E-Invoice Compliance — What You Need to Know
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Global e-invoicing regulations can seem confusing at first glance, and can be a significant challenge for finance managers. The consequences of non-compliance can be severe, including financial penalties, operational disruptions, reputational harm or even loss of business. Therefore, it’s imperative for businesses to stay informed about local e-invoicing requirements and ensure their invoicing processes are compliant to avoid these risks.
Luckily, Yokoy’s invoice management software offers a seamless e-invoicing solution by reducing the risk of non-compliance with international standards like EN 16931 or VAT Notice 700/63 and providing real-time updates on regulatory changes. Yokoy simplifies your invoicing process and mitigates risks with fraud detection features and easy integration with existing systems. This reduces the risk of hefty fines or operational disruptions and enhances accuracy and efficiency. Yokoy transforms e-invoice compliance from an accounts payable burden into a streamlined, AI-automated process, enabling your businesses to focus on growth and innovation.
Electronic invoicing regulations and laws
Following and adhering to standards for electronic invoicing (or e-invoicing for short) should not be something that gives finance managers a headache. But there are three major challenges in getting your e-invoicing on the right track:
1. E-invoicing requirements
E-invoicing mandates involve creating and exchanging invoices electronically in structured formats such as XML, ensuring compatibility for automated processing. Governments require specific data elements like invoice numbers, dates, tax details, and buyer/seller information, which must be transmitted securely through approved channels. To ensure authenticity and integrity, digital signatures or electronic seals are often mandated to prevent alterations and confirm the invoice’s validity. In addition, e-invoice systems have to handle archiving to make digital invoices accessible over long periods.
2. Regulatory requirements
Some regions have specific regulatory requirements for e-invoicing. In the EU, Directive 2014/55/EU mandates e-invoicing for public procurement, with member states having additional requirements for business-to-business (B2B) transactions. Latin American countries like Mexico and Brazil require businesses to issue country-specific invoices through government-approved platforms and report them in real time to tax authorities. Similarly, in Asia, countries such as India mandate standardised e-invoicing and reporting to a government portal for validation.
In the UK, while there is no mandatory e-invoicing legislation for all businesses, public sector entities are required to receive and process e-invoices in accordance with the EU directive, particularly for public procurement contracts. Additionally, the UK’s Making Tax Digital (MTD) initiative aims to digitise tax reporting, requiring businesses to maintain digital records and submit VAT returns through compatible software.
It’s recommended that businesses adjust to local regulations and align their e-invoicing solutions accordingly, integrating processes with government platforms, particularly for cross-border transactions spanning multiple jurisdictions. Implementing these regulations often occurs in phases, initially focusing on larger enterprises before extending to smaller businesses, facilitating a more gradual and manageable path to compliance.
3. Reporting requirements
E-invoicing is often paired with stringent reporting requirements known as continuous transaction controls (CTC), which provide tax authorities near real-time visibility into business transactions. Countries like Italy and Hungary require real-time invoice data reporting. In contrast, Mexico and Brazil use clearance models that require tax authorities to approve invoices before they are issued to buyers. These systems help local tax administration combat tax evasion and ensure compliance by monitoring transactions.
How to stay compliant with e-invoicing
E-invoice solutions significantly optimise the e-invoicing process by eliminating physical handling, printing, and mailing paper invoices, leading to faster book closing. However, to remain compliant with modern invoicing standards, your company should adopt key models and methods.
1. EN 16931 semantic model of the European Commission
The EN 16931 standard, established by the European Commission, defines a common data model for electronic invoices across the EU, primarily aimed at public procurement. It sets out a structured format that includes essential invoice information, such as invoice number, date, tax details, and line items, ensuring consistency and interoperability. This standardisation is crucial for businesses operating in multiple European countries, as it simplifies compliance and cross-border transactions by providing a uniform invoicing framework. Adopting EN 16931 means companies must update their systems to produce invoices that adhere to these specifications, facilitating seamless integration with different public entities’ systems.
