In a typical transaction cycle, an invoice is generated after completion of the sales and contract process. The traditional invoicing process has always been part of a wider set of business processes in trade, including the placing and acceptance of an order, fulfilment of the order, delivery of goods, and the final payment. This is the purchase-to-pay process from a buyer’s perspective, and order-to-cash from a seller’s perspective. Together these are called the “trade process”. From a business process point of view, an invoice is consequently never an isolated document but is always the result of—and linked to—other activities.
The payment aspects of an invoice usually involve the generation of a payment by the invoice receiver in response to the payment details on the invoice. Given that an invoice is in part a request for payment, there are obvious synergies between payment systems and the invoicing process. Note that an invoice is not a banking document. The invoicing process links to the payment system, and banks may provide additional services such as processing, invoice distribution, and supply chain finance.
Drawback of paper-based systems
The issuance and exchange of paper-based invoices is perceived by all parties to result in sub-optimal control and visibility regarding expenditures and receipts both actual and forecast. A lack of controls, sequential manual approval processes and the lack of an enterprise-wide view into accounts receivable and payable can lead to delayed payments. This protraction occurs mainly because the invoicing process depends on other actions within the trade process, such as ordering and delivery. This generates costs in terms of interest and lost discounts. The main drawbacks of the traditional invoicing process are:
- creation and entry errors on both sides;
- high operational costs per invoice on both sender and receiver side;
- even more costs in the case of errors or disputes; and
- involvement of multiple systems.
Invoices need to be exchanged between seller and buyer. Although electronic forms are now possible, the most common methods for invoice exchange are mail and, in the case of face-to-face transactions, handover to the customer. The main problem with such manual processing is that paper remains stubbornly entrenched in the invoicing process among entities of all sizes.
The invoicing process is an important step in trade as it triggers initiation of the payment process between trading partners. The impact of technology is important in facilitating the continuous effort of companies to reduce the number of paper-based documents. The process can be simplified through aligned data elements and standard document layout keys or formats used (example UNECE Recommendation N. 6) that accelerate the adoption of electronic exchange of invoice documents (i.e., e-invoicing)
The e-invoicing 2008 study of the European Banking Association/ Innopay, provides an in-depth market description and analysis of invoicing and in particular electronic invoicing.