Electronic Invoices: What is and How it Works

The world of accounting continues to evolve, and much documentation has been automated and digitized, including invoices, which are a key tool when buying or selling, whether products or services.

Little by little this document is becoming popular electronically in different countries and market sectors, this in order to facilitate the accounting processes in a company and to provide customers with accurate information about what they consult, being able to expand in detail what is being paid and all the characteristics of what is being purchased as number of installments (if so chosen), time of the transaction, in short.

Undoubtedly, electronic invoices will grow, that is, more and more companies will incorporate them into their accounting dynamics, so it is important to become familiar with them. Whether you have a company or you are self-employed, or even if you are a regular customer, expanding your knowledge about this document will surely come in handy. 

What is an electronic invoice?

You may already know what is an invoice is, but what about an electronic invoice?

The first thing you should know is that an electronic invoice is an accounting document that serves exactly the same purpose as a physical invoice (on paper), that is to say, it has the same legal effects, with the difference that it is issued in electronic format (it arrives via internet either to your computer or cell phone, either by email or whats app). Keep in mind that the invoice serves to justify the delivery of a product or service, that is why it is important and should be requested with every purchase.

Another aspect to take into consideration is that the invoice in any of its formats is subject to the consent of the recipient, since it is the recipient who finally decides how to receive it (whether to request it physically or electronically).

When is electronic invoicing mandatory?

The requirement of electronic invoicing depends on the regulations of each country; in Spain, for example, it is mandatory for some types of companies and operations. In addition, all companies that invoice the Public Administration must do so as of January 1, 2021.

As a piece of information (in case at some point you want to consult it), those invoices are regulated by Royal Decree 1619/2012 of November 30, which controls the invoicing obligations, such as:

• The obligation to issue an invoice, as mentioned, must always be given to a buyer.
• The existing types of invoices,
• The content of the invoice, which must be clear and explicit.
• Invoice requirements
• Time limits and retention (how long it lasts, i.e. how long it is active or in force to make a claim)
• Another obligation is to specify whether the invoice is a duplicate, recapitulative or rectifying invoice.

Types of Electronic Invoices

There are two main types of electronic invoices, one in structured format and the other in unstructured format. Both electronic documents can be transmitted digitally, through the Internet. The difference is that one can be automated (structured) and the other cannot.

Remember that the automation of invoices has to do with managing them throughout the entire process, i.e., keeping track of them from the time they are issued until payments are reconciled. This saves time in the administrative tasks of companies and also provides greater clarity when it comes to knowing collections, payments and what has been acquired.

Do you have any doubts? With the following explanation you will surely have it much clearer:

• Invoices in structured format: This type of invoices can be generated automatically by an invoicing system and can be processed with all its data in an automated way, by payment and accounting systems. By accessing these invoices you can know different data of interest for both the customer and the company, since you could expand information by clicking on certain sections.
• Invoices in unstructured format: These are basically an image, i.e. they must be processed in order to be entered into the computer systems, by means of manual intervention. This includes scanned paper invoices and PDF files. By themselves they do not allow access to more information than what is indicated there, but this cannot be expanded, i.e., it is not possible to go further because it is like looking at a photo of a physical invoice. 

Related article: Difference Between Invoice and Bill.

Advantages of an Electronic Invoice

As you can see, systematization may be one of the advantages of using electronic invoicing, however, there are other advantages that are worth knowing, among these the most important are:

• Provides greater accuracy: it reduces human error, since, as mentioned, they can be automated by means of software, which prevents a person from manipulating them to store the information. This also saves time.
• Shorten processing cycles, such as collection.
• By using electronic invoicing you do not have to pay printing or shipping costs, since everything is done online.
• Optimize storage space, everything is done by computer, so you can save on disk or in the cloud.
• Helps provide better customer service, support and follow-up.
• Eliminates paper consumption, is environmentally friendly.
• Minimizes the risk of fraud.
• Improved management of IT systems, among others.

Disadvantages

However, although the advantages are visible, there are other aspects that are disadvantages and are worth taking into account when switching to electronic invoicing:

• Lack of habit: some people are still not used to this type of invoice, so they ask for a physical invoice and do not give much value to the electronic one (so it would be double work).
• It needs to be made more popular among small and medium-sized companies (SMEs), which are not used to issuing this type of invoice.
• There is still automatic rejection of many vouchers due to system or software failures in the sending of invoices (although this is gradually improving).
• Requires initial investment: It is necessary to invest in technology to be able to use it, since a software or technology provider is needed, however, after that investment comes the money savings.
• It cannot be cancelled, this is only possible by issuing credit notes for the total amount of the invoice, hence the importance of a software or technology provider with which it is easier to solve these problems. 

What happens if I do not have an electronic invoice?

You must take into account that companies (to a greater extent) must increasingly implement the obligation to implement the electronic invoice in order to comply with legal requirements (depending on the country), however, in the case of Spain, if these invoices are not implemented, penalties of up to 10,000 euros may be imposed. (In any case, check according to the laws of the place where you operate).

Who is not obliged to invoice electronically?

Despite the above, keep in mind that individual professionals or freelancers are not obliged to submit their invoices electronically, only if they wish to do so, or at least this will be the case during 2023, so it is the perfect time to learn about this new way of submitting or accessing this document.

If I have unpaid electronic invoices from clients, what can I do?

If you have unpaid electronic invoices from your customers, there are a few options you may want to consider:

-Remind customers about outstanding invoices and ask them to pay them as soon as possible. You can send them a reminder by email or phone.

-Offer a payment plan to customers with outstanding invoices. This may be a good option if the customer is having financial difficulties.

-Consider hiring a collection agency or attorney to help you recover outstanding invoices. If you have overdue payments from invoices, Oddcoll is an international debt collector agency that guarantees successful payment. Contact now! We encourage to read Payment Reminder Email and How to Collect Unpaid Invoices. 

-If the customer does not pay, you may consider taking legal action. This could include filing a lawsuit against you.

Conclusion

Electronic invoicing is one more step towards the digitalization of documents since it facilitates the purchase tracking process, besides, it is more convenient for the buyer to store and make any claim online, and for the company it is more convenient to attend it. 

So whether you are a large company, a small company, or a self-employed professional, it is time to learn a little about this documentation because sooner rather than later it will become a requirement as a buying and selling tool in any industry.