The Evolution of eInvoicing: How Digital Invoices Have Been Promoting a Sustainable Economy

January 20, 2017 Magaly Charlier

eInvoices have advanced from domestic tax documents to global trade and supply chain financing instruments, and might even become tokenized assets in the blockchain…


This is a three-part blog on the evolution of electronic invoicing and its value-added features including payables and receivables financing. During some of our discussions, my customers were keen to understand eInvoicing’s origin, evolution, and key milestones. I will summarize such evolution in three sections:

  1. The Past: eInvoicing’s Early Stages
  2. The Current Environment
  3. eInvoicing: What’s Next?

Each section of this three-part blog describes key events and drivers associated with the evolution of eInvoicing.


Part 1: The Past - eInvoicing’s Early Stages

eInvoicing has evolved dramatically over the last few decades. Initially some eInvoices were exchanged between established trading partners using electronic data interchange (EDI), to replace paper-based processes. This form of electronic invoicing was very rigid in its format and required a dedicated communication line between trading partners.  

Subsequently, with the advent of personal computers and improved online services, other applications emerged, including PC-based ‘electronic bill/invoice payment and presentment’ (EBPP and EIPP respectively). At the turn of the century, significant interest transpired from large corporates and financial institutions in optimizing accounts payable processes and managing their supply chains.  Great attention was given to eInvoicing, but there were no agreed formats, security standards, and/or legal and technical frameworks. The main driver for corporates’ willingness to use eInvoicing was cost reduction and operational efficiency.

However, such models using legacy EDI and PC-based applications were expensive to support and deploy, thus making market penetration cumbersome. Successively, the spread of lower-cost, reliable Internet access via computers and the issuance of revised eSignature and EU VAT Directives provided a more established framework for issuing, signing, and storing eInvoices, most notably, within the European Union. At this point, there was increased attention from technology service providers as well as banks to support this emerging business, yet banks generally relinquished their efforts due to complex regulatory requirements facing the industry while technology companies crafted advanced eInvoicing solutions (with some exceptions such as in the Nordic area).

The growth of web and network based solutions intensified; the enhanced speed and reliability of the Internet enabled the creation of cloud-based eInvoicing solutions with web forms and electronic file transfer applications, making it easier to capture, validate, and transmit invoice data. The range of options to exchange data became more accessible, too, to all trading parties regardless of their size or technical sophistication; with some networks offering eInvoicing free of charge to suppliers, which led to a wider adoption of eInvoicing worldwide. New regional and global marketplaces and interoperability frameworks1 emerged to accommodate buyers’ and suppliers’ holistic business needs aside from just legal and technical requirements.

Part 2: The Current Environment

In recent years, the adoption of smartphones, tablets, and big data analytics have enabled additional value-added features to be incorporated to eInvoicing, aiming to further eliminate fraud and error and to optimize processes used by tax administrations. These features have further driven global adoption.  Enhanced reporting, early payment in the form of dynamic discounting (DD) and supply chain financing (SCF), together with invoice auctioning have emerged as best practices. Moreover, tax administrations and governments have taken substantial measures to fully automate and modernize their tax processes and reporting.

Tax authorities and governmental institutions: In addition to technology changes, governments and tax administrations globally have been very active in promoting and mandating eInvoicing, driven by either ecological or fiscal agendas, aiming to reduce paper or tax fraud, if not both.  

As a result, specific eInvoicing legislative actions and decrees have been enacted to promote the usage of eInvoicing across both business-to-business (B2B) and business-to-government (B2G) segments.  For example, the European Union issued Directive 2014/55/EU to further foster the migration of the B2G segment to eInvoicing by 2018.  Similarly, at a global level, several governments and tax administrations have mandated eInvoicing in countries such as Mexico, Brazil, Chile, Turkey, South Korea, and Indonesia (to name a few). Equally, we have recently witnessed the adoption of goods and services tax (GST) and value-added tax (VAT) in India and China respectively, which we believe will lead to the mandating of eInvoicing  in the foreseeable future.

Two main eInvoicing fiscal models used globally are “post-audit and clearance.”

