e-Invoicing Explained

Electronic invoicing (or e-Invoicing) in its simplest form is the removal of paper from the invoicing process. It is a vital document in the purchase-to-pay process, where large companies and government departments purchase goods and services from their supply chain.
The European Commission define an electronic invoice as “an invoice that has been issued, transmitted and received in a structured electronic format which allows for its automatic and electronic processing.” There are many interpretations of this, the following guide defines true electronic invoicing;

  • Optimal electronic invoicing
    • Structured invoice data issued in Electronic Data Interchange (EDI) or XML
    • Structured invoice data issued through Internet-based web forms
  • Sub-Optimal electronic invoicing
    • Semi-structured XML underlying PDF formats
  • Not electronic invoicing
    • Unstructured invoice files issued in PDF/Word
    • Faxed invoices
    • Scanned/OCR paper invoices
e-Invoicing, PEPPOL and GS1 explained

Optimising Processes

Each year millions of invoices are exchanged between buyers and suppliers in either in paper or e-mail format. This creates inefficiencies for both the buyer’s Accounts Payable (AP) department and the supplier’s Accounts Receivable (AR) team.

Of the 17 billion European business invoices that were issued in 2015, only 20% (approx.) were sent electronically. This is despite the fact that the average saving for moving from paper to e-Invoices is €6.60 on the issuer side and €11.20 on the buyer side.

The Benefits

E-Invoicing does offer substantial cost savings through reduction in manual work, materials, postage and transport costs, it also offers;

  • Reduced data errors and improved fraud prevention
  • Optimised payments process and improved cash flow
  • Allows employees to transition to more productive activities
  • Lower auditing costs
  • Offers a direct contribution to carbon savings by reducing use of paper, ink and transport

The Scottish Executive published a report based on the successful deployment of an e-Invoicing project for approx. 300,000 invoices. It estimated the project cost at £600,000 over 2 years, but with benefits at £1.7m annually (within 2 years of implementation). The cost saving per invoice received by Scottish Executive was assessed at £5.66 per invoice.

NHS e-Invoicing

Currently, the NHS purchase-to-pay process is sub-optimal. The majority of NHS purchase orders reach suppliers as a PDF file that requires re-keying by the supplier into their sales order processing system, and it is also recognised that the NHS has made little progress on e-Invoicing. These inefficient processes are recognised to increase costs within the NHS supply chain, which are ultimately borne in the form of higher prices and inventory levels.

In 2014 the NHS announced its e-Procurement strategy, which mandated the use of GS1 and PEPPOL messaging standards throughout the healthcare sector and it’s supporting supply chains. The ambition of the strategy is for all NHS purchase-to-pay transactions and all category management activities to be undertaken by electronic means to cover all non-pay expenditure and NHS Supplier Standard Contracts are amended to require compliance.

To achieve automated machine-to-machine purchase order and invoice transactions between NHS providers and suppliers both must operate to a common messaging standard. The NHS e-Procurement strategy sets out the standards to be adopted by NHS providers and their suppliers are GS1 for product coding, location coding and data synchronisation, and PEPPOL for purchase order, advice note and invoice messaging. Adoption of these standards will enable interoperability between existing NHS provider and supplier systems, ensuring there is no need for any parties to change existing systems.

e-Invoicing, PEPPOL and GS1 explained

Public Sector Adoption

The UK public sector needs to make cost savings without affecting front-line services. Electronic Invoicing saves money through automating finance processes, removing paper transactions and speeding up payment. It has been shown that on average, businesses can expect to save between 0.5-2% of their total spend on goods and services, given that UK government procurement spend in 2010 was £220bn this could mean annual savings of between £1-2bn.

The UK public sector is currently obliged to undertake electronic invoicing initiatives. In the UK, the 2015 Small Business, Enterprise and Employment (SBEE) Act was passed and included clauses that endorse eInvoicing as beneficial to the UK economy. Within Europe, the European eProcurement Directive (2014/55/EU) states that all EU public sector organisations must be able to accept eInvoices by 2020.

“Electronic invoicing could save the public sector and its suppliers a minimum of £2 billion per annum by streamlining UK government administrative processes at a stroke. By enabling government to use its immense purchasing power, eInvoicing could open up new markets throughout the country and help drive innovation and economic growth.” Stephen McPartland MP, Parliamentary Inquiry on Electronic Invoicing

A recent iGov survey investigating eInvoicing adoption in the UK public sector found a mixed approach to date. The most commonly cited method of eInvoicing is PDF by email (63%), closely followed by document imaging (53%) and P-Cards (51%), with only 25% using some form of integrated/online approach.

So while the approach can be seen as imperfect, it is clear the UK public sector is attempting to automate its invoicing processes. The same report highlighted the main reasons for eInvoicing adoption as cost reduction (40%), time spent processing Invoices (46%) and paying suppliers on time (38%).

A lack of coherent strategy could account for the varied approaches to e-Invoicing. Nearly two-thirds of the iGov survey’s participants (64%) stated they had a limited or full awareness of new legislation around the use of e-invoicing. This is perhaps why the NHS has created its own eInvoicing strategy (as part of its overall eProcurement strategy) where all NHS entities are obliged to adopt e-Invoicing using PEPPOL.

CEN/TC 434

There is a diversity of data and systems across the European electronic invoicing market. The European Commission assessed that because no existing e-Invoicing format has achieved a dominant market position there are multiple formats in use. This proliferation of standards imposes a significant resource effort when converting from one format to another and is a challenge to market adoption.

The Commission stated that there was a clear need to define a single data model that will facilitate semantic interoperability while ensuring technology neutrality. The Commission employed the European Committee for Standardization (CEN, which is funded by the Commission) to develop a new semantic standard for e-Invoicing.

Following the adoption of Directive 2014/55/EU on e-invoicing in public procurement and in accordance with the provisions of Article 3 within, the Commission issued a standardisation request to the European standardisation organisations in December 2014. The work is being carried out by the CEN Project Committee on Electronic Invoicing (CEN/TC 434, formerly PC 434).

VAT Compliance

Within the UK there are legal requirements stipulated by HMRC when invoicing electronically. HMRC identifies two existing e-Invoicing models that when executed correctly adhere to their regulations, the use of digital signatures and electronic data interchange (EDI) within a network.

Any e-Invoicing solution that uses these models must provide;

  • Data Validation
    • Invoice data complies with country-specific tax authority rules
    • Minimum data required for an invoice
  • • Authenticity & Integrity
  • Guarantees the identity of the sender and the integrity of the invoice data
    • Archive
  • Invoice archive complies with country-specific tax authority rules
    • Stored for a specified period
    • Easy, fast access for tax authorities

Want to know more?

Our downloadable whitepaper explains how adopting PEPPOL will enable efficiency whilst improving the levels of patient care.