What Is E-Invoicing and How Does It Work?

businessman looking at e-invoice on a computer

Last Updated May 7, 2024

When it comes to getting paid for the work you do for your clients, few things are more important than having a solid invoicing system in place. An itemized invoice serves as a valuable record of money owed, while also helping set a deadline for payments.

Businesses historically sent their invoices through the mail; however, the rise of e-invoicing means it is now more common to send your invoices via email or through electronic invoicing and payment software.

In this article, we’ll help you understand the basics of electronic invoicing, as well as cover some of the best electronic invoicing systems you can use to make the most of e-invoicing.

What Is an E-Invoice?

In most ways, an e-invoice really isn’t all that different from a regular invoice that you would send through the mail. You can create the invoice using a standard invoice template to ensure that it includes all necessary information, such as the invoice number and date, the due date and payment terms, a description of the products or services provided (as well as the cost of each item), the total amount owed, and so on.

By following a clear, easy to read template for your invoice, it becomes easy to track the work that you did for your client and how much they owe you.

E-invoicing helps simplify the process in a few key ways, namely by allowing invoices to be sent and received digitally, along with helping eliminate the need for manual data entry. While the end result will look very similar to the invoices that you create manually, digitizing everything ultimately makes the entire process much easier.

How Does E-Invoicing Work?

Digital invoicing can be completed through several different means. Some e-invoicing systems come integrated as part of a company’s ERP or accounting software. These tools can automatically draw information from a customer order to generate an invoice, ensuring that the data accurately matches the information in the purchase order.

The software can also automatically fill in other necessary information for the invoice, such as the customer’s information. Aside from setting a few key parameters in advance (such as due date guidelines or acceptable payment options), your team can largely take a set it and forget it approach with this software, as invoices are created and sent via automated processes — though you can still review them, as well.

If you don’t have ERP or accounting software with e-invoicing, you can still take advantage of electronic invoice processing, though it may require a little more work on your end. Other e-invoicing tools allow you to save customer information, products or services with their associated costs and descriptions, and other key details into the software.

When you create future invoices, you enjoy a mix of manual and automatic creation. The software automatically calculates the total amount owed, though you still need to enter the client name and services rendered. Many of these e-invoicing platforms allow you to send your invoice directly from their platform and can also help with payment processing and invoice tracking.

What Are the Benefits of Electronic Invoicing?

While switching to electronic invoicing requires making a few adjustments to your own internal processes, the benefits associated with e-invoicing are well worth the change.

Less Opportunity for Human Error

No matter how good your team is, humans make mistakes — especially when it comes to repetitive tasks like entering data for an invoice. In fact, it is estimated that the average error rate for manual data entry is 1%. In other words, for every 100 items you enter in a manual invoice, one will be entered incorrectly. This can create larger problems than you might expect, especially if you produce a lot of invoices.

Because e-invoicing software can automatically sync data from other resources, you don’t have to worry about a payment amount getting entered incorrectly. Once the initial pricing for different products or services has been set up, your electronic invoicing system will automatically sync data and add up the total cost for each invoice. Ensuring the accuracy of your invoices will prevent disputes with customers and confirm you get paid the proper amount, making life easier when auditing your cash flow.

Faster Payments

E-invoicing helps you receive customer payment in a timely manner. Sending invoices electronically ensures prompt communications with your customer, as promptly receiving an invoice in an email inbox ensures that a payment isn’t forgotten about or swept under the rug. Many e-invoicing solutions track the status of your invoices, making it easy to identify which payments have been made and which are overdue.

The use of e-invoicing then generally makes it easier for your clients to submit their payments electronically as well, directing money into your business’s account that much sooner. With shorter payment cycles, you can enjoy a more reliable cash flow.

Reduced Manual Labor (and Expenses)

Obviously, an email will get to your customer faster than an invoice sent through the post office. Plus, simply needing to print and mail every invoice can add extra expenses to your business (paper, ink, postage, etc.). It also takes more time for your employees to send invoices this way.

Switching to an e-invoicing system can reduce material costs and allow your team to focus more of their time on higher-value tasks.