  • Post-audit model: Mainly used by European and Commonwealth countries, this model requires that eInvoices are preserved and made available for audit after the invoice has been issued.  In post-audit countries ‘authenticity and data integrity’ need to be ensured by using digital signatures, EDI, business controls, or other means.  Besides that, some post-audit countries including Portugal and Hungary have gone one step further by automating reporting for the tax administration.
  • Clearance model: Elsewhere in the world, governments have been deploying more advanced fiscal reporting solutions with defined sets of regulations and specifications, referred to as the ‘clearance’ model.
  • Clearance models are common in Latin America and Asia Pacific, but they are complex and all parties in a transaction need to comply with the rules, regulations, and technical specifications aimed at eliminating tax avoidance. Under clearance regimes, the tax administration usually validates the invoice before the supplier issues it; and certain functions are outsourced to accredited parties such as certification authorities, digital signing service providers, and real-time messaging service providers.  Some of the features that are common in clearance models include: invoice approval prior to invoice issuance, buyer consent, buyer response messages, defined archiving practices, unique formats (XML/UBL, CFDI), mandated tax content, human readability, time stamps, digital seals, real-time reporting, auditability, sequential numbering, invoice IDs, etc., although many of these features have also been developed in non-clearance countries.  In clearance markets, compliance with mandated eInvoicing processes is critical to avoid hefty penalties. However, because the policy focus of clearance models is addressing the 'fiscal gap', the benefits of process efficiency are not automatically addressed and additional steps need to be taken to secure these benefits often supported by service providers.

More generally, many SMEs have taken to using a PDF invoice to replace paper. While rooted in good intention, PDFs are often not easily capable of automation and thus do not deliver the benefits of automation without the addition of further technical measures. PDFs are however often used as a companion to a structured eInvoice to create a humanly readable visual representation.

Other eInvoicing value-added services have surfaced vigorously, comprising receivables and payables financing.  Supply chain financing (SCF) and dynamic discounting (DD) on approved invoices have been made available for financing prior to buyer/supplier agreed payment terms; early payment financing can be offered by the buyer (DD) or a financial institution (SCF) based on the credit rating of the buyer, typically more favorable to that of the supplier.  As a testimony that supplier funding is a key component of eInvoicing solutions, some industry eInvoicing groups have been renamed, for example, European Banking Association’s (EBA’s) E-Invoicing Working Group re-launched and re-named itself the Supply Chain Working Group (SCWG).

Part 3: eInvoicing - What’s Next?

We are seeing some notable trends leveraging from the buyer’s invoice approval to enable payables and receivables financing. Some developments have been led by government initiatives while others by the private sector.  For example, in Chile, this process has been fully automated in what is referred to as “Compliance 2.0,” where the approved-for-payment invoice is cleared by the tax administration for funding. This eliminates the buyer’s performance risk and guarantees payment while offering an attractive invoice funding and auctioning option to the supplier.

Another emerging trend is the introduction of securely signed standalone 'smart contracts and eInvoices’ in international trade to facilitate prompt supply chain financing.  The acceptance by the buyer of a digitally endorsed eInvoice, as per the associated contract, qualifies as an ‘obligation-to-pay’, removing the buyer’s performance risk.  Such digitally signed contracts and eInvoices are being used in event-driven industry-specific financing arrangements, some active prototypes being most notably seen in oil and gas supply chains. A wider adoption of such emerging practices could accelerate funding for trade scenarios, while replacing traditionally used documentary credits.

Furthermore, with the introduction of blockchain technology, we can ask ourselves the question, “will blockchain further leverage the value of eInvoicing to boost the global economy?” One can predict that eInvoices could become tokenized assets with unique secure IDs and could be made available to several parties and networks for financing and auctioning real-time.  This would enable injecting more capital throughout the supply chain financing process with a win-win outcome for all the parties, most notably for buyers and suppliers in the global economy.  

We believe that blockchain will probably be first established in very controlled and stable environments using regional and/or vertical frameworks to facilitate a greater choice of financing options for buyers and suppliers participating in early trials.  For example: once the buyer has approved an invoice for payment, such invoice would be encrypted and digitally signed as a standalone document (an asset with a unique ID).  Subsequently, the invoice can be uploaded into a shared platform (either an industry- or segment-specific platform, as opposed to closed networks) to request early payment funding.  Because of the secure mechanisms applied to the invoice, only authorized parties would be able to access it and offer funding.  No technical integration or file mapping would be required to enter such networks, only the relevant digital credentials.  Solutions using blockchain will be more scalable and offer enhanced transparency and auditability.  Having said that, whether this becomes a technology driven transformation that will become mainstream remains to be seen.

Some of the features and emerging trends can be seen encapsulated in Billentis’ diagram below. The eInvoicing industry keeps evolving and facilitating supplier financing and international trade, most particularly for open account transactions.  It is clear that service providers need to continue to adapt and develop new value-added services and propositions on an ongoing basis.



Such as EESPA, the European E-invoicing Service Providers Association and PEPPOL, Pan-European Public Procurement On-line.
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