Invoicing is an essential part of almost every business.
Both suppliers and buyers need fast, accurate invoicing systems for good financial data and strong cash flow – but Xero’s March 2022 index found that Australian small businesses have to wait an average of 23.2 days for invoices to be paid, with late payments coming in an average of 4.7 days late.
Delayed payments cause suppliers financial stress, which can lead to delayed payments to themselves, as well as delayed payments to their own creditors and suppliers.
So how can businesses make invoicing faster, simpler, and better? The answer: e-invoicing.
In this article, we’ll explain exactly what e-invoicing is, why it’s better than paper and email/PDF invoicing, and how you can start sending e-invoices from your bookkeeping software.
What is E-invoicing?
E-invoicing is exactly what it sounds like: electronic invoicing. If a supplier mails or emails paper or PDF invoices (which is the way invoicing used to take place), there are lots of problems.
- The invoice might get lost or delayed.
- Both businesses have to wait longer to settle outstanding accounts.
- The buyer needs to manually input invoice data into their records, increasing the risk of errors.
Using e-invoicing, though, both buyers and suppliers can send and receive invoices through e-invoicing software, which can use a common framework to exchange information.
Australia uses Peppol as its common framework. Peppol is an international framework that securely transmits documents and data through approved service providers called ‘access points’ (your bookkeeping software). Using a single framework means there aren’t barriers to invoice exchanges between businesses that use different software, which, in turn, makes trade easier.
How E-invoicing Works
For users, e-invoicing is very straightforward. Here’s how it works.
- The supplier prepares their invoice using their bookkeeping software.
- Their access point sends the invoice.
- The access point uses the buyer’s ABN as an ‘address’ in the Peppol service metadata location.
- The invoice is sent through the Peppol network.
- The buyer’s access point receives the invoice.
- The buyer accesses the invoice using their bookkeeping software.
Steps 2–5 are instant and automatic, making the process of sending, receiving and paying invoices much simpler.
Best E-invoicing Software
There are plenty of different booking software options that small business owners can use to send and receive invoices electronically via Peppol. Here are three of our favourites.
Xero is one of the best bookkeeping solutions on the market. In fact, it’s the software we use here at JTRB.
Because Xero is built for e-invoicing from the ground up (and accredited as an eInvoicing Ready Provider by the ATO), you can start using it straight away. It has every e-invoicing feature you’ll need, and it’s incredibly straightforward to use.
Like Xero, MYOB is an ATO-accredited e-invoicing provider that comes with a host of other bookkeeping and accounting features.
Until April 2022, businesses had to register with a separate e-invoicing provider and then connect that provider with their MYOB account, but recent changes to the platform mean that full e-invoicing is available without any add-ons or separate registrations.
Reckon is another easy-to-use bookkeeping solution with built-in e-invoicing capabilities. Its two services, Reckon One (for small businesses) and Accounts Hosted (for larger businesses), have slightly different capabilities, and that’s reflected in their e-invoicing options.
Currently, Reckon One customers have the option to enable e-invoicing, while Accounts Hosted customers can’t currently e-invoice, although Reckon has indicated that it’s a scheduled addition.
Benefits of E-invoicing
There are plenty of ways businesses can benefit from e-invoicing.
Unlike paper or email invoicing, e-invoicing isn’t sending an actual invoice – it’s sending data that can then be automatically received and input by your bookkeeping software. That means both parties spend less time invoicing; suppliers don’t need to manually create invoices and then type out emails, and buyers don’t need to download attachments and then manually enter the data.
According to Deloitte, businesses using e-invoicing rather than email-sent PDF invoices could save up to 70% in processing costs.
Whenever humans are involved in data entry, there is always the possibility of error. E-invoicing takes humans out of the equation; instead, data is passed directly from access point to access point, eliminating the risk of errors.
E-invoicing also minimises the risk of invoices being lost in transit. Paper invoices are easy to lose, especially if they’re sent by mail, and emailed invoices can get overlooked or trapped in spam filters. Because e-invoices are sent and received instantly, there’s no need to follow up with buyers or re-send misplaced invoices.
More Secure Data
With invoice fraud on the rise, data security is increasingly important. In 2021, Australian businesses lost around $2.5 million a week to business email compromise scams, with the vast majority of those being invoice scams.
Common scams include:
- Requests from compromised suppliers to update their bank details in your system
- Unknown supplier invoices that seem legitimate and accidentally get paid
- Invoices that have been intercepted by scammers and now contain fraudulent bank details
Because e-invoicing works on a direct account-to-account basis and is protected by much better security protocols than email, the risk of scams is significantly lower.