To comply with EN 16931, your business needs to ensure the e-invoicing software supports the required data structure and transmission methods. This often involves upgrading existing ERP systems and aligning them with the standard to enable the generation and processing of invoices that meet these unified requirements. The EN 16931 model not only helps streamline invoicing processes but also plays a significant role in enhancing the accuracy and efficiency of financial transactions across the EU.
2. Advanced electronic signature
Advanced electronic signatures (AES) are pivotal in securing electronic documents and ensuring their integrity and authenticity. They are designed to be uniquely linked to the signer, allowing their identity to be verified and any alterations to the document to be detected. Under the eIDAS regulation in the EU, AES are legally recognised and hold the same validity as handwritten signatures, provided they meet specific criteria. Implementing AES typically involves integrating certified digital certificate services into business systems to facilitate secure and compliant electronic signing processes.
Businesses must adopt AES to comply with regulatory requirements for electronic documents, including e-invoices. Using AES ensures that invoices are securely signed and validated, which is essential for maintaining trust and legal compliance in digital transactions. This secure method of signing helps protect against fraud and unauthorised alterations, thus playing a crucial role in the broader context of electronic invoicing and secure digital communications.
3. Electronic data interchange (EDI)
Electronic data interchange (EDI) is a standardised method for exchanging documents like invoices with trading partners electronically. EDI eliminates the need for manual data entry by using formats like EDIFACT or ANSI X12, allowing different systems to communicate efficiently and minimising errors and low transaction times. Automation provided by EDI is particularly beneficial for businesses handling large volumes of transactions.
To leverage EDI, companies must integrate their systems with EDI service providers or platforms that support the necessary standards, ensuring compliance with legal and contractual obligations. This integration facilitates secure, automated exchanges of electronic invoices and other business documents, making EDI a critical tool for businesses looking to improve efficiency and maintain compliance in their invoicing processes.
4. Continuous transaction controls (CTC) and tax authorities
Continuous transaction control (CTC) systems allow tax authorities to monitor transactions in real time or near real time, significantly enhancing tax compliance and reducing opportunities for fraud. Countries or regions implementing CTCs, like Italy and Mexico, require businesses to report invoice data immediately or obtain pre-approval from tax authorities before sending invoices to customers. This model demands that companies integrate their invoicing systems with government platforms, ensuring accurate and timely data submission to the authorities.
Adopting CTCs involves updating business systems to comply with these real-time reporting requirements and aligning with evolving regulatory frameworks. This often includes using APIs provided by tax authorities for seamless data transmission and ensuring data accuracy to avoid discrepancies that could trigger audits or penalties. By implementing CTCs, businesses can streamline their compliance processes and contribute to more transparent and efficient tax reporting systems.
AI automation and Yokoy make e-invoice compliance possible
Yokoy‘s AI-powered platform is designed to streamline e-invoice management and reduce the risk of non-compliance with necessary regulations. Artificial intelligence (AI) assists in automating every step of the e-invoicing process, minimising the manual workload and enhancing accuracy. Key among the advanced features is Yokoy’s automated data capture and validation capabilities, which leverage AI and machine learning. This allows Yokoy to accurately extract and validate invoice data from diverse formats, eliminating manual entry errors and allowing for more accurate, consistent data capture from invoices going through your business. Seamless integration with ERP systems and other tools facilitates smooth data synchronisation and workflow automation. Automated routing based on predefined rules ensures invoices reach the appropriate approvers swiftly, supporting adherence to internal policies and regulatory requirements.
Regarding compliance monitoring, Yokoy provides real-time checks to enforce adherence to current regulations. It supports international e-invoicing standards like EN 16931 and incorporates automated, real-time verifications, helping businesses avoid non-compliance penalties. The system’s AI-powered algorithms improve fraud detection by identifying suspicious activities and anomalies in real-time. This proactive strategy minimises risks and protects against fraudulent transactions, guaranteeing the processing of only legitimate transactions. Yokoy’s ability to reduce common invoicing errors like duplicate payments further enhances its users’ operational efficiency and financial accuracy.
Next steps
Yokoy’s AI technology can help every finance team stay compliant. Find out how Yokoy helps you save time, reduce costs, and stay in complete control of your finance operations by experiencing the platform for yourself.
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