Today, creating and distributing invoices involves adhering to certain e-reporting rules and regulations. Invoice formats now play a vital role in both compliance and realising efficient business operations.
However, with the proliferation of competing e-invoicing formats, businesses may face challenges in managing and exchanging invoices with customers and suppliers.
In this article, we will explore the various invoicing formats available to businesses, their benefits and drawbacks, and best practices for selecting and implementing e-invoicing formats that meet regulatory requirements and support business goals. Plus, we’ll explain the increasing importance of making sure invoices are machine-readable. Read on to find out more.
What are the different types of invoicing formats?
Invoices can come in a variety of formats which each serve different business purposes. The type of format an organisation should use depends on their specific needs and the regulatory requirements they need to meet based on their region or country.
To clarify, an electronic invoice (e-invoice), should not be confused with a digital invoice. While the terms are often used interchangeably, there are distinct and important differences between the two.
Digital invoices can be viewed and processed digitally, but feature unstructured and untrackable data. E-invoices, meanwhile, feature structured data, are generally machine-readable and can be automated. Both digital and electronic invoices have different format types and use cases. Let’s explore a few.
These can be viewed and printed using any device that has a PDF (Portable Document Format) reader. They can be created using programs such as Microsoft Word or the G-suite, and be easily shared by email, making them a popular choice for teams with limited technical capabilities.
However, PDF invoices are not machine-readable so cannot be automated or tracked. Plus, they do not fit many of the e-reporting requirements in new invoicing mandates or those outlined in the ViDA proposal.
Scanned paper invoices
Believe it or not, around 37% of businesses still use paper invoices. These can then be scanned and stored electronically. However, this process is slow, error-prone, and requires access to scanning equipment. Plus, many organisations do not accept scanned paper invoices.
Like PDFs, scanned paper invoices are not machine-readable, cannot be automated, and do not adhere to new e-invoicing and e-reporting compliance regulations.
Electronic invoices (e-invoices)
EDI (Electronic Documents Interchange)
As one of the most well-known e-invoicing formats, EDI invoices are machine-readable and can automate the process of creating, receiving and sending invoices. EDI technology came before XML and is still widely used, however, it’s no longer the best option to use with suppliers.
EDI doesn’t share resources with other programs and requires a standard format for exchanging invoices with trading partners. This can be limiting as not all suppliers have adopted, or want to adopt, EDI invoicing because it may require maintaining multiple invoicing systems. Plus, EDI invoices are sent through a private network and can be expensive. As a result, XML invoices are fast becoming the preferred option for e-invoicing.
XML stands for eXtensible Markup Language which encodes documents in a way that can be read by both humans and machines. Unlike EDI technology which requires the use of a private network, XML uses the internet to communicate and share invoices, making it lower cost. In addition, XML invoices are highly customisable and can be easily automated.
XML has no restrictions on the number of businesses that can use it due to its affordability and ease of access, making it an easier option when it comes to supplier onboarding. XML also allows for the exchange of data between different systems and business applications, so can be used as a single invoice format without the need for different e-invoicing systems.
On the downside, XML invoices can be complex to set up and often require technical expertise to develop and maintain. However, businesses can work with third-party providers such as Tungsten Network to implement and manage their XML e-invoicing systems for them.
Some other e-invoicing formats include:
Peppol: Peppol (Pan-European Public Procurement Online) is a standardised format used for e-invoicing across government and the public sector in Europe.
CSV: A structured and machine-readable format using plain text to exchange invoices and data between different applications.
UBL: Universal Business Language (UBL) invoices are based on a standardised XML format and can be used interoperably across different systems and applications.
What are the benefits of machine-readable invoices?
Any electronic invoice which presents data in a structured format is machine-readable: this includes XML, EDI, CSV, JSON, UBL and more. Machine-readable formats enable invoices to be processed quickly and efficiently by computer systems, taking the pressure off AP teams. By leveraging machine-readable invoicing technology, businesses can experience a host of benefits, including:
As machine-readable invoices use structured data, it’s easy to extract and analyse data. Businesses can drive the performance of advanced analytics and reporting, such as identifying trends, bottlenecks and tracking financial performance.
Faster processing times
Machine-readable invoices can be processed automatically, eliminating the need for time-consuming manual data entry and improving overall efficiency.
The fact that machine-readable invoices can be processed by computer systems means that they’re less prone to errors. Fewer mistakes reduce frustration among suppliers; preventing delays and the risk of fraud.
Machine-readable invoices are created in a standardised format that comply with e-invoicing regulations and mandates. They can be automatically validated to make sure they contain the correct data fields and can be easily integrated with compliance tools.
In addition, an increasing number of e-invoicing mandates require invoices to be submitted in a machine-readable format such as XML.
Automating AP functions and removing manual invoice processing enables businesses to reduce labour costs and improve productivity – allowing teams to focus on tasks that will enhance organisational growth.
Machine-readable invoices can be easily tracked on e-invoicing platforms, providing visibility into the status of invoices and the reason for any delays. Suppliers can also gain access to invoice tracking, helping businesses to form strong buyer-supplier relationships.
Why working with a third-party e-invoicing specialist is important
Navigating the increasingly complex landscape of electronic invoicing can be difficult and time-consuming for businesses to manage alone. With each country and region requesting different invoice formats, it can be hard to keep on top of the changing e-reporting standards, or how to submit invoices in each individual format e.g. XML and Peppol.
Thankfully, third-party e-invoicing platforms such as Tungsten Network can simplify AP processes and take the guesswork out of invoicing compliance. We keep on top of global mandates and e-reporting regulations, so you don’t have to.
With Tungsten Network, you don’t need to install complex software or endure a lengthy set-up process to send e-invoices. Simply log into Tungsten Network’s secure platform and create invoices using a simple web form – we’ll make sure they’re submitted in the right format. All you need is an internet connection.
In time, machine-readable e-invoices will be the only format accepted by the majority of countries as more and more mandates are implemented. Work with a third-party to remain ahead of the curve and avoid penalties.
Tungsten Network can help you meet e-invoicing and e-reporting requirement
As the world’s largest compliant business transaction network with over 20 years’ experience in e-invoicing compliance, Tungsten Network can help you achieve true invoice automation.