Because e-invoicing is easier to process, buyers generally pay faster, with Deloitte finding that e-invoiced buyers pay seven days faster on average.
Under the federal government’s Digital Business Plan, which mandates that all Commonwealth agencies adopt e-invoicing by 1 July 2022, those same agencies will have to pay e-invoices of under $1 million in five days or pay interest on late payments. For businesses dealing with government bodies, that means faster payments and better cash flow.
More Sustainable Operations
With the climate crisis worsening, greener operations are top of mind for many Aussie businesses. A 2010 research paper found that making the shift from paper invoicing to digital invoicing cuts the carbon cost of a single invoice by 63%. A 2018 review concurred, finding that savings ranged from 66% to 99%.
Emailing isn’t the answer, either. According to research, each email has a carbon footprint ranging from 0.03g CO2e to 26g CO2e – the longer you spend reading and responding to an email, the higher the carbon cost. That’s especially important when it comes to e-invoicing, because invoice emails often have large PDF attachments (higher carbon cost), and cost a lot of carbon to download and read.
While e-invoicing still has a carbon cost, it’s relatively small. Data is sent in a much lighter format, and there’s less time spent reading, responding to, and processing invoices.
How to Start E-invoicing With Xero
Different platforms have different ways to e-invoice. For the purposes of this guide, we’ll show you how to get started with Xero, our bookkeeping software of choice.
Before You Start
Before you register to receive e-invoices, make sure you’ve filled out the required business information in Xero. This includes:
- Entering your ABN (Click your business name from the top menu > Click ‘Settings’ > Click ‘Organisation details’ > Enter your ABN in the ‘Australian Business Number’ field > Click ‘Save’)
- Having an advisor or standard user role in Xero (if you set up your Xero account yourself, you won’t need to do anything)
Registering to Receive E-invoices
1. From the ‘Business’ sub-menu under the main menu, click ‘Bills to pay’.
2. Click ‘Receive e-invoices’.
- Click ‘Register to receive e-invoices’.
- Enter your business’s ABN, then click ‘Search for business information’.
- Make sure your business’s information is correct, then click ‘Yes, these details are correct’.
- Enter the details of the business contact and legal representative. If you’re a small business without third-party legal representation, your legal representative will probably be you.
- Click ‘Complete registration to receive e-invoices’.
Once you’ve finished registering in Xero, you can type your business’s actual name (not your trading name) into the Peppol directory to see how your business is listed.
Before you send an e-invoice through Xero, make sure you’ve added your contact’s ABN to their details.
You can do this by clicking ‘Contacts’ then ‘All contacts’ from the main menu, clicking on your contact in the contact list, clicking ‘Edit’ in the top right corner, then entering their ABN in the ‘Tax’ field under the ‘Financial Details’ section.
You also need to make sure that your contact is registered to receive e-invoices. Search up their business in the Peppol directory using their business name (not their trading name); if they don’t show up, they’re not registered under that business name and won’t receive your e-invoices.
Once you’ve completed those two steps, follow the below instructions.
- From the ‘Business’ sub-menu under the main menu, click ‘Invoices’.
2. Click ‘New Invoice’.
3. Select the contact you want to issue the invoice to.
4. Toggle the ‘Send as an eInvoice’ option.
5. Fill out the rest of your invoice details. Make sure you include any required attachments.
6. Click ‘Approve & send’.
7. On the pop-up that appears, tick or untick the PDF and payment information inclusions as needed, then click ‘Send’.
And that’s it – with a few minutes of set-up time, your business can start e-invoicing.
E-invoicing is a way to instantly send and receive invoice data through bookkeeping software. There are five benefits that make it the right choice for modern, agile businesses:
- E-invoicing is more efficient than paper or email invoicing.
- Automatic data input means e-invoicing is more accurate.
- E-invoicing uses secure networks like Peppol, making it much safer than email.
- Business pay, on average, seven days earlier with e-invoicing.
- E-invoicing has a lower carbon footprint than paper or email invoicing.
If you’re having trouble setting up your e-invoicing through Xero or any other bookkeeping software, get in touch with us. Our virtual bookkeeping service means we’ll be able to get everything done remotely (and, with affordable subscriptions, we’re the perfect fit for small businesses).
Still doing your books yourself? Find out why you should hire a BAS agent here