoicing compared to paper-based invoice management

Source: Billentis Report

With the digital data business processes themselves can be automated and the physical management (printing, sending, storing) of invoices can be digitalized  – this is an important source of savings.

The other important source of savings is that that e-invoice data ensures 100% accuracy as opposed to manual and OCR processing. The 100% data accuracy eliminates the room for mistakes and enables automated invoice validation and transaction matching, which is not possible without the availability of invoice data.

Why and how is e-invoicing important for different stakeholders?

The abovementioned benefits of e-invoicing can be utilized if invoice data is accessible for digital processing both on the sender and receiver sides. Therefore, it is important to issue true e-invoices, so that accounting and ERP systems, as well as payment systems on the receiver side, can process the digital data.

The different stakeholders benefiting from e-invoicing:

  • Tax authorities: their motive to introduce e-invoicing or similar measures lies in decreasing the VAT gap in a given country. Therefore, more and more countries introduce voluntary or mandatory e-invoicing. Tax authorities have stepped on the path of digitalization with application areas beyond e-invoicing (e.g. introduction of SAF-T), which requires compliance from businesses. The regulatory measures from tax authorities are the most important driving force in increasing the usage of e-invoicing.
  • Businesses: both small and large businesses can make their financial administration processes more efficient, starting with invoice management itself. However, the availability of data enables to digitalize processes related to taxation (as required by the tax authorities), better supplier management, and improved working capital management.
  • Consumers: consumer benefits are less quantifiable at this stage, but as invoice issuers start to send e-invoices and make new ways of bill payments available (such as request-to-pay), consumers will have the opportunity to manage their bills and communicate with the bill issuer directly through the payment messages. Better communication benefits invoice issuers as they have direct information regarding the payment and costly and lengthy debt collection processes can be made cheaper and easier.
  • Banks: banks will be able to offer a digital-only invoice payment experience. With access to invoice data banks will be able to provide digital invoice and supply chain financing as well. Having invoice data enables the automation of transaction reconciliation. E-invoicing and automated transaction reconciliation have a combined savings potential of up to 95% of costs compared to paper-based processes.

What can you do with different e-invoicing formats? 

Many companies face the issue of the variety of e-invoicing formats, and that it is costly to manage the different e-invoice formats: indeed, only the largest companies have resources to do the necessary data transformations for each invoice format for themselves.

The solution for this problem is the use of standards. There are global standard initiatives such as the UBL, EDIFACT, or UN/CEFACT Cross Industry Invoice standards, and there are regional or country-specific standards reflecting the local taxation rules. If the invoice is issued in the standard format, then the receiver system can digest the standard invoices.

Until all entities use the standards, data transformations are necessary. In this case, technical expertise is necessary to do the data conversions. However, as more e-invoice formats are available, there will be resources with which these formats can be converted to the data standards.

Players with large customer bases such as banks can play a crucial role in making e-invoice data processing available to SMEs and corporates, as a value-added service to payment services.

Why e-invoicing penetration differs by country?

The e-invoicing penetration varies by region/country as a consequence of local tax regulations or e-invoicing interoperability initiatives. 

The e-invoicing market growth is driven by the following:

·      Local tax regulations are the strongest driving force for the increase of penetration. The e-invoicing regulations (or invoice data submission to tax authorities) can be mandatory or voluntary. In most cases e-invoicing regulations are introduced gradually, i.e., there are certain types of transactions (B2G/B2B/B2C) or revenue thresholds for legal entities which are subject to e-invoicing regulations, which are widened later.

There are e-invoicing regulations: 

– in place in several countries (e.g.: several countries in Latin America, India, Kazakhstan, Singapore, Italy, Hungary)

– on the way or expected in 1-2 years (e.g.: France, Poland, Botswana, Bulgaria, Saudi Arabia, Jordan)

·      EU e-invoicing directive, which aims B2G invoices has become effective in practice in several countries (France, Germany, Portugal)

·      Interoperability initiatives: in the Nordics e-invoicing interoperability initiatives were driven by the business sector, where the main driver was the potential efficiency increase that can be reached with e-invoicing. In the Nordics, this initiative has been very successful, as, without mandatory e-invoicing regulation, the penetration was already above 40% in 2019. In the US the Small Business Payment Coalition has taken on an organized interoperability initiative to create the necessary standards and data exchange methodology. 

As a bank what can I do, if there is no legislation for e-invoicing in our country?

Until there is a mandatory regulation for e-invoicing, banks can still start digital invoice management services like value-added services. Although the full savings potential cannot be utilized for businesses, banks can be the initiators of an e-invoicing and payment data ecosystem from the business sector. This will help the bank to offer better payment and financing services. And the e-invoicing legislation will arrive for sure – the question is whether it will be 2 or 5 years.