Types of digital invoices

Directive 2014/55/EU on electronic invoicing in public procurement uses the term "electronic invoice", and defines it as "an invoice that has been issued, transmitted and received in a structured electronic format which allows for its automatic and electronic processing". In accordance with the Directive, the European standard on eInvoicing specifies invoices in a standardised structured data format that provides for automatic reading of the data into computer systems. The main objective is thus to process the invoice automatically, and human-readable visualisation is secondary.

Specifically, an electronic invoice is a form of a digital invoice. A digital invoice is a document that exists in a digital format as opposed to a physical format (such as a paper invoice), where digital is defined as "composed of data in the form of especially binary digits" (Merriam-Webster). Digital invoices can be transmitted as files through computer messaging networks, but different types of digital documents have different characteristics that affect how they can be processed. There are two main aspects to a digital invoice: the visual aspect and the data aspect. The visual aspect allows a human reader to see the content of a document, and the data aspect allows a computer to process the information contained in the document.

Visual digital formats

In visual formats, the primary aspect is visualisation of the content, which assumes human processing.

• .pdf, digital document format (common in emails) ¹
• .jpg, .png, .gif (common picture formats)
• .tif (common in scanning solutions)

Data formats

In data formats, the primary aspect is computer processing of the data, but some formats may also provide for visualisation.

• Unstructured (The data cannot be automatically read from the document into accounting systems) ²
  • Spreadsheets, word processors etc.
  • HTML  (common in emails and on web sites)
• Structured (The data can be automatically read from the document into computer systems.)
  • Standardised (Data files based on publicly shared specifications EN 16931, UBL, CII, EDIFACT, etc.)
  • Un-standardised (Internal data files whose structure is not following publicly shared specifications)

eInvoices that comply with the European standard on eInvoicing are always in standardised structured data format.

The invoice process

From its creation until it is archived, an invoice must go through a number of processes and steps. The procedures and the level of automation may differ significantly between entities, sectors and regions, yet eight universally valid steps can be identified. 

The overview below describes each step and explains how savings can be made by replacing a paper invoice with different types of digital invoices. In general, the digital invoices can be divided into two main categories, visual digital invoices (e.g. pdf, jpg) and structured data eInvoices (e.g. eInvoicing standard invoices). The seller can usually achieve most of his benefits by using invoices from either category but the most significant benefits for the buyer depend on the usage of structured-data eInvoices that can be automatically processed.
Invoices that comply with the European standard on eInvoicing must be in a structured data eInvoice format.

1. The seller prepares the invoice

This step refers to the compiling of information such as man-hours, list of items, usage of services etc. necessary to issue an invoice. This process happens before the invoice itself is created and is not affected by the form of the invoice.

Source of savings  Any automation and improvement in preparing an invoice is unrelated to the form of the invoice.

Visual digital invoices  NO SAVINGS

Structured data eInvoice  NO SAVINGS

2. The seller issues the invoice

The invoice is created in the sellers sales system and exported into the relevant format, paper, pdf, HTML, structured XML.

Source of savings  Paper and printing costs and handling of mail.

Visual digital invoices  SAVINGS

Structured data eInvoice  SAVINGS

3. The seller sends the invoice

The invoice that has been created is sent to the buyer through a suitable procedure, i.e. physically, by email or through messaging platforms.

Source of savings  In most cases, there are savings in postal costs. These are replaced by electronic transmission costs, which tend to be significantly lower.

Visual digital invoices  SAVINGS

Structured data eInvoice  SAVINGS

4. The buyer receives the invoice

When an invoice is received by the buyer it needs to be correctly identified as an invoice and assigned to the correct internal process.

Source of savings  The manual handling is replaced with a semi or fully automated system. Visual digital invoices received by email usually require some manual sorting (although that can be reduced, e.g. by using dedicated mailboxes or OCR). The structure of the data in a structured eInvoice allows for full automation of the reception.

Visual digital invoices  LIMITED SAVINGS

Structured data eInvoice  SAVINGS

5. The buyer approves the invoice

The invoice is reviewed to verify that it matches the quantities and prices ordered and received.

Source of savings  The review process consists of comparing the invoice to existing information, such as orders, or to apply decision rules. The internal routing of a visual digital invoice can be improved by the use of document sharing systems (scanning solutions) while the use of structured eInvoice content enables automated invoice matching. Invoice automated approval frequently provides the buyer with significant benefits by freeing up employees' time, who tend to be on a managerial level.

Visual digital invoices  LIMITED SAVINGS

Structured data eInvoice  SAVINGS

6. The buyer books the invoice into accounts

The buyer enters the necessary information from the invoice into their accounting system(s) and assigns the relevant accounting keys.

Source of savings  Entering of information from visual digital invoices remains manual. Structured eInvoices enable automated information entry and automated assignment of accounting keys through references or rules. Automated entry of invoice information significantly reduces the risk of entry errors which often cause significant costs. This is usually a significant source of benefits for the buyer.

Visual digital invoices  NO SAVINGS

Structured data eInvoice  SAVINGS

7. The buyer schedules payment

The payment for the invoice is scheduled either according to contracted terms or based on payment instructions in the invoice.

Source of savings  When time-to-payment is based on the invoice content, as opposed to contractual terms, the structured eInvoice allows for automated entry of relevant information. This improves payment scheduling and avoids late payments.

Visual digital invoices  NO SAVINGS

Structured data eInvoice  SAVINGS

8. The buyer archives the invoice

The invoice is stored for later retrieval.

Source of savings  Both visual digital invoices and structured eInvoices significantly reduce archiving costs through both reduced handling and storage costs.

Visual digital invoices  SAVINGS

Structured data eInvoice  SAVINGS

^₁  The Pdf document format is an XML format but it is designed for visual presentation of its content rather than for automatic reading of its data. The data content of pdf files can be extracted, but the process tends to be fragile and dependent on the visual layout of each invoice. Therefore the .pdf is listed as a visual format in the above list.

_²  Data in spreadsheets, HTML and word processor documents can be defined so that it can be automatically read by the receiving computer system. Such a definition makes the data structured and its automated processing is dependent on the specification of the data structure.