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How Does Electronic Invoicing Work

A decade or so ago, all invoices were strictly physical, which meant that such documents are sent to clients through the mail. Even in this digital age, there is a large portion of invoices that are transmitted through the traditional postal service. However, a large percentage of invoicing is done digitally at the moment.

Nowadays, invoices are mostly delivered from suppliers to buyers via electronic media. As such, a simple PDF invoice can be sent to a client instantaneously the moment a service is provided or a product is supplied. This process has significantly reduced paper requirements, which is good for the environment. In the future, all invoicing processes will likely become digitalized as this method saves time and resources.

An electronic invoice is a type of invoice, which contains organized information in a specific form to enable the automatic processing of data. Electronic invoices are designed like plug and play devices. That is, the invoice is made in such a way that the document is directly handled for payment the moment it is received without any further manipulation or data entry.

The automated nature of electronic invoicing is the main advantage of this invoicing format over its physical counterpart. The work of accountants is significantly simplified, and errors are unlikely to occur. Apart from the PDF (although it is not a true electronic invoice) form of an electronic invoice, XML and EDI are the most popular forms of electronic invoices.

Advantages of Electronic Invoicing

There are a few important advantages of electronic invoicing, which are discussed below.

  • Electronic invoices are simple and fast to process. The moment an invoice is sent, it is received and processed without much delay.
  • As long as an electronic invoice is generated without any error, it can be received and processed without any alteration. Therefore, it minimizes the likelihood of entry error.
  • Electronic invoices significantly reduce the need for paper within an organization. Therefore, it saves both the seller and buyer the cost of purchasing paper and printing supplies. Ultimately, it helps to protect the environment as few trees are required to produce paper.
  • The use of electronic invoicing allows work to flow as the staff does not waste time doing repetitive tasks.

Creating and Sending Electronic Invoices

The requirements for the creation of electronic invoices vary slightly all across the world. Nonetheless, the process is generally similar. The method of generating an electronic invoice is stated below.

  • A business uses a software or a specific service provider to generate an invoice. In some countries, specific service providers are accredited for this purpose. An example of such a country is Singapore.
  • Next, a business connects its accounting platform with the service provider.
  • When the setup is completed, purchase orders are automatically routed through the server of the service provider using a unique identifier.

Both suppliers and buyers create the same type of setup. Such a system allows both parties to develop seamlessly, send, receive, and process electronic invoices.

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