Electronic invoicing or E-invoicing has been growing in use over the last twenty or so years. Research has discovered that a paper invoice typically costs 30 Euros to process compared to just 5 Euros for an e-invoice. The adoption of e-invoicing systems has been partly driven by governments that insist on their private sector partners billing them using e-invoices.
Companies are always looking at ways to improve efficiency and drive down costs. Back-office functions concerned with administration can be streamlined using automation. An invoice can be generated automatically on receiving an order and sent out as an e-invoice in a matter of minutes. Time and resources are not wasted printing a paper invoice, putting it in an envelope and sending it by post.
Nobody would dispute the efficiency gains to be had from using e-invoicing. However, from a factoring company’s perspective the bigger concern is the legal validity of an e-invoice compared to a paper invoice. Unless an e-invoice is shown in the law to have the same legal weight as a paper invoice then a factoring firm will not accept e-invoices for factoring.
In 2001 the European Union introduced laws that allowed companies to go paperless for invoices for paying tax and charging customers for goods and services. Similar regulatory frameworks are now in place in Asia and Latin America. It is estimated that if all Europe adopted e-invoices the saving would be in the region of 200 billion Euros.
Thus, now an invoice financier who is administrating the sales ledger for a company in order to effect factoring services prefers a well-organised e-invoicing system to keep track of unpaid invoices. E-invoices are legally valid and enforceable documents that are admissible in court.
It should be noted for certain legal functions it is still necessary to send paper letters which can verified as being delivered.
European Council Directive
The European Council set a deadline for 1st January 2013 for all its members to afford the same legal status for e-invoices as they do for paper invoices. This was complied with and now it is possible for companies of any size to trade with partners nationally and with other EU states. There are 4 key points in the directive:
- E-invoices and paper invoices are legally the same. Member states cannot impose any conditions on the use of e-invoices. It is up to individual businesses to decide on their invoicing system. The only restriction is that the customer must agree to e-invoicing.
- An emphasis on business controls. The directive states companies must set up systems to create a reliable audit trail between invoice and the supply of goods and services. It is up to management to ensure the authenticity of an e-invoice, the integrity of its contents and its legibility. These requirements can be met by a qualified certificate and by using technology such as a signature creation device or electronic data interchange (EDI). In this instance ‘authenticity’ refers to the identity of the company sending the e-invoice. And ‘integrity’ means that the contents of the e-invoice has not been altered. In practical terms the best way to check origin authenticity is to check the email address used to send the e-invoice.
- Storage. E-invoices like paper invoices must be stored in their original format. If the e-invoice is in an integrated machine format it must be legible to humans. This way in an audit it is possible to compare an original e-invoice with its corresponding e-invoice that was sent to a customer. This allows for checks that the integrity of an e-invoice has not been breached. It is up to individual EU member states to decide how long copies of e-invoices have to be legally stored.
- For audit purposes, all supporting documents must be stored with the e-invoice. As required in point three, data guaranteeing the authenticity and integrity of an e-invoice must be stored with the original e-invoice.
The above has set out a regulatory framework for businesses to use an e-invoicing system in the European Union. Other countries have also been keen to implement the technological and legal changes to encourage e-invoicing.
An E-invoice has the same legal status in the EU as a paper invoice. The legal framework is such that it is safe to adopt this cost cutting innovation for businesses of all sizes. An invoice financier is happy to factor e-invoices, indeed digital automation makes his or her job easier. Beyond the EU, countries such as Brazil and the US are increasingly using e-invoices especially for contracts with the public sector. Governments have realised the benefits of e-invoicing: it creates a clear audit trail and makes it harder for paper invoices to be used in the grey economy, thus helping to increase the overall tax collection revenue.