Electronic invoicing, or e-invoicing, is rapidly growing in popularity and the global market was worth USD 11.2 billion in 2022. It’s forecast to reach USD 35.9 billion by 2028, a CAGR of 20.26%.

It’s not just digital transformation driving the change - government policy across the world is reshaping traditional invoicing processes, with some jurisdictions mandating the use of e-invoicing. 

E-invoicing can mean one of two things - it’s either when a supplier shares its invoice with a customer in an electronic format, or when companies submit evidence of their trade activities to tax authorities electronically. This latest addition to our “what is…” series explores the latter. 

Why Are Governments Using E-Invoicing? 

Various governments are transitioning towards e-invoicing. In cases where it’s mandatory, businesses have to electronically generate and receive invoices in a specific format which they submit through a designated platform. 

Some countries are mandating e-invoicing for B2C, B2B and B2G transactions, while others only require it for one or two categories. 

Paper or PDF-based invoicing is no longer allowed under these new regulations. Governments are making this change for several reasons, outlined below.  

Real-Time Tax Information

Unlike traditional methods, where tax information is only available quarterly, e-invoicing allows for a more immediate view of a company’s taxable transactions. This real-time data is invaluable in monitoring economic activities and making informed policy decisions. The European Commission

expects e-invoicing to contribute to public-sector deficit reduction. 

Combatting Tax Fraud

E-invoicing reduces the likelihood of tax fraud, as digital records are more difficult to manipulate compared to paper-based invoicing. This is supported by studies demonstrating higher tax compliance as a result of e-invoicing. 

Reducing Manual Efforts

Digitising the invoicing process lets governments significantly reduce manual efforts in their tax departments. Several benefits follow:

• Increased efficiency as documents are standardised and structured in a machine-readable form, streamlining handling and archiving. In fact, the use of e-invoicing has shown to significantly reduce capture and approval time.
• Eliminating manual work reduces the potential for errors.
• Reduced operational costs including printing, postage, archiving, intra-office routing, and HR expenses. In some scenarios, the cost of producing a digital invoice is only £4.77; for paper invoices, it can cost up to £13.98. For multinationals operating at-scale, this really adds up.

Countries Leading the Charge in E-Invoicing

The adoption of e-invoicing is not uniform globally, with certain jurisdictions leading the way. Countries in the European Union, along with Latin America and parts of Asia, are at the forefront of this transition, implementing sophisticated systems that are now integral to their taxation frameworks.

Again, the scope of requirements varies by country, depending on the type and size of the organisation, and the type of transactions, among other factors. 

Asia Pacific

Many countries in the Asia-Pacific region already use e-invoicing (some on a mandatory basis and others voluntarily). China has been implementing it since 2015 in various regions; others include Malaysia, Japan, and India (in India, it’s mandatory for B2C, B2B and B2G transactions). 

The UK and Europe

In the UK, e-invoicing is voluntary for the time being but from 2026/27, new legislation will be enforced. However, this will apply to the self-employed and landlords; entities paying corporation tax may not be affected until after 2030. 

In Europe, Directive 2014/55/EU and the VAT in the Digital Age (ViDA) proposal are behind the changes. Some member states have already mandated the use of e-invoicing (including for B2B transactions), and the rest will soon follow in their footsteps. 

Other non-EU countries in the region that are already (or will soon be) mandating e-invoicing include Norway, Serbia, Montenegro, Bosnia and Herzegovina, and North Macedonia. 

The Americas and Canada

Looking beyond Europe, the US has not made e-invoicing mandatory but is testing it. Canada is making plans to do so. Latin America was one of the first regions in which e-invoicing was implemented, with Brazil having had such requirements in place for many years. Other jurisdictions in the region with similar rules include Peru, Mexico, Ecuador and Colombia.  

E-Invoicing and Trade Activity

While the primary focus of e-invoicing is on external trade activities, it also encompasses intercompany invoicing. This is particularly relevant for multinational companies that conduct transactions across different internal divisions. Managing these transactions can be complex, but solutions like Virtual Trader help automate and streamline these processes.

E-Invoicing Challenges 

Despite the clear advantages, the transition to e-invoicing presents several challenges for businesses:

• Adapting to changes: Keeping up with the varying rollout schedules and rule changes globally can be daunting, especially for businesses operating in multiple jurisdictions.
• Lack of a global standard: The absence of a single global standard for electronic data exchange means that different countries may implement e-invoicing in distinct ways, posing a challenge for businesses to comply with varying requirements.
• IT system integration: Ensuring that existing IT systems can integrate seamlessly with government e-invoicing portals is another hurdle businesses must overcome.
• Maintaining data consistency and accuracy: With the adoption of e-invoicing, maintaining consistency and accuracy across different systems becomes crucial, as any discrepancies can lead to compliance issues.

The Future of E-Invoicing

The global rollout of e-invoicing has seen some delays, but the overall direction is clear – the future of invoicing and tax reporting is digital. This is no surprise, considering the broader digital transformation that is sweeping across various sectors.

For junior members of accounting teams and students, understanding the nuances of e-invoicing will be crucial in navigating the future of accounting and taxation.

Conclusion

E-invoicing represents a significant step forward in the digitisation of accounting. For governments, it offers a more efficient, transparent, and fraud-resistant system; for businesses, it presents both challenges and opportunities in adapting to a digital taxation environment. As the trend continues to grow, understanding and adapting to e-invoicing will be vital for companies looking to stay compliant. 

For multinationals, using the appropriate software is vital in bridging the gap between traditional accounting practices and the new digital demands of global business operations. While we don’t offer e-invoicing functionality, Virtual Trader integrates seamlessly with third-party solutions, for streamlined intercompany processes. To request a demo, contact us today.