Improved Invoice Matching and Validation

With manual invoicing, there is sometimes the risk of sending a duplicate invoice — or risk of receiving a payment that doesn’t match the original sales transactions. E-invoicing software can automatically match invoices to purchase and billing documents to ensure total accuracy. Simplified validation and payment reconciliation gives you and your clients peace of mind that you aren’t dealing with inflated, deflated, or duplicate invoices that could create headaches later on.

What Is E-Invoicing Software?

High-quality accounting software often includes electronic invoice processing as part of its services. Other software tools focus specifically on invoicing and accounts payable. Most modern e-invoicing software is cloud-based, meaning you don’t need to download anything onto your business’s computers. You can access your e-invoicing system wherever you have an internet connection.

Examples of E-Invoicing Software

There are many tools that now provide some level of e-invoicing functionality. If you already use ERP or accounting software for your business, it’s worth digging deeper to see if it can help with your invoicing as well! The following are a few popular e-invoicing software solutions that could be a good fit for your business:

BILL: BILL is a cloud-based payments system designed to help automate invoice approvals and facilitate secure ACH payments for its users. It also integrates with tools like QuickBooks and Xero. BILL lets users choose a preferred template, then customize invoice fields that can be reused on future invoices. Automatic numbering makes it easy to track and organize invoices. You can send invoices instantly, schedule send, or set up recurring invoices. You can even set up automated payment reminders for unpaid invoices. BILL offers a variety of plans starting at $45 per month.

Intuit QuickBooks: One of the biggest names in online accounting, QuickBooks is a popular choice for SMBs thanks to integrations with other tools like Shopify and PayPal. QuickBooks allows users to personalize their invoice templates, automatically add their billable hours to invoices, and track the status of invoices and payments. QuickBooks records invoices paid through its system for easier record-keeping, and even offers payment dispute protection of up to $25,000 per year. QuickBooks also helps business owners split estimates into multiple invoices, and automatically tracks partial payments and other key metrics. Standard pricing ranges from $30-$200 per month.

FreshBooks: FreshBooks is a popular accounting tool for freelancers and sole proprietors. Its e-invoicing functions allow for easy creation and customization of invoices that can be paid via credit card or ACH. FreshBooks can also automate several invoicing tasks, such as sending payment reminders, calculating taxes, and tracking inventory. Time tracking integration provides automatic billing for hours tracked in the software for even easier invoicing. FreshBooks offers a free 30 day trial, with monthly plans ranging from $17-$55 per month based on your number of billable clients.

Choosing an E-Invoicing Solution

Each e-invoicing solution comes with its set of pros and cons. Take your time researching your options to see which one will be the best fit for your business. Consider taking advantage of free trial periods or discounted periods to test different options to see which one works best for you. Ideally, new e-invoicing software will easily integrate with other software tools you already use.

Remember that switching to e-invoicing will require some adjustments to your workflow. Inform your team and help them understand how it will improve their work. Offer training so everyone understands how to use it properly. Be sure to inform your customers so you can confirm that they are able and willing to use digital invoicing.

With the right e-invoicing tools, you can work more efficiently and get paid faster than ever, greatly improving the financial health of your business!

E-Invoicing FAQs

How do I create an e-invoice?

Most of the work for creating an e-invoice comes when first setting up your software. You’ll either link your e-invoice software to your existing accounting and ERP systems so it can automatically import data, or you’ll customize templates with product and service data, customer info, and so on.

With this information in place, you can then set up your system to either automatically generate invoices using customer order data or develop an internal system where you use your software to help you quickly create and send invoices.

What is the difference between e-invoicing and e-billing?

E-invoicing is generally used in reference to business-to-business transactions. E-billing, on the other hand, usually refers to business-to-consumer transactions. Both processes allow payment requests and receipts to be sent digitally.

What are other types of invoices?

E-invoicing can make it easier to deliver several different types of invoices to your customers. Aside from standard sales invoices, you may also be able to use these systems to deliver past due invoices, pro forma invoices (which contain the estimated cost for planned work), or a credit memo (for when you need to provide a refund or discount to your client).